USPS faces $642m shortfall in print media mail services

Newspapers and magazines in the United States have their postage costs subsidised by the US Postal Service to the tune of $642m a year, according to an important new report. The long-awaited study on periodicals mail service shortfalls from the Postal Regulatory Commission (PRC) and the USPS itself said postage rates currently cover only 75.5% of periodical mailing costs.

The study, based on 2010 figures, saw the PRC suggesting that at best, the Postal Service would be able to save $349m a year by improving its service efficiencies.

USPS put the efficiency saving potential at just $146m.

One major issue found in the report is that too much manual sorting is going on. Partly this is because of the range of shapes, sizes and materials of America’s 26,000 different newspapers and magazines. Other reasons included publishers getting their new editions late to their local delivery offices, after machines are shut down.

But although USPS and PRC have assembled a strategy to reduce operational costs and increase automation, the report released on Thursday said this effort will not entirely close the shortfall.

Under US postal law, mail services are supposed to cover all of their costs. Last year saw the PRC refraining from ordering a major rate rise in order to leave time for USPS to improve its service efficiency.

The choices therefore remain a stark postal rate rise for the publishing industry – forced through by Congress or the PRC itself to breach the USPS inflation-based price cap – or allow the subsidy to continue with a change in the law.

The PRC-USPS report concluded: “Clearly some tough choices will be required to achieve the important balance between the Postal Service’s long-term financial viability and the societal value of periodicals for the educational, cultural, scientific and informational content they provide.”

As the report came out on Thursday, Republicans in Congress added measures to their bill to block a major periodicals rate rise, seeking to save jobs in the publishing industry.

Rising costs

National and regional periodical mail volumes have fallen 4.6% in the last five years in the United States, while local periodical volumes have dropped 1.8%. From 2009 to 2010, these volume declines fell even faster, respectively 7.3% year-on-year and 19%.

While volumes have fallen, the report noted that periodical mailing costs have risen, “primarily” due to labour costs, which “does not appear to have been offset by productivity gains enjoyed by other classes of mail”.

The report suggested too much manual sorting had affected periodicals more than other classes of mail. Periodicals tend to have more diversity in size and shape than other classes of mail, while the materials they are made from can also make it more difficult to process in machines.

It also suggested that manual sorting was being undertaken because of publishers being late getting mail to their local delivery unit, so that machine sorting operations had already shut down. No measurements are taken of volumes missing critical entry times, but USPS stated its belief that collecting such data would not help cut costs.

Other operational issues included mixing of mail streams because of a shortage of mail transport equipment, which can lead to higher levels of manual sorting.

The Commission suggested that the manual sorting of periodicals was directly to blame for $221m in operating costs each year. USPS disagreed with the PRC’s figures, however, stating that the Commission “misunderstands” the cost drivers for periodicals.

Automation

Part of the Postal Service strategy to reduce its operational costs is to bring in more automation and new technologies to help reduce pallet and bundle breakage, as well as a better use of existing equipment.

USPS is hoping to cut its processing costs with new flats sequencing systems (FSS) – 100 of the machines have been deployed in 47 locations up to this summer. It believes its first 100 machines would save up to $83m in annual costs.

However, periodicals make up only around 20% of flats, while the report suggested there was little hope among mailers that FSS will benefit them, with some fearing increased costs from the deployment of huge new machines, rather than a decrease.

Rate increase

Even with all the measures that can be undertaken to cut costs, the report suggests other ways need to be found to increase revenues to cover the shortfall.

USPS had proposed an 8% price rise in its “exigent request” rejected last year by the Commission.

Legislation could come from Congress to raise periodical postal rates to cover the gap. Or, the Commission does have the power to intervene to ensure cost coverage, the report suggested. Last year, it decided not to execute such powers in order to leave time for efficiencies to improve.

The only other option would be for Congress to provide subsidy, or allow the cost-revenue gap to continue.

Last week saw House Republicans adding an amendment to their postal reform bill, the Issa-Ross bill, to prevent an “extraordinary” increase in periodical postal rates.

Representative Carolyn Maloney backed the move, stating that the move would be important to protect “many millions of jobs” in the publishing industry.

“This would allow two more years to enable periodical publishers to adjust to whatever changes might be necessary for mail services that are ‘under water’,” she said.