USPS Files for Rate Increases

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The Board of Governors of the U.S. Postal Service on Tuesday authorized the immediate filing of a request for an overall rate increase of 8.7 percent.


For First-Class mail, the USPS will ask for a 3-cent increase on the price of a First-Class stamp, which equates to an average 8.8 percent increase. The increase would be 7.3 percent for Standard Mail; 9 percent for packages; 10 percent for periodicals; 13.5 percent for Priority Mail and 9.7 percent for Express Mail.


Details on the rate cells associated with this filing won't be ready until later this month, and the full request will be submitted to the Postal Rate Commission later this month as well.


The Direct Marketing Association announced opposition to the USPS board's request for a third postage rate increase in 18 months. The DMA said the increase could cost U.S. consumers and businesses an additional $5.6 billion in an already slowing economy on top of the almost $3 billion worth of increases implemented earlier this year.


Given the timing of the postage rate approval process, the increase could take effect during the 2002 holiday season. This may drive USPS customers, especially commercial mailers who generate upward of 85 percent of mail volume, to more economical alternatives, which would further hurt the USPS' viability.


"With another greater-than-inflation-sized increase, the postal service is writing a how-to book on driving customers away," said H. Robert Wientzen, president/CEO of the DMA. "In this slowed economy, instead of looking at ways to pass along increases to its customers, the postal service needs to focus on cost-cutting as a way to remain viable while maintaining its customer base."


This is the first time the USPS has increased rates and sought approval for another round of increases in the same year.


Board of Governors chairman Robert F. Rider said he recognized the concerns of customers but that the board is requesting an expedited decision because of the USPS' finances, economic trends and mail volume growth.


"This was a very difficult decision," Rider said, "but we simply don't have the basic tools necessary to operate in a modern, businesslike manner."


The USPS is projecting a deficit of $1.65 billion for the fiscal year that ended Sept. 7. It blamed the economic slowdown and high labor, fuel and healthcare costs for the shortfall. Pressure also continues as the USPS begins arbitration with three of its four largest unions. Meanwhile, costs continue to grow as 1.7 million new addresses are added annually, which represent significant infrastructure cost.


Rider said cost-cutting efforts enabled the postal service to keep the increase below the 10 percent to 15 percent that had been speculated.


"Management's continuing actions in reducing costs will allow us to file for an overall rate increase of just under 9 percent," he said.


Indeed, the USPS management team has initiated cost-cutting actions. A $1 billion capital-spending freeze has stopped construction and renovation on more than 800 postal projects, and it will continue into next year.


Postmaster general Jack Potter, who spoke to the board, also said another $2.5 billion in costs will be taken out of the system in the next two years and that the USPS will continue to consolidate mail processing. In the past two years, 21,000 positions have been deleted, while another 13,000-workyear reduction is planned for this year.


Potter also recently announced an organizational restructuring that would bring added focus to the USPS' core business. It includes reducing administrative costs, reorganizing the marketing and sales organization and reviewing e-commerce activities that are not tied to the mail.


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