Mailers Already Eye Bigger '07 Rate Hike USPS board OKs case; rates will rise Jan. 8
By Melissa Campanelli
Postal rates haven't gone up yet, but mailers are already preparing for the next rate case. Many say it will be filed in the spring and implemented in 2007.
Last week, the U.S. Postal Service Board of Governors accepted the Postal Rate Commission's recommendation to increase most rates and fees 5.4 percent and set the date for Jan. 8, a week earlier than many expected.
"Everybody in the mailing community I've talked with was taken by surprise by this," said Bob McLean, executive director of the Mailers Council. "The fact that rate increases are going into effect a week earlier creates a number of problems. We will have less than 60 days to prepare for it, and ... a lot of people who thought they would take some time off to spend with their families during the holidays will instead be working some very long hours to prepare for the increase."
Chris Lien, commercial mail market director at postal software provider Firstlogic, La Crosse, WI, doesn't expect the earlier date to crimp his company's plans.
"We are still prepared to deliver our software to customers by mid-December, which should give them enough time to implement it before the Jan. 8 date," he said. "We are just crossing our fingers that there won't be any hiccups."
McLean also said several mailers likely will alter their mail plans, pushing non-time-sensitive mail into the mail stream before the increase takes effect.
So what will the next rate case be like? Board chairman James C. Miller has said to anticipate a mid-single-digit increase in 2007. But others fear it may be higher.
McLean, for example, said all of the postal union and management association contracts expire in 2006, "so we don't know what kind of a labor increase might result ... and how that would further influence rates in 2007 and beyond." One thing is certain, he said: "You will not see an across-the-board increase. You will see variable increases, if not a full [reclassification]."
The Jan. 8 rate increase is the first since 2002 and is needed to comply with a federal law enacted in 2003 requiring the USPS to establish a $3.1 billion escrow account. Without this mandate, the increase might have been avoided. The single-piece rate for First-Class mail will rise from 37 cents to 39 cents, and the postcard rate will climb 1 cent to 24 cents.
Though the PRC recommendation called for a rate and fee increase around 5.4 percent for nearly all mail classes and subclasses, different rate changes were necessary in some areas to comply with statutory requirements. For example:
· Rates for small local newspapers will decrease 2.3 percent.
· Rates for solicitations from nonprofit organizations also vary. Generally, Nonprofit Standard Mail will increase 3 percent while Nonprofit Enhanced Carrier Route mail will rise 12.3 percent. In all, nonprofits will pay $17 million less than requested by the USPS.
· The book rate will climb 12.7 percent. By law, all mail classes must cover their direct cost of service, and books, CDs and library materials would otherwise violate this requirement.
In general, regular Standard mail will increase 5.4 percent and Enhanced Carrier Route Standard will rise 5.5 percent. Priority Mail will increase 5.4 percent, Express Mail 5.5 percent, Outside County Periodicals 5.5 percent, Parcel Post 7.1 percent and Bound Printed Matter 5.5 percent.
International rates, which are determined separately from domestic prices, will be adjusted to coincide with the domestic rate changes. International rates have not changed since January 2001. For more information on international rates, go to http://www.usps.com/ratecase/welcome.htm
As long as postal reform doesn't happen and "we have the escrow and the military policy in place, big annual increases are here to stay," McLean said, referring to S. 662 and H.R. 22, the reform bills. S. 662, sponsored by Sens. Susan Collins, R-ME, and Tom Carper, D-DE, still needs to be taken up by the full Senate. The Homeland Security and Governmental Affairs Committee, which Collins chairs, approved the bill in June. The House version, H.R. 22, passed 410-20 on July 26.
Among other provisions, the bills would eliminate the requirement from the 2003 law that calls for the USPS to put at least $3.1 billion in Civil Service retirement savings annually into an escrow account. This would free up $78 billion over 60 years, letting the postal service pay off debt to the U.S. Treasury, fund its healthcare liabilities and mitigate rate increases. The USPS said the escrow account increases yearly and reaches $5.4 billion by 2015, peaking in the mid-2020s.
The bills also would return responsibility for funding Civil Service Retirement System pension benefits related to the military service of postal retirees -- a $27 billion obligation -- to the Treasury Department. No other federal agency has to make this payment.
S. 662 is on hold, however, because of a dispute between Collins and Sen. Christopher "Kit" Bond, R-MO. Bond placed a hold on the bill because he wants to insert language letting mailers challenge prices for First-Class mail if they think the rates are not "fair and equitable." Bond has said his provision -- backed by Kansas City, MO-based Hallmark and other companies that rely on First-Class mail -- would protect consumers from getting higher postage rates to subsidize discounts for large bulk mailers.
Collins has said Bond's language would reduce the postal service's flexibility to set its own rates. Large catalog mailers such as L.L. Bean, Freeport, ME, agree with Collins, as does the USPS. The House's approved bill contains the fairness standard.
The USPS sent a letter to Collins and Carper last week urging them to oppose any amendments to their bill that would benefit some mailers at the expense of the entire system. In the letter, Tom Day, USPS senior vice president of government relations, wrote that Bond's provision "subverts the entire reform bill."
"The proposed language would not protect mailers, but instead inevitably lead to higher rates for all mailers," he said.
Melissa Campanelli covers postal news, CRM and database marketing for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters