What You Need to Know About Periodicals Rates

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What You Need to Know About Periodicals Rates

• Rita Cohen, Senior Vice President, Magazine
  Publishers of America

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Key Postal Legislation

• 1971 Postal Reorganization Act
• 2006 Postal Reform (PAEA)
• 2009 One year relief on Retiree Health payment

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PAEA Pricing

• Inflation-Based Price Cap
• Applied by class
• Cap currently negative (modest deflation)
• Exigency Clause
• Extraordinary or exceptional circumstancesnecess
  ary to enable the Postal Serviceto
  maintainpostal services of the kind and quality
  adapted to the needs of the U.S.

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Other PAEA Considerations

• Flexibility within class
• Rate change within a class does not have to be
  across-the-board
• Attributable cost coverage
• A factor to be taken into account
• Worksharing discounts generally limited to
  avoided costs
• Rates must be just and reasonable

5
USPS Mail Volume (Billions)
Total mail volume dropped by nearly 13 percent in
FY 2009 and will likely drop further in FY 2010.
6
Periodicals Volume (Billions)
In the first quarter of FY 2010, Periodicals
volumes were down another 11 percent from last
year.
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Net Income/Loss (Billions)
Without legislative relief, FY 2009 loss would
have been 7.8 billion. FY 2010 situation is
similar.
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Periodicals Reported Loss (Millions)
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Cost Coverage - 2009
200
143
82
76
Cost
Revenue
Cost
Revenue
Cost
Revenue
Cost
Revenue
Periodicals
First Class
Standard
Standard Flats
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Questions Regarding Periodicals Costs

• Why have measured attributable costs gone up more
  than inflation despite much more worksharing by
  publishers?
• Are mail processing costs really 100 volume
  variable?
• Automation Refugee problem?

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Major Ideas Being Discussed to Improve USPS
Finances

• Temporary or Permanent Relief on Retiree Health
  Benefit Prefunding
• 5-Day Delivery
• Exigent price increase?

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Retiree Health Prefunding (Billions)
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Retiree Health Prefunding

• FY 2009 payment reduced from 5.4 to 1.4 billion
• Same thing this year?
• PRC and OIG studies support less aggressive
  payment schedule

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Pension Overfunding

• OIG estimates USPS overcharged for pension
  obligations by 75 billion
• Sufficient to fully fund existing retiree health
  benefit obligations
• USPS asked PRC to review report
• Fix would require legislation

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Five-Day Delivery
Daily Pieces Per Delivery
Shift to 5-day delivery would bring daily pieces
per delivery closer to past levels.
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Five-Day Delivery

• USPS push to eliminate Saturday delivery
• PRC advisory opinion
• Congressional approval required
• Potential cost savings
• USPS 3 billion per year
• PRC 1.9 billion per year
• USPS now saying facilities will accept
  periodicals on weekend

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PMG No 2010 Price Increase

• Promoting the value of mail and encouraging its
  continued use is essential for jobs, the economy,
  and the future of both the Postal Service and the
  mailing industry.

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Next Price Increase

• Minimal cap authority for 2011 increase 1-2
• PMG Moderate exigent rate increase in 2011
• Is a recession an exigent occurrence?
• Public Representative at PRC thinks rates should
  be raised to breakeven
• 3 or 10 extra in 2010 and 2011 depending on
  health benefit fund relief

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Valpak

• Wants periodicals and other underwater product
  revenues to cover measured costs
• Says it is causing 1.7 Billion of USPS loss
• Suggested that the Periodicals rate structure
  could be changed to raise rates on less efficient
  publications

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Some Responses to Cost Coverage Questions

• Periodicals Mailers shouldnt be charged for USPS
  excess capacity or unnecessary manual processing
• Contribution of subscription-related mail in
  other classes should be considered as well
• First-Class Mail
• Standard Mail

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USPS Long-Term Outlook

• Based on McKinsey Company analysis, USPS will
  lose 238 billion this decade unless something is
  done
• USPS plans to eliminate 123 billion of this
  through
• Revenue generation initiatives
• Improved productivity
• Workforce flexibility
• Purchasing savings

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USPS Action Plan to Close Rest of Gap

• Retiree Health Benefit Prefunding
• Delivery Frequency
• Expand Access
• Workforce
• Pricing
• Expand Products and Services
• Oversight

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Changes in regulations

• Flat Sequencing System Impact
• Critical Entry Time
• Carrier Route discount
• Reduced value in FSS zones
• Lower discount?
• New deflection standards
• Penalty for droopiness starting October

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Possible changes to Ride-alongs

• USPS considering loosening content standards to
  increase magazine advertising. Could improve
  pricing for
• electronic components
• small product samples
• advertising-only supplements

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And of course, remember to

• Co-mail
• Co-palletize
• Dropship
• Still the best way to reduce postage

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Secret Questions And Answers

• True Or False
• Under the 2006 postal reform law, the Postal
  Service is allowed to change individual rates
  within Periodicals by different percentages.
  True
• Mail volume is expected to rebound to 200 billion
  pieces this year, solving the Postal Services
  financial difficulties. False
• Because inflation is currently low, the 2011
  postal rate increase is guaranteed to be minimal.
  False