Mail industry

USPS: A wholly owned subsidiary of Mailers Inc.

June 27, 2013


I am a card-carrying member of the DAV — Disabled American Veterans.   The organization has been a wonderful source of support over the years and does fine work on behalf of veterans.

So I was disappointed to discover DAV on the membership list of PostCom, the postal lobbying association that represents businesses and organizations that use the mail for business and commerce.   PostCom has been a vocal advocate for cheap mail rates, which come at the expense of Postal Service employees, consumers, and communities.

PostCom recently released a white paper on postal reform.  The paper offers nine principles that the Board of Directors of the lobbying group feel should be the basis of future postal reform.  The paper reads like a Christmas wish list from an industry that already enjoys healthy profits. 


Postal reform, the PostCom way

The first three principles, presumably the most important given their place at the top of the list, directly attack the wages and benefits of postal workers: pull postal workers from their federal health care program, allow the Postal Service to offer a defined contribution retirement plan instead of FERS, and require arbitrators in labor disputes to consider the Postal Service’s fiscal position.  The remainder of the proposals — like giving the Postal Service authority to reduce the days of delivery — place the interests of PostCom and its members above those of the American public generally.

Over the last several years PostCom and its executive director Gene Del Polito have consistently taken positions that seek to solve postal issues at the expense of postal workers.  They have advocated for the end of postal participation in FEHB — an idea that was debunked by, of all places, the conservative AEI, in this testimony before Congress in 2012.  They would also like postal workers to be withdrawn from the current federal retirement system, and they would like to tilt the collective bargaining process — a process that already restrains labor and mandates arbitration — in ways that would ensure unfair disposition of labor issues.

Del Polito and PostCom have taken the position that their members — they call themselves the “stakeholders” — should have preferential treatment when it comes to postal issues.  In their view cheap mailing rates are the only reason for the existence of the Postal Service.  They acknowledge no role of public service, no greater mission of binding the nation together, and no activity other than the distribution of advertising mail for the Postal Service.  In service of this laser-like focus on cheap preferential rates for their members, they have advocated beggaring the workforce, service reductions for first class mail, and the removal of essential services and infrastructure from America’s communities.

In some ways PostCom is no different than any of the industry lobbying groups that exist to lobby on their members’ behalf, such as the Affordable Mail Alliance, a group of 700 publishers, direct mailers and non-profits; the Alliance of Non-profit Mailers; and various trade associations like the National Newspaper Association.  In fact, many of these groups have members in common with PostCom, although many of them do not publish a list of their participating members as PostCom does. 

What all these groups have in common is the conviction that their financial interests not only supersede but essentially extinguish any other interests in the American postal system.  Even when PostCom offers proposals that might coincide with others’ interests — for example, the return of overpayments into the various retirement systems — their arguments are wholly self-centered and self-interested.  In their view, those overpayments are their money and should be returned in the form of even lower rates. 


To NSA or not to NSA? The Valassis Question

September 4, 2012


I would earnestly warn you against trying to find out the reason for and explanation of everything....  To try and find out the reason for everything is very dangerous and leads to nothing but disappointment and dissatisfaction, unsettling your mind and in the end making you miserable. — Queen Victoria to her granddaughter 

Why would the Postal Service give a huge discount to the direct marketing firm Valassis — a discount so large that it’s very possible the Postal Service will lose money on the deal, as well as doing severe harm to the newspaper industry, which will lose revenue from advertising inserts?  In other words, why would the Postal Service want to benefit one customer at the expense of some its most loyal customers, with little or no benefit to itself?

That’s the kind of question one might best avoid examining very deeply.  Surely, as Queen Victoria warned her granddaughter, such a pursuit can lead only to disappointment, dissatisfaction, an unsettled mind, and misery. 

Nevertheless, for those interested in postal issues, it seems a journey worth taking.  It will take us down a path that includes PAEA, NSAs, the Clayton Anti-Trust Act, the mailing industry in general, and that ever-present postal bogeyman, politics. 


PAEA and the NSA

In 2006, Congress passed the Postal Accountability and Enhancement Act (PAEA).  One of its goals was to make the Postal Service more businesslike, which one supposes included the idea that businesses make deals (and deals make the business).  PAEA therefore created something called the Negotiated Service Agreement (NSA), thus formalizing a practice that had actually begun sometime before.  The idea was that good customers could and should be rewarded — “incentivized” — to be better customers by giving them special deals and cheaper rates for more volume or better barcodes.

The special deals complicated an already complicated rate system that has close to 10,000 different rates.  With a complex rate system like that, problems inevitably ensue, like making sure the rates are assessed appropriately or that customers actually pay the appropriate postage.  I recently had an e-mail conversation with someone at the Postal Inspection Service regarding methods of protecting revenue, and she said that in many cases there are no programs or protocols to assure revenue protection because the rate system is so complex (a discussion for another day).

Making things even more complicated, PAEA split Postal Service products into competitive and market-dominant classes and special classes within the latter (for more on that see my previous post).  Basically, the competitive class includes priority, express, bulk parcels, and international mail; market-dominant is just about everything else, like first class and standard mail.

In an effort to make the Postal Service more businesslike, which many have taken to mean more efficient, Congress created an infinitely complex system of classes and rates of mail, all with their own specific rationalizations and justifications.  Although I suppose one might argue that it’s all very simple, the Postal Service was instructed to make deals.

Again, the reasoning behind the provisions in PAEA that created both the division of mail into competitive and market-dominant products and that prescribed the potential for NSAs was that all of this separating and classifying would make the Postal Service more efficient because it would make it more businesslike.  

Of course, the economic philosophy that supported some of this gets pretty complicated and involves looking at the way monopolies perform in the market.  Some of the discussions get very opaque and that may be intentional because the more complex and opaque one makes a system the more advantage one can build into that system, an obvious example being the instruments of financial mass destruction that were at the bottom of the financial crisis.


The Valassis case

This brings us to Valassis and its recent agreement with the Postal Service.  Valassis is a large mass marketing advertiser.  It prints saturation mailings under the title of Red Plum. These are mail pieces that, as the name suggests, saturate a route or a zip code. They generally have simplified addresses like “resident” or “occupant,” and they carry inserts from several different advertisers.

Valassis had $2.2 billion dollars of revenue last year, a significant part arising from mailings that went through the Postal Service.  In fact, Valassis mails about three billion pieces of mail to 60 million homes each year.  In other words, it’s a very big stakeholder, and it’s responsible for about 2 percent of USPS volumes.

The new Valassis deal offers the company rebates on postage if it mails at least an additional million pieces over the year.  It gets discounts of 20 percent off currently published rates, which comes to $.197 (nineteen cents) or less for pieces up to 6.5 ounces, and other fixed discounts for higher weighted pieces.  The agreement has provisions that determine which markets the mail must appear in, what may be advertised (primarily non-durable goods), and various other requirements designed to ensure that the mailings are in addition to, not in place of, what Valassis already mails.

Invisible Hands: The Businessmen’s Campaign to Dismantle the Post Office

January 24, 2012

The leaders of the Postal Service have made no secret of their plans for reforming the postal system.  They have issued white papers, given speeches, presented “optimization” programs, and appeared before Congressional committees.  The plans are clear: eliminate the layoff protections in union contracts; cut the career workforce by nearly half while tripling the number of non-career workers; reduce service standards for first-class mail; do away with Saturday delivery; give management control of workers’ benefit plans; consolidate away over 250 processing plants; and close 15,000 post offices.

What we don’t see very often are the players making this all happen.  We assume the Postmaster General is making the decisions, but he is merely the front man.  Behind him are the USPS Board of Governors, the mail industry stakeholders, and the corporate class as a whole.   These businessmen (and women) prefer to keep a low profile, so we rarely hear from them in public.  They leave it their surrogates — journalists and academics, politicians and pundits — to speak for them.  But it’s the businessmen who fund the think tanks, endow universities, make campaign contributions, pay lobbyists, and run the news media.  Yet for the most part, they are not to be seen.

In her excellent book Invisible Hands: The Businessmen’s Crusade Against the New Deal, historian Kim Phillips-Fein paints a very revealing picture of how the corporate class operates.  Her theme is the way conservative businessmen worked behind the scenes to undo the New Deal.  Believing all would be right if government stayed out of the economy and left everything, in Adam’s Smith famous expression, to the “invisible hand” of the market, these businessmen have spent decades working to weaken unions, eliminate social welfare programs, minimize government regulation of their companies, and diminish public services.

While the U.S. Postal Service is obviously not a product of the New Deal, that same conservative agenda is behind the attack on the Postal Service we’re witnessing today.   Cutting the workforce, closing post offices and plants, and moving toward privatization through outsourcing and divestiture of assets — these are all part of an effort to shape the postal system in ways that serve the interests of an elite business class rather than the good of the country as a whole.  The free-market ideology and greed for profits that drove efforts to undo the New Deal are basically what’s driving the “postal reform” movement today.  

The Valpak Brief

November 6, 2011

James Cox Kennedy is the chairman of Cox Enterprises, a media conglomerate founded by his grandfather.  Mr. Kennedy is part of the 1% the Occupy movement is protesting against.  Actually, according to the Forbes 400 list, Mr. Kennedy’s $6 billion stake in the family’s company makes him the 53rd richest person in the United States, and that puts him in the top 0.00002%.  Mr. Kennedy doesn’t own the country’s post offices, but his company has hired a law firm to advocate closing them. 

Cox Enterprises is a highly diversified company based in Sandy Springs, Georgia.  It owns 15 television stations, 86 radio stations, several newspapers, and a broadband communications and entertainment company.  It also owns Cox Target Media, North America’s direct mail leader and provider of the Valpak® savings envelope.

You’re probably familiar with Valpak’s “Blue Envelopes®.”  They show up in your mailbox now and then, filled with coupons for discounts on a variety of products and services — automotive, beauty, entertainment, health, home improvement.  Maybe you look forward to saving a few bucks next time you need an oil change or a pizza.  Maybe you toss the thing in the trash without a second thought. 

Valpak depends on the Postal Service to deliver those Blue Envelopes, but the company isn’t very interested in post offices and postal workers.  Its primary concern is keeping postal rates down and profits up.  Cox mails the Blue Envelope to 40 million households each month, 500 million a year.  With that kind of volume, even the smallest increase in rates quickly adds up and cuts into profits.  That’s why the big mail industry stakeholders like Valpak and the Direct Marketing Association favor cuts to the postal workforce, processing plants, and retail network. 

On Friday, Valpak submitted its “Initial Brief” to the Postal Regulatory Commission (PRC) on the case of the Retail Access Optimization Initiative (RAOI), the Postal Service’s plan to close 3,650 post offices.  The brief was prepared by William J. Olson, PC, a Virginia law firm that deals with various kinds of law — constitutional, nonprofit organization, election, health, and firearms — as well as postal law.  Olson himself has written several papers about the postal system, such as “Enhancing Competition By Unbundling the Postal Administration,” which is about “bifurcating” the postal system so that a government-owned agency would take care of delivering the mail (thereby maintaining the universal service obligation), while the receiving and processing component of the system would be privatized.

The Valpak brief argues that the PRC should approve the RAOI because it will help “the Postal Service’s near-desperate need to achieve increased efficiencies and cost savings” and thereby avoid “some form of bailout from Congress, possibly from taxpayers, in order to continue operating.”  The brief addresses legal principles, the financial setting, the Village Post Office, the “non-postal” benefits of a post office, and so on, but the heart of the matter for Valpak is that post offices are simply a very "inefficient" way to “collect revenue” so it only makes sense to close post offices that are losing money and  “unnecessary.”  Otherwise, we’re headed for a “bailout.”

In its own “Initial Brief” to the PRC, the Postal Service studiously avoids any suggestion that post offices might be closed for running at a deficit.  “The RAO Initiative is structured so as not to violate the 39 U.S.C.
§ 101(b) prohibition against closing small Post Offices solely for operating at a deficit,” says the USPS brief.  James Boldt, the man running the RAOI, explicitly testified that whether any facilities were "operating at a deficit" was “not a criterion for their inclusion as candidates for discontinuance review under the RAO Initiative.”  The Postal Service has said repeatedly the RAOI is not only about “cost savings” but also about “optimizing the retail network” and other goals.  The Final Determination notices to close post offices always make it clear that there were several reasons for the discontinuance, not just that the post office was running at a deficit.

The Valpak brief, however, does not mince words, and it probably has the USPS lawyers cringing.  Valpak goes straight for the deficit issue and lays bare the real reason — the only reason — for closing post offices.  The brief states, “Uneconomic retail services, including but not limited to those post offices with a two-hour earned workload, constitute what long has been the most expensive and inefficient way of providing citizens with access to retail postal services.”

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