PRC recommends rate increase

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The mailing community offered mixed reactions to the Postal Regulatory Commission's recommended rate decision, which included rates either equal to or below those requested by the U.S. Postal Service.

The recommendation of an average 7.6 percent rate increase, which was delivered a week before deadline, was unanimous.

"In nearly every category of mail, including nonprofits, the commission approved rate increases equal to or below the postal service's request, while still meeting the service's revenue requirement," said PRC chairman Dan G. Blair in a news conference Feb. 26, the day the decision was made.

The PRC also approved the USPS' "Forever Stamp" proposal - designed to ease the public's transition to new single-piece letter rates. Forever Stamps will be sold in reasonably limited quantities for the price of a First Class one-ounce letter and continue to be worth the price of a First Class one-ounce letter even if that price changes.

The decision follows an administrative proceeding involving mailers, employee organizations, consumer representatives and competitors.

The PRC determined the USPS would need to increase rates in order to break-even next year. It also determined that the rate designs [???] for many postal products can and should be improved.

While the rate increase will impact numerous classes of mail to varying degrees, the average rate increase will be 7.6 percent. The rates proposed by the postal service equate, on average, to an 8.1 percent increase.

The USPS sought an increase in revenues of almost $4 billion to cover costs for the test year of fiscal year 2008. The PRC recommended rates that would provide $77.6 billion per year and also suggested rates that fully fund the requested contingency of $768 million.

Within this framework, the PRC recommended an increase of 2 cents - rather than 3 cents as proposed by the USPS - for the First-Class one-ounce letter. The rate will rise from 39 cents to 41 cents.

The PRC also recommended an increase of 2 cents - instead of 3 cents as proposed by the USPS- in the rate for postcards. That rate would rise from 24 to 26 cents.

On average, First-Class Mail rates increase slightly less than 7 percent. This reflects the price of the First-Class stamp, generally tracking the increases in the cost of living since the Commission's first rate decision in 1971.

Standard Mail
The PRC recommended changes in rates for other classes as well. For example, it called for Standard mail rates to be raised an average of 9.3 percent. The USPS should also adopt the new shape-based rate schedules "to better reflect costs," Mr. Blair said.

In addition, the PRC increased drop entry discounts which are even greater than originally proposed.

But this does not tell the whole story. Some mailers were alarmed by the effect on lightweight catalogs. The majority of catalogs weighing less than 3.3 ounces will see increases ranging from 20 to 24 percent. In fact, even catalogs weighing 4.5 ounces will be looking at 15 percent to 19 percent increases.

As usual, the greater the carrier route presort and Sectional Center Facility entry, the lesser the effect.

While all catalogs will see increases much greater than the USPS' original proposal, some mailers were particularly concerned about an increase of 42.5 percent increase for automated Standard Mail flats delivered at the 3-digit qualification.

The PRC called for a 9.5 percent increase in regular Standard Mail rates, while the USPS had asked for 9.6 percent.

As for Nonprofit Standard Mail rates, the USPS proposed an 8.9 percent hike while the PRC recommended a 6.7 percent increase.

Similarly, the USPS wanted to boost the enhanced carrier route rate by 8.9 percent but the PRC answered with 6.9 percent.

The PRC left unchanged the USPS' proposal of an 8.8 percent increase in the nonprofit ECR.

The PRC also proposed new rate designs for Periodicals, which better reflect costs and send price signals that encourage more efficient mailing practices. The new design draws from separate proposals suggested by the USPS and Time Warner Inc. These recommended rates reflect an intention to moderate the effect on mailers, yet are intended to foster more efficient, less costly Periodicals mail.

On average, the PRC recommended Periodicals rates increase by 11.8 percent.

DMA concerned
The Direct Marketing Association expressed its appreciation for the effort made by the PRC to mitigate the impact of proposed rate increases for individual, nonprofit and commercial mail.

However, the association said it remains concerned about both the significantly higher postage rates recommended for some classes of mail. It is also worried about the sufficiency of time allowed for large mailers to modify their systems and processes before the new rates take effect.

"While higher postage costs are never welcome for the individuals and organizations that use the mail to send messages and packages, we are pleased that the PRC did adjust the postal service's revenue requirement and responded to some of our concerns about the particulars of the rate request," DMA president/CEO John A. Greco Jr. said in a statement.

"However, we had hoped that more could have been done to offset the extraordinarily high increases for non-flat machinable and parcel mailings," he said. "This is not only the second such increase in two years, but it is also far in excess of the rate of inflation."

Not Flat Machinable
Mr. Greco referred to the controversial new category, dubbed Not Flat-Machinable mail, for Standard Mail pieces with parcel-like characteristics including rigid pieces that are not flexible and not of even thickness.

Today, Standard Mail pieces with parcel-like characteristics qualify as automation flats under USPS guidelines and are handled as parcels, especially at delivery.

Under the new standards, these pieces will be presorted, entered and processed as parcels. Rate prices in this category will be higher than flats but lower than parcels.

Senny Boone, the executive director of the DMA Nonprofit Federation, voiced her concerns about the still-significant increase for non-flat machinable rates.

"The dramatically higher rates and minimal timeline for planning would be devastating to the many nonprofit organizations that use 'front-end premium' mailings to recruit potential donors," Ms. Boone said.

Timing of the case
The USPS' governors can either accept the PRC decision and the recommendation, protest it and implement the rates, or protest it and go back to the commission and ask for a second decision.

Historically, the board of governors has tended to accept the PRC's decisions, though on occasion they have made small changes to them.

If, as expected, the governors approve the PRC's recommendations sometime in March, the new postage rates will likely go into effect in May 2007.

The timing of the case is going to be a significant issue, mailers said.

The DMA, for example, continues to request that the USPS allow at least 90 days for business and nonprofit mailers to prepare for the new rates' implementation. The USPS currently has a 60-day window

"The 60-day window that the USPS continues to latch onto is simply inadequate for the industry overall to understand, implement, and respond to these changes," said Christopher Lien, director of commercial mail marketing at San Jose, CA-based Business Objects, a postal software vendor.

"Sixty days may be just enough to get the software finished, tested and fulfilled," he said. "It is not enough to allow mailers sufficient time to fully implement and adjust. This is why vendors and the Mailers Council recommended 120 days overall: 60 for vendors, 60 for mailers."

Mr. Lien, however, pointed to the fact that the PRC accepted the USPS proposal to reduce the fee for Address Change Service and said this was one of the important aspects of the decision "particularly at a time when the PMG is calling for the next aggressive step in reducing UAA mail."

By reducing Address Change Service fees, Standard Mailers will now have a very cost-effective approach to keeping up with customers on the move, he said.

Furthermore, combining Address Change Service with a pre-mailing Move Update solution, such as NCOALink, really represents a "best-in-class approach for keeping addresses complete, correct, and current," Mr. Lien said.

The future
In looking to the future, the DMA also expressed its hope that all future rate-increase requests will be made in accordance with the new rules and procedures outlined in the postal reform legislation that was signed into law by President Bush in December 2006.

Among other things, these new rules keep rate increases at or below the rate of inflation.

"The rates recommended today by the PRC are designed to carry the postal service through the fiscal year ending Sept. 30, 2008, and reflect the full $768 million contingency fund requested by the postal service," said Jerry Cerasale, senior vice president of government affairs at the DMA.

"With the new rate-setting procedures required to be in place by June 30, 2008, there should be no need for another postal rate case to be filed under the current outdated rules," he said.

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