Nervous Mailers Eye Likely '07 Rate IncreaseThough mailers are relieved that the postal rate increase proposed last week was relatively small, they are concerned about its effect on their businesses and that another rate increase is expected in 2007.
The U.S. Postal Service filed a case April 8 with the Postal Rate Commission announcing its plans to seek a 5.4 percent across-the-board increase in early 2006.
The decision to seek the increase results from the postal service's legal obligation to fund a $3.1 billion escrow requirement. The escrow fund must be established by Sept. 30, 2006. The contribution amount increases each year.
Legislation under consideration in Congress aims to reform the postal system. Postal officials have said that if legislation were enacted to eliminate the escrow funding requirement, the request for the rate increase would be withdrawn.
Charley Howard, vice president, postal affairs at Harte-Hanks, who works from the company's Glen Burnie, MD, office, said the proposed rate increase is a short-term matter.
"The real issue is what happens a year from now, or perhaps as early as next March, when the postal service may file a real omnibus rate case," he said. "The rate increase will most likely be higher, and the case will be more complex. While there is a remote chance that the escrow may be eliminated, we all have to face the fact that it's there, and that it's a growing escrow every year."
USPS chief financial officer Richard J. Strasser Jr. said earlier this year that the postal service would need a rate increase in 2007 because of the rise in benefit costs and the cost of living allowances and wages. However, he said the agency is considering consecutive rate filings that are smaller and more frequent, rather than a three-year cycle with the rate shock that accompanies it.
Howard analyzed the newly proposed increases for the categories within Standard Mail and found little difference among them.
"It seems like the finer sorts, with the least handling [by the USPS], get the highest increases," he said. This probably is because the categories with the most handling are not used that often by mailers, he said.
"How many people use categories like presorted basic anymore?" he asked.
He said that on average "we are only talking about a half or whole percentage point" among the Standard categories.
"I was expecting at least a 14 to 20 percent increase," said Howard, referring to last year's expectation by the mailing industry of a double-digit increase. "Don't look over your shoulder, because it is right behind you."
Also, the National Federation of Independent Business voiced concern recently about the harm that rate increases have on small-business owners. The small-business advocacy group called on Congress to enact postal reform.
The cost of a stamp last rose in 2002 when the price of a First-Class stamp climbed from 34 to 37 cents. At that time, the NFIB released its Regulatory Impact Model study on postal rate increases, which indicated that increases would cost small business $2.5 billion.
"Small business is always in danger from stealth tax hikes," said Dan Danner, NFIB executive vice president of public policy. "Like all regulations, this postage increase will end up costing more than just a couple of cents for the Main Street business owner who depends on mail service as a way to market services and products to potential customers."
The 2002 research found that the average small business spent about $338 monthly with the USPS, or about $4,000 yearly. This varied substantially by business size, with firms employing 10 people or fewer spending about $239 monthly and those with 20 or more employees spending more than $1,000 monthly.