Quad/Graphics Exhorts Congress to Act Swiftly on Postal Reform

Quad/Graphics Chairman, President & CEO Joel Quadracci returned to Capitol Hill last week Wednesday to urge Congress to act swiftly to put the U.S. Postal Service (USPS) on a path to financial stability and long-term sustainability.

Testifying before the House Oversight and Government Reform Committee, Quadracci communicated the importance of the USPS to private industry and the U.S. economy while emphasizing the urgency for postal reform to reverse a crisis of confidence in future of mail delivery.

Earlier this year, Quadracci provided similar testimony before the Senate Homeland Security and Governmental Affairs Committee. In both his appearances on Capitol Hill, he was the only printer and member of private industry invited to testify.

"As we know all too well, the Postal Service is losing money at a rate of nearly $25 million a day with a total planned loss in 2013 of $7.6 billion," Quadracci said in his written testimony provided in advance of last week's hearing. "This is clearly unsustainable. The constant threat of insolvency is obviously troubling for the Postal Service, but it is even more troubling for the American economy overall. Although the Postal Service is financially challenged, it is still a $65 billion business that supports a private sector economy worth more than $1 trillion, employing some 8 million private sector workers and accounting for 9% of our nation's Gross Domestic Product."

Quadracci's written testimony also highlighted the importance of a financially solvent USPS to the printing and mailing industries. "Without Congressional action.the uncertainty for our clients and the entire mailing industry will stifle volumes. Many clients may choose to move away from print only because they do not have confidence that the Postal Service will continue to be a viable option. This uncertainty can be resolved by Congress taking decisive action to show that the Postal Service will remain a strong and practical option for our marketers and publishers to distribute and advertise their products."

Among the core provisions Quadracci said are necessary for meaningful postal reform are:

•           Provide the USPS with the authority to streamline its operations. The USPS has infrastructure and capacity to handle and process 300 billion pieces of mail annually. According to USPS estimates, mail volume will only be 153 billion pieces in 2013. It's important that the USPS be able to right-size its operations for the realities of its projected volumes, Quadracci said.

•           Adopt a 5-day mail / 6-day package delivery schedule as part of a comprehensive reform package. Quadracci said Quad/Graphics and other mailers support a move to 5-day mail / 6-day package delivery, along with the proposed conversion to curbside and, where feasible, cluster box delivery. These changes will result in major savings to the USPS annually. "The mailing industry will make the necessary changes to adjust if five-day mail delivery is implemented as part of a comprehensive plan to ensure the Postal Service's financial viability, and with an adequate period of time (at least six months) to prepare for the change," Quadracci testified. Additionally, he noted that Quad/Graphics is already prepared to help its clients through the transition while continuing to add value.

•           Address volume declines by maintaining the postage rate cap to the Consumer Price Index (CPI). An increase in postage has a direct and profoundly negative impact on postal volumes, resulting in a "death spiral" where additional price increases are necessary to cover costs, Quadracci testified. "Ultimately, this will drive additional volume out of the mailstream. Congress, in its wisdom, capped postage rate increases to the CPI as part of the 2006 Postal Accountability and Enhancement Act. Doing so has provided an enormous incentive for the USPS to move quickly and prudently to improve the cost-efficiency of its services without substantially reducing the quality of its mail services. Without such an incentive, the fiscal position of the USPS would be much worse than it currently is."

•           Lengthen the amount of time the USPS has to pre-fund healthcare benefits for retirees. The current 10-year amortization schedule has resulted in unaffordable $5.5 billion annual payments on which the USPS has already defaulted twice. Extending payments over a longer period of time would relieve some short-term financial pressure while still enabling the USPS to meet its retiree benefit obligations long-term.

•           Return to the USPS overpayments to the Federal Employees Retirement System for its use in reducing its debt, making necessary capital investments, and moving forward with its efforts to restructure and right-size its operations.

•           Provide the USPS the flexibility to manage escalating healthcare costs without disadvantaging employees or retirees. Quadracci shared that it is possible to improve the quality of healthcare while reducing costs, and cited Quad/Graphics' own success through its 23-year-old QuadMed subsidiary. "Our costs are 20-30% lower than all industry," Quadracci said. "There are many healthcare options but too often the costs are simply shifted from one group to another. By focusing on wellness, our model actually reduces costs rather than shifting who pays."

During his oral testimony, Quadracci stressed that while print remains an extremely effective medium for marketing and communications - and one that connects and integrates well with other media channels - clients are apprehensive about the future of the USPS. "We are at a stage where our customers are concerned," he said. "We have to make sure we have the ability to deliver [mail] in an efficient manner."

In closing, Quadracci acknowledged that postal reform requires bold, difficult decisions, but that those decisions are necessary and can no longer be delayed. "I applaud you for making the Postal Service a priority," he told the Committee.

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