The rate case, and the shape of things to come

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The current rate case may mark a revolution in how the U.S. Postal Service determines rates. For the first time, the proposed rate structure would consider both shape and weight. The planned increase averages 8.5 percent, but items that require hand processing would see increases of up to 90 percent.
Today's machines can read an address, print a barcode and sort more than nine letters per second. And technology has largely automated the processing of handwritten letters as well as flats and parcels. But the USPS realizes these efficiencies only when mail works with these tools.
That's why the proposed rate structure, expected to take effect in May, offers price incentives to encourage automation-friendly mailing. The plan penalizes packages that require manual processing when more efficient options exist. As the item gets lighter, the rate increase percentage soars. A two-ounce letter, for example, actually decreases 2 percent to 62 cents, but postage for a two-ounce First Class parcel jumps 90 percent to $1.20.
To minimize the effects of the proposed rate changes, companies are looking for ways to improve efficiency. Replacing small boxes and padded mailers with paperboard envelopes or expansion envelopes downsizes shipments from parcels to flats. Similarly, folding letter-size documents can reclassify flats as letters. Both yield savings.
But the business community won't absorb the entire impact. Many companies will pass higher shipping and handling costs on to consumers.
"It's already starting to happen," said Jeff Ehrlich, president of Fulfillment Plus in Holtsville, NY. "A lot of online retailers are pulling back on free shipping." This shift removes one of the main advantages of online shopping.
Mr. Ehrlich predicted the proposed rate change would spark scrutiny of marketing practices.
"Is it better to increase the retail price and offer free shipping," he asked, "or should companies lower the retail price but charge for shipping?"
Other affected practices include the addition of marketing materials with each order. Businesses will have to scrutinize each insert or catalog to determine whether the return on investment justifies the higher postage.

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