**USPS Rate Hikes Will Cost Nearly $2 Billion a Year, DMA Experts SayThe Direct Marketing Association, Washington, DC, backed by 16 major companies and associations that rely on the U.S. Postal Service to reach customers and deliver goods and services, submitted testimony yesterday before the Postal Rate Commission, demanding the USPS reduce its proposed rate increase for next year.
The USPS is planning to hike postal rates by 6.4 percent, which the businesses argue is both irresponsible and unnecessary. The PRC is the oversight board of the USPS.
"The inflation rate from January 1999 to January 2001 will be about 4.7 percent,'' said Jerry Cerasale, senior vice president, government affairs, the DMA. "The rate increase request of 6.4 percent is one-and-a-half times the rate of inflation. We think that is too high. The postal service should only raise rates at or below the rate of inflation.''
The USPS is seeking to hike rates by $3.4 billion in January 2001, although it just raised rates 3 percent in January 1999. The DMA and its backers believe the USPS should slash its proposed rate hike by $1.8 billion, limiting the total customer fee hike to $1.6 billion.
Specifically, the DMA argued that the USPS should keep a smaller surplus fund--the USPS wants a contingency allowance of $1.7 billion-which it believes the agency does not need. The DMA and its supporters want the amount shrunk to $175 million.
"We're sure the postal service will fight our recommendations, because they want the money," Cerasale said. "But the postal service needs to understand that this is an economy where it is not the only game in town. E-mail is everywhere. If the USPS keeps running up its rates, it will find itself out of business."
Cerasale said the planned rate hikes will cause businesses to raise their shipping prices, resulting in an increase in the cost of purchasing merchandise over the Internet. Business mailers will look for other avenues through which to advertise, and the volume of all mail will drop sharply.
"These rate hikes will be the death of the post office," Cerasale said. "The U.S. Postal Service can't afford to drive away its customers."
The PRC concluded its testimony period today and is expected to vote on the rate increase on November 8. The rate hikes are to go into effect in mid-January 2001.
Businesses joining the DMA in today's testimony were: Advo, Inc.; Alliance of Independent Store Owners and Professionals; Alliance of Nonprofit Mailers; Amazon.com, Inc.; American Business Media; Association for Postal Commerce; Association for Priority Mail Users, Inc.; Dow Jones & Company, Inc.; Florida Gift Fruit Shippers Association; Greeting Card Association; Magazine Publishers of America; Mail Order Association of America; Major Mailers Association; The McGraw-Hill Companies, Inc.; Parcel Shippers Association; and Time Warner, Inc.