Potter: Energy Costs Fuel Upcoming Rate Increase Filing

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KISSIMMEE, FL -- The U.S. Postal Service cannot continue to absorb high fuel costs, Postmaster General John E. Potter said yesterday, and the agency plans to file its next rate case as soon as this month. Also, smaller, annual increases could begin in 2009, he said.

Since the USPS raised rates in 2002, "fuel has risen more than $1 a gallon, costing the postal service over $1 billion a year for the gasoline we purchase directly," Potter said in his keynote speech at the 2006 National Postal Forum.

Fuel and energy-related costs are major drivers of the Consumer Price Index, he said, but unlike most businesses, "the postal service still has CPI-based [cost of living adjustments] in our collective bargaining agreements, which in turn have driven our cost per work hour up 9 percent since 2002. That means this year's salaries and benefits are $4.5 billion more than they were four years ago."

However, the USPS never added a fuel surcharge, he said, absorbing all of the costs.

Healthcare is another cost driver for the USPS.

"Despite the reduction in employees, our annual health benefits costs have grown some $2 billion -- or 36 percent -- since 2002," Potter said.

And given the effects of inflation, he said, "there is a need for another rate adjustment. When? Sometime in 2007." He added that "management and the Board of Governors have been reviewing our finances and discussing the alternatives for some time now."

The filing with the Postal Rate Commission could come as soon as this month, he said. Insiders here expect it April 17, with implementation next spring.

"The filing will reflect a break-even scenario in 2008," Potter said. "Remember, rate adjustments are made to conform with the law that assures all Americans have access to universal service and that the postal service break even over time.

"We have worked hard to present to the governors a case that is fair, that gives mailers options to lower the impact of the rate change through greater use of work-share discounts, and that reshapes prices to reflect the actual cost by type of mail being delivered, be it letters, oversized letters, magazines, catalogs or packages."

Potter said the agency could have delayed January's 5.4 percent increase until 2007. However, it wasn't prudent to do so.

"But everything we heard has been that the industry would prefer smaller, more predictable and manageable rate adjustments than one extremely large one that provides 'sticker shock' to you and to your clients," he said.

The agency plans to move toward smaller, annual increases beginning in 2009, Potter said.

Potter also discussed intelligent mail and the four-state barcode.

"Without cluttering up the envelope, the new codes will provide a rich source of data to manage mail, track performance and create value," he said. "Already, a number of companies have been assisting us by using the four-state barcode on live mail."

The results have been incredibly good, Potter said.

"I fully expect the new codes to go live for letter mail by September," he told attendees.

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

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