As Congress and the USPS Board of Governors consider the long term viability of the Postal Service, DMA once again strongly advises legislators and policy makers that raising postal rates on the biggest customers of the USPS – namely, data-driven and direct marketers and catalogers – is not the way to success. We also urge Congress to take action quickly to allow the USPS to operate successfully as a business.
DMA Senior Vice President of Government Affairs Jerry Cerasale gave an oral statement and provided written testimony this morning (Thursday, September 19, 2013) before the Senate Homeland Security and Government Affairs Committee (HSGAC). the oral statement is below, and please feel free to review and review the full supporting DMA Testimony.
“Good morning, Senator Carper, Senator Coburn and members of the Committee, I am Jerry Cerasale, Senior Vice President for Government Affairs of the Direct Marketing Association, and I thank you for the opportunity to appear today on behalf of a united Postal Service customer community including the Affordable Mail Alliance, the Coalition for a 21st Century Postal Service, all the major postal customer trade associations, and the paper, printing and mail technology industries. Together, we are a $1.3 trillion industry that employs nearly 8 million private sector workers, and constitutes some 9% of GDP.
The Postal Service remains a vital communications and distribution channel for our nation’s economy and the linchpin of the enormous industry which relies upon it. Yet, the Postal Service continues to struggle financially. Legislative change is indispensable.
As you know, taxpayers do not support the Postal Service. Rather, it is the business, nonprofit, and other mailers whose decisions to purchase postage pay the bills of the Postal Service. They account for approximately 80% of mail volume in all classes of mail and contribute 90% of the revenue of the U.S. Postal Service. Yet our industries have lost more than one million jobs since 2007. Many more are at stake.
So, we are very pleased to have been invited to testify before you today. Given the urgency of the Postal Service’s situation, we are encouraged that the Chairman and Ranking Member of this Committee remain invested in postal reform; we appreciate your leadership on this vital matter. My written testimony contains our positions on, and often support for, many of the provisions in your bill, S. 1846. I ask that that testimony be admitted into the record.
This morning, though, I must focus on one area of major concern to our entire industry: postage rates. S. 1846 would grant the USPS Board of Governors unilateral pricing authority for mail over which it has a statutory monopoly for delivery and a monopoly over the mail receptacle. There would be no price cap, and a weakened PRC would have after-the-fact complaint review with no authority to set postage rates and no authority to require refunds. What monopolist would not want such power? The mailing community opposes this monopoly power expansion—it is not good for the economy, it is not good for the industry, it is not consistent with our system of checks and balances, and in the long run is not good for USPS.
Elimination of the price cap—a cap which we have heard from the PRC today has worked to rein in postal costs as Congress intended—will reintroduce uncertainty and unpredictability into rate setting and drive mail out of the system at a faster pace — and we hear that from mailers of every type of Market Dominant mail.
We also have heard today that mail volume is price inelastic—any mail volume loss will be more than offset by increased postage revenue. We disagree particularly when postage increases more than the rate of inflation. Inspector General Williams said that his price elasticity study was limited to small changes is price—not inflation busting increases.
The last time postage increases were above inflation was May, 2007. Postage increases for catalogs were double digit. For the next year catalog mail volume dropped 23% while Standard Mail volume as a whole increased. If catalog mail were inelastic, even with a 23% volume collapse postal revenue from catalogs should have increased. They did not. Revenue fell 11%. Catalogs were not price inelastic!
USPS relying upon similar price elasticity studies invested in flat-shaped mail sorting equipment to bring down the costs of sorting such mail. Unfortunately, the 23% drop in volume resulted in too little flat-shaped mail to efficiently run those expensive flat shorting machines. We are paying for that mistake. That mistake is a primary reason that flat-shaped mail is “underwater.”
We urge you not to make decisions based upon studies that do not apply to above inflation postage increases. Do not eliminate the price cap. Include the compromise in the postal reform bill the Senate passed last Congress to study the effects of excess capacity on flat-shaped mail costs before requiring any postage changes.
Many of the provisions in S. 1486 will alleviate financial pressure on the Postal Service. Allow those to work before enabling above CPI postage increases. Mail is not price inelastic under those circumstances and the Postal Service will suffer in the long run. We pledge to work with you to find solutions to the USPS financial status that do not drive customers away from the mail.
Thank you, and I look forward to any questions. ”