Mailing Systems Technology - November/December 2008 - (Page 32) Kate’s Slate BY KATE MUTH Comments on Industry Happenings Caught Between a Rock and a Hard Place If you’ve seen The Simpsons Movie, you’ll remember the scene where Homer is stuck, literally, between a rock and a hard place. He’s tied to a rope and swinging between a big rock and a saloon called “Hard Place,” slamming up against both. It’s a funny depiction — if a little obvious — of the adage we’ve all used or experienced in our lives: “caught between a rock and a hard place.” The U.S. Postal Service finds itself in just that place. By extension, the Postal Service’s customers share this difficult predicament. On one side (the rock) is the faltering economy, which has contributed to a drop in mail volumes of historic proportion. The declining volume has resulted in the Postal Service staring into the abyss of a $2+ billion loss for fiscal year 2008. Now here’s the hard place. The new postal law caps the price increases the Postal Service can charge on its market-dominant products at the rate of inflation. This Consumer Price Index (CPI) cap is applied at the class level, which means the Postal Service can tweak rates within a class above or below the rate of inflation, but the entire class as a whole has to be at or below CPI. When the USPS files for its annual price adjustment for 2009 in January or February, CPI could be about five percent for the year, which would cap price increases within the class at five percent. From a mailers’ perspective, the price cap is a huge relief. If we were still living in a cost-of-service world, where the Postal Service could raise rates on products based on their costs, we might be looking at very large increases next price hike. The price cap precludes those types of large overall increases, but it puts enormous pressure on the Postal Service to cut costs in order to keep itself from losing a lot of money in FY 2009. Can the USPS even secure enough money to return to the black with a five percent overall increase? I am not sure it can. Here’s where the hard place gets even harder. What if the economy gets so bad (read, an extended recession) that the Postal Service decides that it needs to seek an “exigent rate case” due to the extraordinary or exceptional circumstances of a recession? Legal minds can argue whether a recession constitutes an “extraordinary” or an “exceptional” circumstance under the postal law, but if the Postal Service keeps bleeding red ink, it’s likely to consider all options. While Postmaster General Jack Potter has promised not to seek an exigent rate case this year, the promise doesn’t hold forever. Still, an exigent rate case to bolster revenue seems like a bad idea, especially when the main reason for the financial struggles is the tough economy and its effect on mailers, the Postal Service’s customers. Even a minor price adjustment in 2009, of say the inflation-based cap, is going to hurt mailers. Any further increase in a mailer’s costs will have an impact on the amount of mail they send, which hurts overall mail volume, which depresses Postal Service revenues, which digs the hole deeper, etc. A rock and a hard place, indeed. 32 NOVEMBER-DECEMBER 2008 | WWW.MAILINGSYSTEMSTECHNOLOGY.COM http://www.mailingsystemstechnology.com/ME2/dirmod.asp?sid=D85EAB8C3D5143E68151FBB50907A64D&nm=Subscriptions&type=Subscribe&mod=Subscribe&tier=1&id=C367545893444039B6F49E2937A3E27E http://www.mailingsystemstechnology.com/ME2/dirmod.asp?sid=D85EAB8C3D5143E68151FBB50907A64D&nm=Subscriptions&type=Subscribe&mod=Subscribe&tier=1&id=C367545893444039B6F49E2937A3E27E http://www.MailingSystemsTechnology.com
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