Wednesday, March 12, 2008

What Went Wrong with the Postal Rate Hike?

What Went Wrong with the Postal Rate Hike?
Nothing, says Time Inc.'s mail czar.
By Jim O'Brien

Recent data from the Postal Service indicate that Periodicals Class mail only covered 83% of its costs in fiscal year 2007. This news comes on the heels of the "cost based rates" that went into effect last July and were designed to reduce the Postal Service's costs. Many people in the industry are now wondering "What went wrong?" The answer is that "nothing went wrong," once three basic facts are understood:
Since the new Periodicals Rates went into effect on July 15, 2007, the USPS' data only reflected 2-1/2 months of mailing under the new rate structure (the USPS fiscal year ended on September 30, 2007).

In an effort to mitigate the impact on smaller mailers, the July, 2007 rates only reflected 40% of the actual bundle and container costs. As a result, mailers did not receive accurate pricing signals and some companies actually reduced the number of drop-ship entry points. This reduction resulted in increased USPS transportation costs.

Many mailers focused 100% of their attention on implementing the new rate structure and spent very little time reviewing their mailing practices an implementing changes in 2007.

As a result of these three factors and others, the Postal Service did not reduce its costs in FY 2007. With this as a backdrop, the question now becomes, "Will the new rate structure have a positive impact on Postal Service costs in 2008?" To drive costs from the system, mailers need to make changes. Here are a few changes that are taking place at one mailer and in the printing industry.

Time Inc. is making a number of changes to its mailing behavior and these adjustments may be of use to other publishers. For starters, each title has been analyzed to determine if all or a portion of its circulation can take advantage of co-binding, co-mailing, and/or co-palletization. Today, six Time Inc. titles participate in co-mail pools and the company will soon begin to co-mail a portion of their large circulation monthly magazines. Most people think that large circulation titles are not good candidates for co-mail because they have little to gain in presort improvement, but that perception may soon change.

Todd Black, Time Inc.'s assistant director of postal operations, working in conjunction with Brown Printing and Time customer service, has developed an innovative plan for Essence magazine and other large circulation monthlies. It begins when Time customer service determines Essence's presort. The label data for the carrier route copies is sent to Brown Printing in its usual fashion and the copies are produced using selective binding. Following production, the carrier route copies are included in Fairrington Transportation's co-palletization pool and drop-shipped. Essence also has a number of copies that do not lend themselves to co-mailing (polywrapped, personalized wraps, etc.) and these copies are also included in the co-palletization/drop-ship pool. The balance of the non-carrier route labels are not presorted and customer service produces a SLIR file that is transmitted to Brown for inclusion in their co-mail pool. After manufacturing (using conventional binding) the copies are co-mailed, entered into the Fairrington pool-shipping program, and drop-shipped to 96 ADCs. As a result of this combination of co-mailing and co-palletization, virtually 100% of Essence is drop-shipped with very few sacks and a significant presort improvement.

Time Inc.'s weekly titles have also been reviewed and improvements have been made. Since these weekly magazines have large circulations and carrier route percentages in the 75% to 85% range, there is little opportunity for co-mailing and drop-ship improvement. However, certain editions of the magazines do quality for co-palletization. The best example of this is an edition of People magazine that is produced in one plant for a national distribution. Prior to the implementation of the new rate structure, this edition was placed in sacks and entered into the postal mail stream at the printing plant. Today, these copies are included in the Fairrington co-palletization pool and drop-shipped. As a result, these copies have shifted from "100% sacks and zero drop-shipping" to "nearly zero sacks and 100% drop-shipping."

In addition to the co-palletization, Time magazine co-binds its Life and Style supplement along with its regular issue four times per year. Entertainment Weekly will co-bind a special issue along with one of its regular issues in May.

When the changes have been completed on the Time Inc. magazines, Black estimates that 23 Time Inc. titles will be using co-mail or co-palletization for all or a portion of their print order. Black states that, "There are cost savings out there for everyone, regardless of your size or vendor. My advice to other mail owners is to dig deep into each mailing to find what portions you can better presort and drop ship right now. For the portions that can't, ask why and keep asking why until each mailing is optimized."

In addition to the changes being made by the Time Inc. titles, the printing/logistics industry is opening new co-mail facilities and adding new machines to handle a wide variety of products. Black recently visited the new R.R. Donnelley & Sons co-mail facility in York, Pennsylvania. In response to increases in customer demand, Donnelley already has expansion plans for this new facility. York complements Donnelley's existing facility in Bolingbrook, Illinois.

In March, Black will visit the ALG Worldwide Logistics facility also located in Bolingbrook. ALG is a logistics firm that provides co-mailing and drop shipping for the print industry.
Quad/Graphics has developed a multifaceted program that now includes: Multi-Mail (co-mail); Multi-Wrap (offline for poly wrapped Periodicals); Multi-Bind (co-binding); and Multi-Blend (inline combination of previously bound Periodicals with magazines that are being bound). These options provide a great deal of mail-piece design and production schedule flexibility for their clients while still creating volume that maximizes presort and drop ship efficiencies. Quebecor World Logistics continues to invest in solutions that will enable them to co-mail a greater range of product (specifically thin and poly wrapped mail pieces). By the end of 2008 they will double their capacity with new state of the art co-mailers.

Fry Communications in Mechanicsburg, Pennsylvania is now offering its customers onsite co-mailing, selective binding, blended mail at the mail table level, and co-production (co-binding). Fry reports that they are seeing substantial growth in the number of copies co-mailed and increasing interest from clients who previously were not interested in taking advantage of the reduced distribution costs. In addition, Fry now has customers who use them as a co-mailer but not as a printer. As Fry's pool size increases, the opportunity for savings increases as more copies move from a 3-digit sort level all the way to carrier route presort.

If the changes at Time Inc. and the printing/logistics industry are representative of more global Periodical Class change, we will most likely see a significant reduction in Postal Service costs and a corresponding improvement in cost coverage throughout 2008. Such changes will go a long way toward keeping Periodicals Class mail well within the CPI rate cap in future years.