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American Catalog Mailers Association  Industry E-Newsletter:

September 12, 2008

It has been a couple of months since our last industry general update. While the summer months are typically a slower time, this period has been anything but. The pace of change at the USPS continues to accelerate with numerous issues that affect cataloging moving one way then the other, requiring more effort than usual to track and affect issues of importance to catalogers.

IMB Requirements nearing finalization?
IMB continues to remain one of the most important initiatives for the USPS and a critical underpinning to postal infrastructure to drive future value in the mail. At last month’s Mailers Technical Advisory Committee (MTAC) meetings, IMB and related concerns were featured predominately. It appears the mailing industry (ACMA joined forces with many others on this issue) has been successful in its request to slow the pace of “forced” compliance with IMB requirements. These were originally scheduled to go into effect May 2009. USPS now indicates industry will get another year to migrate to the IMB from POSTNET before losing automation discounts. There is still a great deal of discussion on “full service” versus “basic” IMB rates and services; this remains an active issue affecting all commercial mailers. The USPS says it is still on track to put in place all required infrastructure to support IMB by May 2009. While the additional “breathing room” before penalties are levied is welcome news indeed, our recommendation is that you continue your work to become IMB compliant at the earliest possible date. Note that automation rate flats must have delivery point routing codes effective May 2009.

USPS Announces $1 Billion Loss
The USPS released financial results for the third fiscal quarter and said it lost nearly a billion in this quarter alone, with most of the loss occurring in June. While the third quarter is traditionally a poor quarter for the USPS and the current economic conditions were expected to adversely affect the result, the magnitude of the loss was surprising. PMG Jack Potter continues to indicate they are not considering an exigent rate case, the “escape valve” mechanism baked into postal reform to allow the USPS to increase rates over and above the CPI. This is a positive signal. An exigent rate case would be a very messy and expensive process using the “old” rate setting procedure of full litigation before the PRC. It would result in higher postage across the board … but also carries with it the very real possibility of significant shifts in overhead costs between mailers that could result in massive increases for a particular group as catalogers experienced in the R2006-1 rate case.

Potter continues to stress the USPS is working aggressively on the cost side of their business. The USPS has taken a billion dollars out of their expense profile each year for the last five or six and so far this year they have removed twice this amount. However, given their labor and transportation expenses, the major drivers of their cost side are fuel and health care, both increasing at rates far greater than inflation so they are certainly hurting. However, USPS officials are mindful that simply raising postage is not in anyone’s best interest and appear to be working hard to curtail overtime, increase productivity and find other areas to improve efficiency.

A final thought on this: every manager knows that you cannot endlessly cut costs to restore profitability … you have to “grow the business.” There is an enormous amount to do to grow the business and the USPS has not yet come to understand what it takes to become proactive marketers to drive volume in the future (see related comments at the end of the reorganization section below).

ACMA Washington Forum a Resounding Success
Hopefully you have seen some of the extensive trade press news coverage on ACMA’s late June event. The participation and quality of dialog were gratifying. Post-Forum attendee surveys were very positive. ACMA staff and volunteers continue the follow up work resulting from the Forum. ACMA members who would like to receive detailed notes from the meetings are welcome to request them via email to croden@catalogmailers.org. The essential takeaways and actionable areas for follow up were in important areas:
1. Consumer preference requests and Do Not Mail
2. Postal rates for catalogers and cataloger use of the mail
3. How catalogers can affect postal policy in Washington
4. The value of the mail for marketing purposes
Non-members are welcome; look for future meetings coming up early next year. We certainly hope you will make plans to join us at a future event.

What to expect in postage rates
Next February, the USPS will signal its intentions regarding an annual rate increase that will go into effect in May 2009. Catalogers, on the other hand, are preparing budgets for 2009 right now. What should you budget for postage next year? While the dynamic situation on inflation (that ultimately drives the CPI-cap governing the maximum increase possible) makes it somewhat difficult to forecast this, our current recommendation is that you should budget something on the order of 5.5% to be safe. Note: this is a very preliminary estimate subject to change as further data becomes available. While the current moving average CPI-U through July is running at 4%, if we continue to see accelerating inflationary pressure in the remaining months before February, this average could climb sharply. ACMA will be working closely with pricing officials at the USPS to keep whatever increase if ultimately announced to a minimum but given the dramatic increases in fuel and other costs, we do not currently expect the increase will be insignificant (see item 2 above).

USPS Re-organizes at the top
PMG Jack Potter announced a major reorganization in July. The impact is still being sorted out and some of the changes at the top can be expected to cascade down the structure over the coming months and quarters. What we do know is the USPS has brought in some top level executives from industry and reassigned others. Bob Bernstock has been appointed to the newly created position of President, Shipping and Mailing Services. Bernstock brings experience from marketing or senior positions with General Foods, Campbell Soup, Vlasic, Dial and Scott’s Miracle Gro. Joining Bernstock in another newly created position of VP Sales is David Shoenfeld who was formerly SVP Worldwide Marketing for Federal Express. Longtime USPS executive Steve Kearney was named to the newly created position SVP Customer Services, a move that combines many of the customer facing functions. It currently appears that Kearney will support the revenue building activities of Bernstock/Shoenfeld with internal support groups while navigating the regulatory compliance issues.

Our view is that this is good news for mailers. Given the large number of career managers who have risen through the ranks, the USPS tends to be insular in its thinking and approach. With the many pressures on it, the pace of change must accelerate. Creativity, innovation and a “can do” attitude are required. While Potter has done a lot to bring cultural change to a massive organization, due to the size and complexity of the Postal Service, this is necessarily a long term endeavor. Bringing in high level outsiders, who have a completely different perspective, is also key. While we have not had the chance to work with the newly arrived execs, we look forward to seeing a fresh approach to resistant issues.

We all know becoming more market focused and market responsive is the way to grow. From the industry perspective, when compared to working with other vendors, the relationship the USPS has with its customers is completely backward. Today, customers are expected to work to understand USPS problems and find solutions it can offer its “vendor,” not the other way around as in the rest of the business world. If the USPS will take the time to segment the mailing community into customer segments of common need and characteristics then do a deep dive on each major segment to learn what it can do to create increase customer value, the USPS has a terrific opportunity to deepen relationships, become a valued vendor partner, and build its revenue and cost of switching to alternative media along the way. The real question is: will this happen? Only time will tell but the introduction of those who “get it” from an industry perspective is certainly a step in the right direction from our vantage point.

New Members joining ACMA since the last E-Newsletter
We are pleased to announce the following new members have joined ACMA since our last general update: Ability Commerce, Inc., Daedalus Books, King Arthur Flour, Krames/MediMedia, Lady Grace Intimate Apparel, Mail Optimization, National Wholesale, Orchard Brands, Peachtree Business Products and Thoma Bravo. A big welcome and thank you to our latest supporters!

What can you do to impact your postage costs and access?
We remain with fewer resources than we need to properly represent catalog interests in Washington and this will only change with your action. Please budget some money in your 2009 financial plan to support the only catalog-focused, catalog-controlled advocacy work that is critical for your future. We really need your support! Thank you.

Please let us know if you have questions or concerns. We would be happy to help you sort out the myriad of issues “in play now” that will impact your future in the mail.

Sincerely,
Hamilton

Hamilton Davison
Executive Director
American Catalog Mailers Association
www.catalogmailers.org 
Telephone: 1-800-509-9514
Email: hdavison@catalogmailers.org
Direct telephone: 1-401-529-8183

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