An Essential Dilemma

On April 2, the Senate Homeland Security and Government Affairs Committee (HSGAC) convened to consider the nominations of Ron A. Bloom and Roman Martinez IV to become Governors of the U.S. Postal Service. Both gentlemen were asked, among other things, about their perspectives on the President’s Task Force Report released December 4, 2018. The report was also the subject of a March 12 HSGAC hearing.

Based on the Senators’ interest and the responses of the nominees, there appears to be a consensus that the Report offers some useful recommendations on how to ensure the continued viability of the U.S. Postal Service, yet it is not at all clear what happens next. Legislation seems unlikely in the short run and there are questions about whether some of the Task Force’s recommendations can be implemented through administrative or regulatory means alone.

One of the central recommendations of the Report – dividing the Postal Service’s products into two categories; essential and commercial – raises several practical and policy questions that require much more thought and consideration than has been given thus far. In fact, apart from a few vague examples the categories put forth are not clearly defined.

For instance, the Report appears to draw a distinction between account statements, which today would be sent via First-Class Mail, and advertising mail which uses USPS Marketing Mail predominantly. The Task Force defines statements as “essential” without much explanation.

Conversely, advertising mail, which might be physically identical and destined to the same recipient address as a statement coming from the same sender, is considered commercial because the senders purportedly decide how much mail to send based on the return on investment (ROI) that each mail piece is expected to produce.

This distinction betrays a fundamental misunderstanding of how commercial users of the postal system make decisions. Consider a bank that sends statements to existing account holders and marketing mail to prospective account holders. Physically, those pieces are likely to be indistinguishable from one another except for the indicia that identifies which mail class is being used. In some cases, the bank might send both types of mail to the same address during the same week.

Account statements routinely contain as much marketing content as account information, while marketing mail generally exhibits a degree of personalization such that novices might find it difficult to tell the difference. Today, the price difference between these two products – about 13 cents/piece – reflects differences in service levels. If marketing mail were no longer subject to a price cap, within a few years that gap would all but disappear; along with much of the mail volume which contributes to the provision of universal mail service.

In addition, mailers make ROI decisions on both categories. For instance, if the cost to mail statements were to rise substantially, mailers would provide incentives for their customers to convert to electronic statements to save postage.

If the Postal Service were suddenly granted unlimited pricing authority for marketing mail, prices would converge to the point where mailers would no longer have any reason to use marketing mail. They would seek the price cap protection still afforded to statements by shifting to First-Class Mail. Unless the Postal Service plans rigid enforcement of content restrictions on all letters, marketing mail letters might disappear altogether.

On the package side of the Postal Service’s business, the situation is likely to be equally muddled. For the most part, package services are today part of the Postal Service’s competitive products. The Postal Service is free to set rates and negotiate prices with customers because those products are subject to competition by rivals such as UPS and FedEx. The Task Force would make an exception for essential shipments going to rural citizens who they describe as captive users of the system.

At the March 12 hearing Senator Enzi (R-WY) suggested that one example might be winter gloves in Wyoming, but perhaps not in Florida. Would that apply to $400 ski gloves? Cashmere? Leather?

The example most commonly cited are prescription medications to rural residents. Assuming that is an appropriate policy goal, will the Postal Service have to check the contents of packages claiming eligibility for favored rates? The definition of what is considered rural is not in itself clear; many suburban areas on the outskirts of major cities are classified as rural delivery areas by the Postal Service. Would these definitions need to be reconsidered?

The Postal Service’s products already include many that enjoy favorable pricing for public policy reasons such as mail sent by non-profit organizations or containing educational, cultural, or scientific content. Adding an additional policy overlay will add additional complexity without meaningfully addressing the source of the Postal Service’s financial difficulties.

About the Author: Michael Plunkett is President and Chief Executive Officer of the Association for Postal Commerce, a national association of businesses and organizations that use of support the mail as a medium for business communication and commerce.