Declining Volume Portends Another Rate Hike
Published: September 02, 2002 (federaltimes.com)
By DAN DAVIDSON
Early indications that the holiday season will be slow could mean the U.S. Postal Service will announce as early as this year that another hike in postage rates is necessary, some observers say.
Mail volume for what has historically been the Postal Service’s most lucrative time of year may actually decline, continuing the decline experienced this year, they say.
“The Postal Service will be lucky if it achieves the mail volume they did last Christmas season,” said Gene Del Polito, president of the Association for Postal Commerce, an industry advocacy group based Arlington, Va. “All signs indicate that the mailers are going to be cutting back, and it looks like the Postal Service will end next year with a negative. Given their legal mandate to break even, they will have to raise rates again.”
Del Polito points to several indicators that suggest direct-market advertising mail, a major source of Postal Service revenue, will be down this year: Envelope sales, the amount of press time that printers have had to set aside to print envelopes and letters, and the demand to rent lists of potential sales prospects all are down from last year.
“If you have no plans to prospect [for customers], you have no need for envelopes,” he said.
Mail is off in several major categories, including standard advertising and first class, which comprises invoice and bill payments, said Robert McLean, executive director of the Arlington, Va.-based Mailers Council, which represents about 50 corporations and other large mailers. Standard or advertising mail alone accounts for about a quarter of Postal Service revenues, though advertisers are also large users of first-class mail.
“You can deduce from that that people aren’t paying bills because they aren’t buying anything,” McLean said. “My members say it will be a very slow mailing season and say they don’t expect a turnaround until sometime in 2004. I would say that the Postal Service will be filing [for a rate increase] at the end of this year at the latest.”
The Postal Service has finished the last two years with a combined deficit of about $1.9 billion and expects to finish the current fiscal year, which ends Sept. 30, with a deficit of at least $1 billion. For the third quarter, which ended in May, mail volume was down 2.5 percent from the same period a year earlier. Chief Financial Officer Richard Strasser predicts that volume for the fourth quarter, ending Sept. 30, will be down 3 percent to 4 percent largely because of the rate hike that went into effect June 30.
Despite efforts to cut costs, in part by reducing the work force by more than 20,000 in 2002, the Postal Service could not make up for the loss in revenue that resulted from 6 billion fewer pieces of mail being posted this year than expected — down from 207 billion pieces of mail last year.
A better indication of how the Postal Service will fare next year is likely to come at the Board of Governors meeting Sept. 6, when Strasser is scheduled to report on the 2003 budget.
Few mailers expect good news.
“The nonprofit mailers are seeing the same trends as everyone else and are taking steps to cope with the slow economy,” said Neal Denton, executive director of Alliance for Nonprofit Mailers, an industry advocate based in Washington, D.C. “They are mailing smarter, which means they are mailing less.
“The nonprofits are vigorously looking for new ways to communicate with the world. Some are finding success with electronic mail or posting news and notices on their Web sites,” Denton said.
One reason a rate hike seems likely is that the Postal Service has made little progress activating its transformation plan, Denton said. Under the plan, announced in March by Postmaster General John Potter, the Postal Service will trim costs and increase efficiency, and enter into discount arrangements with mailers to increase mail volume.
“It’s all very frustrating. We are in one of the slowest mail seasons of the year, so why not offer a white sale to mailers or give a discount for mailings that are done annually anyway if they are done now, especially if it’s mail that generates more mail, like catalogs?” Denton said.
The falloff in mail volume is probably worse than the Postal Service believes, said Louis Mastria, director of public and international affairs for Direct Marketing Association, an industry group in Washington, D.C.
“The Postal Service is not gauging well enough the diversion of first-class mail,” Mastria said. “The diversion has accelerated since the June 30 rate increase. There have been other rate hikes, but this time it is different. People now have cheap alternatives, such as paying bills online.”
On June 30 postage rates increased an average of 7.7 percent. It was the third increase in three years.
The Postal Service has cut costs, but few believe it is nearly enough to forestall a rate hike.
“It’s great that they have cut costs,” Del Polito said. “But it is too little too late. Just cutting costs won’t be the solution to their problems.”
Del Polito, like many other mailers, said the best way to rescue the mail is for a presidential commission to study the problem and suggest ways to overhaul it.