Postal Service unveils price increases; industry groups plan to fight implementation

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The US Postal Service unveiled details of its proposed “exigent price increase” on July 6. Direct marketing and mailing industry trade groups immediately vowed to fight the price increase.

Catalog mailers will see their postage prices increase by 5.1% on average on January 2, 2011, if the US Postal Service's proposal to raise prices above its statutorily imposed price cap is approved by its regulator, the Postal Regulatory Commission (PRC). The Postal Service said it would file an application for the price changes on July 6, drawing the ire of direct marketing and other industry groups.

Other direct mailers would see price increases of about 5%, although companies that mail Standard Mail Parcels (packages weighing less than a pound) would get hit with a 23.3% price increase. The First Class Stamp's price would go up 2 cents to 46 cents.

The Postal Service's filing for an “exigent” price increase on its mailing services products is unprecedented. By law, the USPS can raise prices annually on market-dominant products as long as prices do not exceed the cumulative growth in the Consumer Price Index. However, with inflation relatively flat the past year and the USPS on track to lose $6.5 billion this fiscal year and $7 billion in 2011, it decided to invoke the exigency provision in the law, which allows the Postal Service to break the price cap for “extraordinary or exceptional” circumstances.

Steve Kearney, SVP of customer relations at the USPS, said this move is necessary because the Postal Service is at risk of financial insolvency.

“This is not a stand-alone effort, but part of our larger plan to restore the Postal Service to financial health,” he said.

The recession has prompted a dramatic decline in mail volume, Kearney said. From 2007 through 2009, the Postal Service lost 36 billion pieces of mail, equaling a 17% decline and dwarfing all previous recession-related volume drops.

If approved, the postage price increases could provide the Postal Service with revenue of $2.3 billion in FY 2011 and help it close the gap on its expected $7 billion loss in that fiscal year. Should Congress take action this fall to revise the USPS' prefunding schedule for retiree health benefits or fix the Civil Service Retirement System overfunding situation, the Postal Service could pull the proposal before the January 2, 2011 effective date, Kearney acknowledged.

“But we don't think anything will happen quickly, and we have a growing gap and potential loss of $238 billion over the next decade,” he said.

The Affordable Mail Alliance, a new coalition of mailers that includes the Direct Marketing Association, Direct Brands and Boardroom Inc., among others, said July 6 that it would fight the filing on the grounds that it is unlawful.

“We firmly believe that this is unlawful, bad economics and bad public policy. The Postal Service is abusing the emergency provision in the law that was put in there just for emergencies,” said Jim Cregan, an organization spokesman and EVP of the Magazine Publishers of America.

The group has 129 members and is growing by the hour, Cregan said.

“Never before in the history of the US Postal Service has the entire customer base risen as one in passionate opposition to a rate case,” he noted.

The USPS has also proposed a few pricing incentives for direct mailers, including a “Reply Rides” product that encourages the inclusion of marketing pieces in bills and invoices and an extension of the Saturation Mail rebate, which would also be available to High Density Mailers.

The PRC has 90 days to decide if the Postal Service's proposal meets the standard for an exigent price increase. The USPS intended to submit its filing to the PRC late July 6.

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