Mailers Fear New Rates Won't Reward Efficiency

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Mailers have started drilling down into the U.S. Postal Service's rate case proposal, and they are concerned that the proposed rates will not reward some mailers of highly efficient mail.

The U.S. Postal Service filed May 3 for an average 8.5 percent rate increase with the Postal Rate Commission. Among the proposed rates: Standard Mail would rise 9 percent; Periodicals, 11.4 percent; Priority Mail, 13.8 percent; Express Mail, 12.5 percent; and package services, 13.4 percent. First Class would climb 7.1 percent to 42 cents.

For business mailers, it generally means postage increases of 7 to 18 percent, based on averages for various mail classes.

The USPS said that these rates respond to changes in operations and the marketplace and that the prices will encourage mailers to make adjustments and help the agency process mail more effectively. Proposed prices also recognize that each shape of mail piece -- letter, flat and parcel -- has different costs that need to be covered.

If approved, the rates should take effect by June or July 2007.

"We expected complexity, and that's what we got. We expected to see the possibility of wide variances in the percentage of increase in each class of mail, and that's what we got," said Joe Schick, director of postal affairs at printer Quad/Graphics in Sussex, WI. "Our other expectation was that mailers would be highly rewarded for preparing efficient mail. That is the one thing we don't know if we got."

Periodicals is one area of concern. For example, the USPS said in a statement that the rate case would enhance drop-ship incentives for Periodicals.

But "many publishers are finding just the opposite, that the incentives to drop-ship have been drastically reduced," said a publishing executive who requested anonymity. "That's certainly true for us. In fact, we have now modeled the change and have found that our savings from [drop-shipping] would decline by about 30 percent with the new rates. A lot of people are scratching their heads trying to figure out what is going on."

Standard Mail increases average 9 percent, but depending on the weight, shape, presort and drop-ship level, the increase could differ greatly. Generally, parcel-shaped pieces and mail that is not automation compatible will incur above-average increases.

However, Charley Howard, vice president of postal affairs and special projects at Harte-Hanks in Glen Burnie, MD, had concerns about the rates.

"If you look at Standard letters and just automation," he said, "the worse the sort, [then] the lower the increase. You want it to be the other way around."

But Mr. Howard is pleased that the USPS increased the discrepancy in drop-ship increases to sectional center facilities versus destination delivery units.

"They did incentivize us to go deeper," he said. "That helps with some of the pain."

As for Standard flats, Mr. Schick said one of the biggest changes to the rate structure is separating rates for three-digit and five-digit sorted mail.

"This will parallel what has been in place for letters," he said.

Mr. Schick also said that the pound rate in Standard has been reduced to reflect more emphasis on piece handling and less on the piece's weight. But in the pound rate category, the piece rate part of the equation has increased much more than the average for Standard Mail.

"On the surface it appears that heavier pieces will benefit with lower overall increases," he said.

The USPS also said that Standard "flats" such as CDs/DVDs now mailed in jewel cases would be defined as a processing category in between flats and parcels in the proposed structure, with a 78 percent increase in rate for a jewel box mailed at Standard Mail rates. Mailers should look to redesign the piece to be more flexible and qualify as a true automation flat, the USPS said.

For business mailers using First Class, the USPS proposed separate rate structures and prices for letters, flats and parcels. Because postal costs are higher for processing flats and parcels than for letters, mailers will see larger increases for flats and parcels.

Similar to Standard Mail, the USPS decided to let pieces, rather than pounds, be the main determinate in pricing. This is illustrated by the proposed reduction pricing for the second ounce, from 24 cents to 20 cents for single-piece; from 23.7 cents to 15.5 cents for automated letters; and from 23.7 cents to 20 cents for flats and parcels. Some new rates would be lower than today's rates.

"This means more bang for your buck when you mail heavier pieces," Mr. Schick said.

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