Friday, October 07, 2011

Subsidizing Junk Mail: A Typical Government Mess

Many consumers are irked by the catalogs, credit-card pitches and other "junk mail" they receive. But the U.S. Postal Service loves it -- and wants to deliver more.

The agency, beset by historic losses and a plummet in first-class mail, is running promotions, easing rules and planning television and radio ads to encourage more businesses to send pitches by standard mail, the official term for bulk mailings used by marketers to prospect for customers...

The volume of first-class mail—used for everything from birthday cards to thank-you notes—continued its decline in fiscal 2011 that ended Sept. 30. It fell 7% versus a year ago through August, the latest figures available. But advertising mail increased 3% after remaining flat in fiscal 2010, and now accounts for 48% of all mail, according to the postal service...

Consumers received 82.5 billion pieces of advertising mail through the postal service in 2010, down 20% from a 2007 peak of 103.5 billion pieces, but far more than the 63.7 billion pieces they received in 1990.

Only 1.4% of households made a purchase, opened a checking account, or otherwise responded in 2010 to advertising mail sent to potential new customers, according to the Direct Marketing Association, a trade group...

Hmm. Did you know that junk mail was this ineffective? And did you know that junk mail gets a boost from the federal government, costing substantially less than the letter you send to Congress complaining about junk mail?

In introducing his Postal Reform Act a couple of weeks ago, John McCain explained just how unfair and expensive this situation is. "In Fiscal Year 2010, the Postal Service lost nearly $1.7 billion on these type of ‘underwater’ postal products that failed to cover their costs.  For example, the Periodicals class of mail, which includes newspapers and magazines, has not covered its costs for 14 consecutive years, generating total losses of $4.3 billion over that period."

The Postal Reform Act would require that the vendors responsible for this mail be responsible for covering their costs. And the legislation, if it could ever get by Democrat entrenchment, would provide a lot more financial savings to the American taxpayers. Here's a few of the details, all which reflect common sense solutions to the USPS failures. I'm writing my Congressmen and Senators today (via e-mail and the post) asking them to enthusiastically support this important bill.

After all, something big must be done...and fast.

According to their own estimates, by 2020 the Postal Service expects to face a shortfall of up to $238 billion.  Even with dramatic cost savings of $12 billion and workforce reduction of 110,000 postal employees in the past four years, the Postal Service is expected to end this fiscal year with a $10 billion loss.

First-Class mail, which makes up more than half of Postal Service revenues, continues to fall at alarming rates and shows no signs of ever recovering.  This, combined with 80 percent labor costs and labor contracts that contain ‘no-layoff’ clauses, points to the fact that the Postal Service is broken.

Congress can no longer enact temporary fixes that avert financial crisis for only a brief period.  Congress, the Postal Service, labor unions, and the mailing community must be willing to lay everything on the table and make hard choices now to save the Postal Service for the future.  I believe the Postal Reform Act of 2011 will do just that... 

Here's a couple of additional thoughts on the matter from James Gattuso's Heritage Foundation article, "You’ve Got (No) Mail: Is the End Near for the Postal Service?" 

USPS can also benefit from innovative uses of its assets and new business offerings. Ideas range from putting advertising on delivery trucks to offering Internet-based services. Such innovation and diversification may hold the key to USPS’s survival. But before USPS is allowed to expand into new areas, it must relinquish its ties to the federal government and the special legal privileges it still holds.

For instance, while USPS has struggled to compete against e-mail, it still holds a protected legal monopoly on the delivery of physical letter mail. This should be eliminated. If others are willing and able to provide a competing business in the shrinking letter-mail market, they should be encouraged, not restrained. Abolition of this outdated law, moreover, could itself actually help USPS reform. Allowing new entrants to try their hand at mail delivery could foster new ideas and fresh perspectives in the postal business. Such new blood may be just what mail delivery needs.