Potter Reports
Biggest Revenue Decline Since 1946

Postmaster General Potter testified before the oversight congressional subcommittee this week and his message was clear. Due to dwindling volume and rising postal costs, “the postal service is in acute financial crisis.” Potter explained the origins of the revenue decline while reporting several costs cutting measures the USPS has taken to respond. Potter also asked Congress for relief of legislatively mandated costs possibly by 1) ending the USPS’ mandatory 6-day delivery service or (2) by curbing the USPS’ requirements to fund pension and health benefit liabilities, dictated as part of the 2006 PAEA legislation.

How Does This Effect The Mailer?

Are postage hikes imminent? Most direct marketers are awaiting another postage increase announcement in May. The increase is expected to be indexed to CPI - in the ballpark of 3.8%. The postal reform law of 2006 contains a ‘survival’ provisions for the USPS that could produce additional rate hikes, however, the comments from most of interested parties indicate all clearly understand this would be a short-term band-aid resulting in an even more dramatic loss of revenue. Consider Postmaster Potter’s recent testimony: “In 2007 the Postal Regulatory Commission issued a recommended decision raising prices for Standard Mail catalogs well beyond our original proposal. The result was a substantial drop in catalog-mail volume, demonstrating that driving prices above the rate of inflation can result in mailers reducing the number of pieces they mail.” Although the overall situation is grim and the USPS business model is in need of a fundamental overhaul to create new sources of revenue, I found the comments of the Senators, Commission Members, and Government Accountability Office to be mildly encouraging in the short term for direct mailers. Why?

• The recession has amplified the financial distress and placed an iconic US institution - the USPS - back on the Congressional radar screen.
• Mailers need and indeed may receive some short term relief from the 2006 Postal Reform Law obligations.
• Increase in postal rates drive less mail volume - thus compounding the business model problem.

My crystal ball is as suspect to error as the next person, but if I had to bet on postage expense over the next couple of years, it appears to me the annual CPI increase is the likely outcome.

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