Decline in general mail volume in U.S. threatens magazines' hard-won agreement

U.S. magazine publishers are getting nervous that falling volumes and revenue from first class and other non-publications mail are threatening an agreement they only recently hammered out with the US Postal Service (USPS). According to a story in Folio: First Class Mail volume declined in the first fiscal quarter of 2008, while Standard Mail, which typically makes up for the decline in First Class, also fell, raising a red flag of warning about the stability of the entire USPS rate structure.

First Class Mail, made up of personal letters, most bills, and Standard Mail, which includes catalogs and direct mail, combined accounts for about 94 percent of the total mail processed by the United States Postal Service. If those categories continue to decline, the billions in revenue they produce will decline too, forcing the USPS to raise rates, probably across the board, including for magazines.

Standard mail declined by 2.6 percent to 27.7 billion pieces in the first fiscal quarter of 2008, and First Class declined by 3.9 percent, to 24.4 billion pieces.

Revenue was up 3.5 percent to $20.4 billion in the first quarter and the USPS posted a profit of $672 million. However, the revenue was $500 million less than forecast for the first quarter (October through December), which is typically the best-performing financial period for the USPS because of the holidays.

U.S. magazines' agreement last spring with USPS set a cap on rates for publication mail, governed by volume and other considerations, to give these frequent mailers stable and predictable forecasts of price increases. At the time, Nina Link, president and CEO of Magazine Publishers of America, said: “Having the next increase, which is likely in the spring, and all future increases under the CPI system will literally save publishers billions of dollars in postage costs in the coming years.”

The idea was that magazines would pay for only the incremental increases in the actual costs of mailing their own publications, with First Class and Standard Mail paying for the USPS's basic infrastructure. At least that was the deal, and it is similar to what Canadian publishers have been arguing for years with Canada Post, although CPC is much more secretive about its business than USPS.

We asked Michael Fox, Senior Vice-President, Circulation & Development at Rogers Publishing Limited in Toronto and chair of Magazines Canada's postal subcommittee, to comment on the differences between the situation north and south of the border:

To me one thing this highlights is the huge difference in disclosure between the USPS and CPC. The US post office is much more transparent in reporting trends in volumes of mail and the revenues on a regular basis throughout the year. By contrast CPC is secretive and only releases volume and revenue data once a year in its annual report. Why does this matter? If you are a mailer you have a basis to compare what all mailers collectively are doing. It becomes a relevant economic indicator.

In terms of the US magazine deal, they argued along the same lines that we do. The infrastructure should be paid for by the big volume of Lettermail and Admail with the rates for publications linked to incremental costs.

I can't speculate on the US situation. I just wish we had ongoing trend data rather than the CPC paternalistic "we know what's best" approach to transparency.