Expect a request for an exigent rate increase to be filed by the Postal Board of Governors when they meet in Kansas City, KS, next week. That’s the dire warning from direct mail industry officials following hearings held by the Senate on the Postal Reform Act (PRA) yesterday.
“It was pretty obvious after listening to the Postmaster General that the Board of of Governors is ready to file an exigent rate increase, so I think the industry should be prepared for that,” says DMA SVP of Government Affairs Jerry Cerasale, who testified before the U.S. Senate Committee on Homeland Security and Governmental Affairs
Postmaster General Patrick Donahoe said at the hearing that the U.S. Postal Service (USPS) should be allowed to adjust prices in competitive products, and he gave a vote of confidence that the postal board would be judicious in the amount of increase it might seek.
“What happened at the hearing is certainly not going to increase confidence that a deal is imminent with the House on postal reform, so it would not be surprising to see [the board] file,” says Patrick Henderson, director of government affairs for Quad/Graphics.
Ranking member of the committee and coauthor of the PRA Tom Coburn (R-OK) seized upon testimony from Postal Inspector General David Williams as a case for returning rate-setting powers to the Postal Service. Williams told of study findings showing that postal products generally have low price elasticity. Small increases, he said, would provide badly needed revenue. “Current fears of a postal collapse are likely a far greater risk than small price increases,” Williams remarked.
Coburn’s assessment is that a Postal Service with authority to set its own prices in a competitive, free-market environment would not be excessive in raising rates. “In giving pricing authority to the post office, could you imagine they would look at how it would affect mail volume and locate the sweet spot [for an increase]?” Coburn asked Williams.
“It would go exactly that way,” Williams responded.
To Be or Not to Be a Monopoly
In responding to a question from Sen. Tom Carper about price inelasticity of postal rates shown in a study by the office of the Postal Inspector General, PRC Chairman Ruth Goldway responded with a terse summation of the challenge facing Congress in crafting postal reform. We present it in its entirety.
Mailers aren’t so sure. “There are some problems with Williams saying the prices were inelastic,” says Henderson. “Those studies were based on 30 years’ worth of data. But it was only in the last 10 years that the Internet exploded in the retail marketplace. At one time, it was inelastic, but not now when there are so many other channels competitive with mail.”
During the hearing, Cerasale reminded the committee of 2007, when the catalog industry was hit with double-digit rate increases. “Catalog volumes plummeted 23% in the next year, a year in which other Standard Mail volume grew,” Cerasale said. “If catalogs were inelastic to pricing, postal revenues from catalogs should have increased. It did not. It dropped 11%.”
But Coburn was not impressed, expressing the notion that catalog mailings did not contribute a substantial revenue stream to the Postal Service. “We took a beating yesterday,” says Hamilton Davison, president of the American Catalog Mailers Association. Coburn was really off with his estimation of the size of our industry. We have a lot of work to do with Coburn’s staff to set the record straight, and we will be filing a statement to the committee.”
Davison also says he will be scheduling a sit-down with the Inspector General. “No one feels that study is accurate. These regression analyses yield indiscernible results,” he says. “The Postal Service is a high fixed cost operator that needs volume to carry out its universal service mandate. Actions being taken in policy are absolutely contrary to maintaining the system.”
One of the fundamental issues complicating the debate over postal reform is this: Should Congress retain the USPS as a protected government monopoly or seek to cut it loose and regulate it as a freestanding business? “It seems to us the Postal Service can’t have it both ways,” said Postal Regulatory Commission Chairman Ruth Goldway, during her testimony at the hearing. (See box.) “If you ask nonprofits whether they can manage with a 5% price increase, you’re going to get responses that say they simply can’t do it…and you will lose so much volume that [the Postal Service] won’t get the revenue [it] thinks it’s going to get from that mail.”
