A two-front postal war in Washington

Folio: The Magazine for Magazine Management, Nov 15, 1997 by Joanna Lowenstein

Although the United States Postal Service cleared more than $1 billion in profits during each of the past several years, the agency says it wants to boost profits even further--and will probably increase its rates in order to do so. The current proposed rate hike would raise magazine fees by as much as 5.4 percent, and it's definitely not sitting well with the publishing industry. Seventy-five separate organizations--including the Magazine Publishers of America, the American Business Press and several large publishers like Conde Nast and Gruner Jahr USA--are contesting the proposal in Washington before the Postal Rate Commission. The hearings will probably last until next May, when the PRC is required by law to render a decision. At that time, the USPS may make revisions to the original proposal.

"This is actually the smallest increase we've had in years," says ABP president Gordon Hughes. "We're just contesting why, since the Postal Service netted over a billion dollars [in each of] the past few years, we must pay any increase at all." George Gross, executive vice president of the MPA, agrees. "Over the past few years, we've been cutting corners to save postal money," he says. "But they're still raising rates. We've asked them why, but they really don't know why. Now we're just forcing them to figure it out."

Other publishing groups, such as Washington, D.C.-based Alliance of Nonprofit Mailers, have even more to be upset about. According to a report by R.R. Donnelley & Sons (see resource box), nonprofit rates could increase by as much as 24 percent. "This may be because the Postal Service could be looking to phase out nonprofit rates altogether," says Clarence Banks, manager of logistic services for Chicago-based R. R. Donnelley. "It's already very difficult for publications to adhere to nonprofit postal restrictions, so many of them don't even bother trying anymore."

But believe it or not, the postal forecast might not be all bad news. The USPS is proposing a decrease in advertising fees for titles brought to sectional center facilities (as opposed to bulk-mail centers) by 10 percent, to 17.1 cents a pound. It's also introducing discounts for all single three-digit packages (pieces with the same first three digits in the Zip Code), as opposed to only specific three-or five-digit (same Zip Code) pieces. This should benefit small publishers--since smaller publications typically have more three-digit packages--but probably won't affect large titles with little advertising.

Many contend that by raising its rates, the USPS is putting a Band-Aid on a much bigger problem-the need for total postal reform. And this debate is a monster, with little consensus on where or how to begin. Stephen Feldman, an attorney at the law firm Thompson Coburn who has argued several postal rate cases, believes that postal reform should concentrate on labor issues. "Eighty percent of all mail costs are labor-related," Feldman claims. "The focus should be on labor reform, not postal rate reform."

But Gene Del Polito, president of the Washington, D.C.-based Advertising Mail Marketing Association, disagrees: "The purpose of reform is not to change the incentive for mailers, but for the USPS to do a better job. That's not going to happen if you cut staff members or their wages."

Others, like New York congressman John McHugh, think that the reform issue goes much deeper, and that a complete overhaul is in order. McHugh last January introduced a postal reform bill that would designate two rate classifications: noncompetitive and competitive. The noncompetitive rate would apply to products with no mailing option other than the USPS, such as magazines, and would be limited to a certain annually adjusted price cap. The competitive rate could vary according to market conditions.

"The ABP is against this bill. In fact, most groups, including the Postal Service, are against it," says Hughes. And while this act, which is still in revisions, could send the entire USPS into a tailspin if passed, that won't happen in time to affect the current rate hike proposal. "Between the rate hikes and the McHugh bill, Washington is facing a two-front war right now," he says.

Already apparent, however, is that no matter what the outcome, some people are sure to be upset. So perhaps Nicholas Cavnar, vice president of Intertec Publishing, a K-III Magazines subsidiary, had the right idea when he spoke at a recent postal conference: "[These] are issues that affect every single one of us, both as consumers and as business-people. That's why it's so hard to agree on anything. Everyone has a stake."

RESOURCES

* Advertising Mail Marketing Association 1333 F.St. NW, Ste.710 Washington, DC 20004-1146 202-347-0055

* The Alliance of Nonprofit Mailers 1211 Connecticut Ave. NW, Ste. 620 Washington, DC 20036-2701 202-462-5132

* R.R. Donnelley & Sons 77 West Wacker Dr. Chicago, IL 60601-1696 312-326-8000