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By Cary Sherburne, Senior WTT Editor
February 7, 2007 -- The passage of Postal Reform by the United States Congress in December 2006 has been long awaited by the printing and mailing industry and was received with somewhat mixed reviews. The PIA, which was actively involved in the coalition established to lobby for the bill, was delighted with its passage. Dr. Joe Webb, WhatTheyThink’s economic commentator, presented a different view. And in a recent press release, Pitney Bowes indicates that mailers are largely unprepared for the changes, stating, “With only four months to go until the most significant overhaul of postage rates in years, four out of five executives are unprepared for proposed price and rules changes that are destined to have a large impact on their business operations and marketing strategies.”
WhatTheyThink spoke with Ben Cooper, who in addition to being Executive Director of The Print Council, also lobbies for clients on behalf of the industry. He is the lobbyist responsible for bringing together an unprecedented coalition of interested parties to work for passage of the bill, to learn more about the legislative process and the value of the bill from his perspective.
In Part One of this two-part Special Report, hear what Cooper has to say about:
In Part Two, read about:
WTT: Ben, thanks for talking with us today. I know you have been hard at work on the postal reform bill. Congratulations on a successful conclusion of those efforts. Can you share some background on how this got started?
BC: About three years ago while I was Executive Vice President of PIA, I organized a coalition of associations and companies that represent all the classes of mail. In the past, groups were more attuned to their individual interests. For example, mailers using primarily second class mail might have issues that were different from mailers using standard mail, and bulk mailers would have different needs than newspapers. Greeting card mailers like Hallmark and others were always leery of rate benefits to other classes because they felt they already paid more than their fair share. So there was always this looming Balkanization. My goal in establishing this coalition was to bring all mailers together in a single regular meeting group where differences could be put on the table and resolved before we went to Capitol Hill to ask members of Congress to take sides. The other thing we did is bring in non-traditional groups such as the National Association of Manufacturers and the National Federation of Independent Businesses, the dominant small business lobbying group, to incorporate their view as users of mail. Although I left PIA at the beginning of 2006, the coalition asked me to stay on as chairman of the group.
WTT: With such a broad group, how were the key goals and objectives narrowed down, and what were those?
BC: We decided as a group that we would develop and agree to a set of principles, most of which in the end were carried through to the final Legislative product. The primary change we were looking for was some sort of cap on rates going forward tied to the consumer price index (CPI). There was some debate about how that should look, and there are all kinds of ways of calculating CPI, but essentially the objective was to have rate predictability. That was accomplished. We also wanted to maintain universal service, and that was carried forward. We wanted an expedited rate setting process and that was done. We wanted to continue to allow the United States Postal Service (USPS) to define some products as competitive and some as non-competitive, and that was incorporated in the bill.
We knew that there was a good probability that individual groups might seek things on their own, but it turned out they really didn’t. The coalition basically spoke to Congress with one voice throughout, and the coalition really became the primary negotiating group throughout the process with Capitol Hill. The Senators and Congressmen responsible for legislation often asked us to resolve differences off the Hill and bring back solutions to them.
WTT: Just to dig down a little into each of those principles, starting with the rate cap. In a recent Dr Joe Webb column, he expressed the opinion that capping rates at CPI would not be as effective as requiring the USPS to operate like a real business, which seems pretty logical to me. Perhaps you could comment on that.
BC: There are several reasons why the Post Office cannot operate in the same way as a private business. First, employees are not private employees. They are government protected Federal employees and the USPS can’t do wide-scale layoffs. Although they negotiate wages and benefits, the Postal Service has difficulty making significant changes to employee compensation packages. USPS employees have some of the best benefits of any worker in America. So it still operates as a Federal agency and its employees are still Federal employees. Also, in order for it to operate like a private business, you would have to take away all of its public aspects such as not paying property tax on the property it owns in cities and towns all over America, and the USPS exemption from such things as paying parking tickets. If we wanted them to operate as a private business, we would need to remove those shackles. And in so doing, the first thing you probably would do is raise the salary of the Postmaster General. So placing the requirement on the USPS to operate financially like a private business is not really possible without starting again from the ground up. There are just too many public limitations put on the organization.
WTT: What about giving them more rate flexibility as Dr. Joe suggests, like, for example, being able to offer special rates early in the holiday season to smooth out the mail volume peaks and valleys somewhat?
BC: We would all like to see more flexibility in rates. This bill gives the USPS broader flexibility in rates than they have ever had. They will be able to experiment with rates more than ever before. They will be able, for example, to work through more negotiated service agreements with large mailers who commit to putting a certain amount of mail in the mail stream for a certain amount of money. They can go to the Postal Regulatory Commission with new ideas. So the potential for rate and pricing flexibility is a big part of this bill.
WTT: The second principle you mentioned was universal service. Can you explain what that means?
BC: That means that every household in America receives mail service every day except Sundays and holidays. And that plays into the whole issue of defining what is competitive to the USPS. There are limits on who can deliver first class mail and on the use of the mailbox, which provides the basis for continuing universal service. Parcel delivery and express delivery are areas of clear competition with the USPS.
WTT: How do carriers such as FedEx and UPS fit into this competitive picture, then?
BC: Technically under the law, you cannot deliver first class mail without payment of postage. The exception to that is express delivery, and in the late 1970s the change was made to allow private companies to deliver express mail. The definition of letters used to be quite expansive. I remember a printing company in Eastern Pennsylvania that was visited one day by the local Postmaster who told them they owed $200,000 in unpaid postage for courier delivery of bluelines, proofs and copy to their customers. Under the law at that time, these were defined as letters, and private messengers could not deliver that type of material without paying postage. As a result of that and other cases, we got involved in a legislative effort that resulted in liberalization of the private express statutes to permit overnight delivery, and to use non USPS carriers for things that the Post Office could not do, like guarantee overnight delivery. You will hear from time to time companies saying they could do postal delivery, but the truth is they don’t want to do first class; it is not profitable. They would deliver selectively, but they don’t want to deliver everywhere, six days a week like the universal service provided by the USPS. They might deliver to almost every address, but they won’t deliver to every address at the same price. For example, Alaska and Hawaii would be more expensive. There are all kinds of permutations of competitive and non-competitive throughout the system.
WTT: You mentioned the Postal Regulatory Commission. How is that different from the Postal Rate Commission we have today?
BC: What is now the Postal Rate Commission will be reconfigured as the Postal Regulatory Commission, and among other things, they will examine the competitive products. This is a law that has not been revised since 1971 and a lot has changed since that time. Many mailers and suppliers, particularly companies like UPS, wanted more transparency into how the USPS determines its rates and wanted the USPS to factor more costs into those rates like a private business. UPS sought—and got—some changes that will require the Postal Service to compete more fairly. That was an important part of this legislation.
WTT: When will all of this take effect?
BC: Some portions of the bill took effect upon enactment. The big issue is the rate case structure. They have 18 months after enactment to establish a new rate structure. The Postal Regulatory Commission must design a new rate structure under this law. The big debate will be whether the USPS will be able to do another rate case under the current law in addition to the one that is pending now that will bring first class mail to 42 cents. Interestingly, recent rate cases have been pretty close to a CPI model. In fact, the USPS argued during negotiation of the bill that the CPI cap wasn’t needed since history would indicate they stayed pretty close to a CPI model. But from the perspective of mailers, it isn’t the average over ten years that is important; it is the year-to-year spikes that the mailers don’t like. If you are Time Magazine, it is not comforting to think that in 2007 there may be no rate increase and in 2008 it may be 16%. They would rather have it averaged out to CPI and not have those spikes.
Prior to launching her consulting practice, Ms. Cary Sherburne was the Vice President of Marketing Communications and Outsourcing Solutions at IKON Office Solutions. In that capacity, she developed and implemented a branding campaign to build brand awareness for IKON in the marketplace as well as enhance employee pride in the organization, and was responsible for all internal and external communications, including trade shows and events, corporate newsletters, and industry and press relations. In the outsourcing role, she set strategic objectives and priorities for IKON's product and services portfolio in its Outsourcing businesses, including development of programs and sales support materials for that environment.
Sherburne was a Director at CAP Ventures, an internationally known firm specializing in market research and strategic consulting for the digital document and print on demand industry, before joining IKON, where she launched and managed the company's Document Outsourcing Consulting Service.
Her tenure in the printing and publishing industry has also included sales and marketing positions at Xerox Corporation, Indigo America and Bitstream. She is a frequent speaker at industry events and a recognized author.
Cary can be reached via email at email@example.com, online at www.sherburneassociates.com and by telephone at 603-430-5463.
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