Thursday, January 31, 2008

USPS Performance Indicates Rough Year Ahead

USPS Performance Indicates Rough Year Ahead
Continued volume declines could threaten CPI cap, certain services.
BY Matt Kinsman
First Class Mail volume declined in the first fiscal quarter of 2008, while Standard Mail, which typically makes up for the decline in First Class, also fell, raising a red flag of warning about the stability of the entire USPS rate structure.

First Class Mail, made up of personal letters, most bills, and Standard Mail, which includes catalogs and direct mail, combined accounts for about 94 percent of the total mail processed by the United States Postal Service. If those categories continue to decline, the billions in revenue they produce will decline too, forcing the USPS to raise rates, probably across the board, including for magazines.

Standard mail declined by 2.6 percent to 27.7 billion pieces in the first fiscal quarter of 2008, and First Class declined by 3.9 percent, to 24.4 billion pieces.

Revenue was up 3.5 percent to $20.4 billion in the first quarter and the USPS posted a profit of $672 million. However, the revenue was $500 million less than forecast for the first quarter (October through December), which is typically the best-performing financial period for the USPS because of the holidays.

"As First Class and Standard decline, together which pay for almost all of fixed costs, something will have to pay those fixed costs," says David Straus, postal counsel for American Business Media. "My guess is we'll see tension building with the CPI cap, reduced volumes and USPS cost-cutting efforts met with Congressional opposition. One of most pressing issues will be the Postal Service's efforts at reconfiguring its network, contracting out some of its labor and whether they'll be stymied by Congress or whether they can downsize. We could see a reduction of service, including cutting out some deliveries. There are all sorts of wild theories out there, like charging for home delivery."

When the USPS agreed to the CPI cap last fall, Nina Link, president and CEO of Magazine Publishers of America, said: "Having the next increase, which is likely in the spring, and all future increases under the CPI system will literally save publishers billions of dollars in postage costs in the coming years."