Sen. Susan Collins, R-ME, asked Postal Regulatory Commission Dan G. Blair how important rate shock is to the agency’s decision on Standard flats mail, at a hearing yesterday.
Sen. Collins spoke at the Subcommittee on Federal Financial Management, Government Information, Federal Services and International Security hearing on the postal service. The subcommittee is part of the Committee on Homeland Security and Governmental Affairs. Witnesses included Mr. Blair, Postmaster General John E. Potter and Kate Siggerud, director of physical infrastructure issues for the General Accounting Office.
“To what extent does the PRC take into account rate shock?” Sen. Collins asked Mr. Blair. “In other words, do you look at what the impact of a rate increase is going to be on a specific segment of the mailing community?”
Mr. Blair said that the PRC does look at rate shock, along with the attributable costs of the subclasses and the institutional costs.
“In this particular case, I would urge the committee to consider that these proposed rate increases came on the heels of two settled cases over the course of the past seven years,” he said. “Because of the settled case, some mailers…were insulated from the higher rates they would have faced if the case was fully litigated. This time there was a fully litigated rate case, and prices were intended to be more fully aligned with costs. The postal service came to us with rates that were shape-based, meaning the shape of the mail has cost-causing attributes, and those were recognized in the case.”
Mr. Blair said the bottom-line is that “we attempted to align rates with costs. We understand that these are high increases and a heavy burden for many mailers to bear. The governors have allowed us to reconsider and that is the process in which we are in.”
On March 19, the governors of the U.S. Postal Service issued a decision approving the PRC’s average 7.6 percent rate increase, with requests for reconsideration of the Priority Mail Flat Rate Box, the non-machinable surcharge for First Class Mail letters and Standard Mail flats.
For Standard Mail flats the governors are concerned that price increases recommended by the PRC may impose an unnecessary degree of “rate shock” on the catalog industry and small businesses particularly. The recommended increase for some catalog mailers is as much as 40 percent, which is more than double what the Postal Service had proposed.
In her opening statement, Sen. Collins explained how many small catalogers in her state will be negatively impacted by the rate increase.
For example, she discussed Lewiston, ME-based Geiger Bros., the nation’s largest family owned and managed Promotional Products distributor and publisher of the Farmer’s Almanac.
“This company estimated that the proposed decision would cause an increase in mailing costs of 29 percent,” Sen. Collins said. “This proposed increase would cost this family-owned business an additional $600,000 this year.”
She also mentioned Portland, ME-based Cuddledown, a nationally known manufacturer of luxury down comforters, down pillows, and featherbeds, which is essentially a catalog company.
“This is another family-owned business…and it estimates that the proposal would increase its mailing costs by 18 percent,” she said.
Sen. Collins also said she’s heard from Freeport, ME-based L.L. Bean, a world leader in catalog sales, and said that “it would be negatively effected by the sudden and substantial rate increase, and they tell me that are looking at whether they need to reduce mailings in order to maintain postage costs at a sustainable level.
“That’s what happens when you have a sharp increase in postal rates – then mailers look for other ways to deliver their product and that causes a decline in volume, which is the last thing we want from the postal service.”
Sen. Collins also said that the comments filed with the PRC in response to Standard Mail rates indicate that the increase would cost jobs and threaten the economic vitality of many companies throughout the United States.
Ms. Collins also said that she hopes the USPS does not file another rate increase under the old law.
“Filing a rate case would divert resources and efforts from developing a modern system for rate regulations as required under the new postal reform law,” she said.