Who Pays for the Rate Case?

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Why is the U.S. Postal Service filing a rate case when it has packed away $4.5 billion in profit over the last three years and $1 billion in the first quarter of fiscal 1998?


Although an increase may seem unnecessary to the customer, the USPS thinks it can justify it this way: Three years ago, it had a debt of about $9 billion, amassed over the 25 years since the end of the United States Post Office and the creation of the USPS. The interest on that debt added to the postage increases requested by the USPS each time we had a rate case.


In addition, the USPS is investing in the future, renewing its infrastructure and increasing the quantity and quality of its automation equipment. The more mail is in the automation mail stream, the lower its labor costs.


The sideshow of this rate case is the spin the USPS has put on it. Those who attended the Postal Forum in Las Vegas earlier this year heard just about every postal official who stepped to the podium applaud the "1-cent increase" -- the increase from 32 cents to 33 cents for nonbarcoded, nonpresorted, 1 ounce First-Class mail.


If your company is like mine, this is an inconsequential part of your business, as we barcode, presort, drop ship, mail Standard A and commingle to avoid mailing at 32 cents.


The rate increase is contrary to moving more mail into the automation mail stream, however. Consider this:


* For First-Class letter mailers, the finest automated sort barcoded carrier route, rates increase 6.2 percent, while the least sorted, nonautomated First-Class nonbarcoded residual mail increases only a little more than 3 percent. Why is the barcoded rate -- the mail that is easier for the USPS to handle -- twice the nonbarcoded, nonpresorted rate?


* For Standard A mailers, line-of-travel carrier route letter mail increases by more than 9 percent, while nonbarcoded residual mail decreases 3.5 percent -- again, a presorted increase of more than twice nonpresorted rate.


As USPS business partners and customers, we have invested in software, hardware and equipment based on the USPS goal of automating the mail. As the mail preparers, we have assumed a lot of the responsibility that used to lie with the USPS. Our capital spending and costs have increased to save the USPS labor.


The contradiction comes when the USPS proposes a larger increase for the mail supporting these investments, like First-Class barcoded carrier route mail, than that proposed for a postage decrease for Standard A nonbarcoded residual mail. That proposal sends the wrong message to the mailer: It is OK to mail at a rate that ignores the USPS incentives and circumvents the work-sharing programs in which mail prepares invest. It is inconsistent with both the mailing industry's goals and the USPS' goals.


May will bring the response from the Postal Rate Commission on the rate case. But, the commission can return rates other than those the USPS recommended. And the Board of Governors and USPS officials have intimated that any rate increase may be postponed because of the USPS' recent excellent financial health.


The best way to prepare for any upcoming rate increase is to know what the effect will be on your business. Do some modeling. Find out how much the proposed rate case will cost you (or save you in some instances). Can you adjust your marketing and mailing strategies to take advantage of new USPS options, or to reduce the effect of increase? Contact a mailing expert to get some advice.


Mitch Goldklank is senior vice president of marketing at Communication Concepts Inc., Ivyland, PA.

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