Postal Increases Take Effect as USPS Sees Volume Drop

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As mailers begin paying the new postal rates that went into effect yesterday, they may have to prepare for another increase as a result of lower-than-expected volume and revenue numbers released last month by the U.S. Postal Service.

The USPS said revenue for accounting period three -- Nov. 4 to Dec. 1 -- in fiscal 2001 was $5.01 billion, or 2.4 percent below budget and 0.1 percent less than the same period a year ago. Expenses totaled $5.1 billion, or 0.1 percent below budget and 5.5 percent more than last year. For AP3, the USPS had a $91.7 million loss. So far in fiscal 2001, the USPS' net income of $245.9 million is $141.8 million below budget and $570 million less than last year's figure of $816.4 million.

The USPS also reported weak volume and revenue for Priority Mail for the fiscal first quarter, from Sept. 9 to Dec. 1. For the quarter, year-over-year volumes were down 3.6 percent and revenues were down 2.6 percent.

Accounting period four -- and the rest of the fiscal year -- probably won't be any better, said Alan Robinson, president of Direct Communications Group, Silver Spring, MD, a consulting firm focusing on the postal and parcel market.

"FedEx and UPS have stated that volumes are flat and even declining, so USPS' AP4 numbers for Priority Mail, Express Mail and Parcel Post will probably end up being flat as well," Robinson said. "There has also been a slowdown in retail sales this Christmas season, so the postal service is unlikely to receive the revenue and profit that they were expecting at the beginning of the fiscal year."

This, he said, could mean another rate case in the summer.

"All of the current projections suggest that [the USPS] will be losing money this year, and they have a requirement to break even," Robinson said. "If they are not generating enough revenue, they are supposed to either cut costs or raise rates, and [they probably will] raise rates."

Meanwhile, last month, the USPS Board of Governors allowed, under protest, the overall 4.6 percent postage rate increase recommended by the Postal Rate Commission. The USPS originally had sought a 6.4 percent rate increase, which would have brought in $2.8 billion in additional revenue.

The board has sent the case back to the PRC to reconsider decreases in the USPS' revenue request that the commission recommended in November. Specifically, the PRC cut the agency's contingency request of $1.7 billion to $1 billion.

Postal service comments were filed with the PRC on Dec. 20, and the board said it "urged the commission to reconsider and issue a further recommended decision as quickly as possible." Other participants have until Friday to respond to USPS comments, and final USPS responses are due back to the commission by Jan. 19.

The average increases for each class of mail are 1.8 percent for First Class; 9.9 percent for periodicals; 4.5 percent for regular standard enhanced carrier route; 8.8 percent for all other regular Standard Mail; 2.7 percent for Parcel Post; 17.6 percent for bound printed matter; 16 percent for Priority Mail; 7.2 percent for nonprofit periodicals; and 4.8 percent for Nonprofit Standard Mail.

Analysts said the proposed rate change would increase postage expenses for business mailers by $2 billion. While large companies rarely pass this increase on to customers by raising prices -- and instead absorb the additional costs as an expense -- smaller companies often have to raise their prices.

Though associations and companies lobbied to delay the new rates until March to give postal software vendors and mailers time to adjust and test software changes, many appear to be ready.

Over the past few weeks, postal officials have worked with mailers and vendors to make sure there are no disruptions in the implementation process this year and to ensure that they were ready to handle the rates and classification changes. The USPS told mailers to contact the USPS' rates and classifications service centers for an exception to the requirements on or before the implementation date if they were not prepared.

Anita Bizzotto, vice president of pricing and product design at the USPS, said everything is status quo.

"We do have some exceptions, but this is expected whenever there is a rate case, and we're seeing nothing out of the ordinary right now," she said.

Victor Forman, vice president of postal affairs at Group 1 Software, Lanham, MD, a postal software vendor, said, "All of our customers have had our software for some time, and it looks like there will be a very solid release of software this year."

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