*USPS Seeks to Raise Rates 6.4 Percent

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The U.S. Postal Service board of governors announced an overall 6.4 percent rate increase yesterday that would go into effect in January 2001. The rate case will be given to the Postal Rate Commission today.

For Standard-A mailers, the overall average proposed increase is 7.7 percent. The largest proposed increase -- 14 percent -- is for some automation flats, or catalogs, because of the increased cost of processing flat-shaped mail. In terms of Standard-A, the proposal calls for increasing the maximum weight for Standard-A mail automation letters to 3.5 ounces and increasing the discounts for destination delivery unit, sectional center facility and bulk mail center drop shipment piece and pound rates.

Nonprofit Standard-A mail also would see a range of increases. Nonprofit Standard-A mail would increase an average of 5.6 percent, with Nonprofit Enhanced Carrier Route mail increasing by 4.9 percent, while Nonprofit Regular subclass mail would increase by 9.4 percent.

Also important to direct mailers is a proposal to increase to the Priority Mail rate. The 1-pound rate would rise 7.8 percent, but the flat rate -- which includes anything that fits in a Priority Mail envelope -- would increase 20.3 percent, from the current $3.20 to $3.85.

These rates are not final, however. After the USPS gives its proposal to the PRC as required by law, the PRC then holds hearings and issues its decision, which takes 10 months. Assuming commission approval, the matter then goes before the postal governors, who are expected to make the final decision in November or December.

If approved, these rates would stay in place for two years, the postal service said.

Direct markets are concerned about the high Standard-A rates -- which are above the rate of inflation -- particularly since the First-Class letter rate is increasing only 3 percent, which is below the inflation rate.

"The USPS is calling for commercial interests to shoulder an inordinate proportion of the fiancial burden of the new rates," said DMA president/CEO H. Robert Wientzen.

Of particular concern to many mailers is the fact that the USPS used outdated fiscal year 1998 data to come up with its figures. Many had hoped it would wait until February or March to file the case so 1999 data could be used.

"The USPS is using obsolete cost and revenue data from fiscal year 1998 to project ahead to fiscal year 2001," said Neal Denton, executive director of the Alliance of Nonprofit Mailers. "The stale 1997-1998 data ignores the effects of the billion-dollar rate hikes of January 1999. By waiting just two more months, the governors could have used more current fiscal year 1999 numbers."

Anita Bizzotto, vice president, pricing and product design at the USPS, said the agency "couldn't wait any longer," to begin the process. The agency said it has to raise rates -- despite a $363 million profit for fiscal 1999 -- to make $3.7 billion in new revenue because it still carries a $3.5 billion accumulated deficit, built up over many years of operating in the red. In addition, like its competitors, the agency also faces rising fuel prices.

John Ward, vice president of finance at the USPS, also mentioned that the recent arbitration, agreement between the National Association of Letter Carriers and the USPS -- which cost the USPS hundreds of millions of dollars -- is decreasing its profitability.

"The health benefits alone in that agreement were $150 million more than we expected," he said.

Because the USPS operates as a semi-independent federal agency, it doesn't receive tax money for operations and relies solely on the sale of postal products and services to cover operating costs.

"This request is just the right amount at the right time for the postal service to maintain a minimum universal service and lead us into the new millennium with the best performance, planning, technology, and management system in postal service history," said Einar V. Dyhrkopp, chairman of the USPS' board of governors.

Mailers, it seems will be facing rate increase from all of the major delivery companies. Over the last few weeks Federal Express, Airborne Express and United Parcel Service all have announced rate increases and surcharges that will take effect in February.

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