What You Need to Know About Periodicals Rates

What You Need to Know About Periodicals Rates Rita Cohen, Senior Vice President, Magazine Publishers of America

Key Postal Legislation 1971 – Postal Reorganization Act 2006 – Postal Reform (PAEA) 2009 – One year relief on Retiree Health payment

PAEA Pricing • Inflation-Based Price Cap • Applied by class • Cap currently negative (modest deflation) • Exigency Clause • “Extraordinary or exceptional circumstances…necessary to enable the Postal Service…to maintain…postal services of the kind and quality adapted to the needs of the U.S.”

Other PAEA Considerations Flexibility within class Rate change within a class does not have to be across-the-board Attributable cost coverage A factor to be “taken into account” Worksharing discounts generally limited to avoided costs Rates must be “just and reasonable”

USPS Mail Volume (Billions) Total mail volume dropped by nearly 13 percent in FY 2009 and will likely drop further in FY 2010.

Periodicals Volume (Billions) In the first quarter of FY 2010, Periodicals volumes were down another 11 percent from last year.

Net Income/Loss (Billions) Without legislative relief, FY 2009 loss would have been $7.8 billion. FY 2010 situation is similar.

Periodicals Reported Loss (Millions)

Cost Coverage - 2009 200% 143% 82% 76% Cost Revenue Cost Revenue Cost Revenue Cost Revenue Periodicals First Class Standard Standard Flats

Questions Regarding Periodicals Costs • Why have measured attributable costs gone up more than inflation despite much more worksharing by publishers? • Are mail processing costs really 100% volume variable? • “Automation Refugee” problem?

Major Ideas Being Discussed to Improve USPS Finances Temporary or Permanent Relief on Retiree Health Benefit Prefunding 5-Day Delivery “Exigent” price increase?

Retiree Health Prefunding (Billions)

Retiree Health Prefunding • FY 2009 payment reduced from $5.4 to $1.4 billion • Same thing this year? • PRC and OIG studies support less aggressive payment schedule

Pension Overfunding • OIG estimates USPS overcharged for pension obligations by $75 billion • Sufficient to fully fund existing retiree health benefit obligations • USPS asked PRC to review report • Fix would require legislation

Five-Day Delivery Daily Pieces Per Delivery Shift to 5-day delivery would bring daily pieces per delivery closer to past levels.

Five-Day Delivery • USPS push to eliminate Saturday delivery • PRC advisory opinion • Congressional approval required • Potential cost savings • USPS: $3+ billion per year • PRC: $1.9 billion per year • USPS now saying facilities will accept periodicals on weekend

PMG: No 2010 Price Increase “Promoting the value of mail and encouraging its continued use is essential for jobs, the economy, and the future of both the Postal Service and the mailing industry.”

Next Price Increase • Minimal cap authority for 2011 increase: 1-2% • PMG: “Moderate” exigent rate increase in 2011 • Is a recession an exigent occurrence? • Public Representative at PRC thinks rates should be raised to “breakeven” • 3 % or 10% extra in 2010 and 2011 depending on health benefit fund relief

Valpak Wants periodicals and other “underwater” product revenues to cover measured costs Says it is causing $1.7 Billion of USPS loss Suggested that the Periodicals rate structure could be changed to raise rates on less efficient publications

Some Responses to Cost Coverage Questions • Periodicals Mailers shouldn’t be charged for USPS excess capacity or unnecessary manual processing • Contribution of subscription-related mail in other classes should be considered as well • First-Class Mail • Standard Mail

USPS Long-Term Outlook Based on McKinsey & Company analysis, USPS will lose $238 billion this decade unless something is done USPS plans to eliminate $123 billion of this through: Revenue generation initiatives Improved productivity Workforce flexibility Purchasing savings

USPS Action Plan to Close Rest of Gap Retiree Health Benefit Prefunding Delivery Frequency Expand Access Workforce Pricing Expand Products and Services Oversight

Changes in regulations Flat Sequencing System Impact Critical Entry Time Carrier Route discount Reduced value in FSS zones Lower discount? New deflection standards Penalty for “droopiness” starting October

Possible changes to Ride-alongs • USPS considering loosening content standards to increase magazine advertising. Could improve pricing for: • electronic components • small product samples • advertising-only supplements

And of course, remember to …… Co-mail Co-palletize Dropship Still the best way to reduce postage

Secret Questions And Answers True Or False Under the 2006 postal reform law, the Postal Service is allowed to change individual rates within Periodicals by different percentages. True Mail volume is expected to rebound to 200 billion pieces this year, solving the Postal Service’s financial difficulties. False Because inflation is currently low, the 2011 postal rate increase is guaranteed to be minimal. False

What You Need to Know About Periodicals Rates