Mail industry ponders its future after rate hike

With the US Postal Service announcing its rate increases for 2009, the agency and the mailing industry face an uncertain future.

The USPS, facing a well-publi­cized $2.8 billion deficit this year and total mail volume decrease of 9 billion, said the rate increases will amount to a drop in the bucket toward solving the agency’s fis­cal woes. It also faces a cluttered marketplace where consumers and companies have growing options from e-mail and companies, such as Earth Class Mail and the recently launch Zumbox, which provide digitally delivered mail.

“It wouldn’t… have a whole lot of meaning,” said Stephen Kear­ney, SVP for customer relations at the USPS, when asked how much revenue the rate increases might raise for the USPS at a news conference last week.

The USPS is taking several steps to save money this year, including adjusting carrier routes to make them more efficient, freezing the salary of officers and executives, suspending post office construction, and reducing staff­ing through attrition and voluntary early retirement by 37,000, Kearney said.

The actual rate increases, which take effect May 11, include an average increase for Standard Mail Flats of 2.3% and an aver­age rate hike for carrier route flats of 4.3%. Standard rate parcels went up an average of 16%, and the cost of a First-Class stamp was raised two cents, to 44 cents.

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The standard rate parcel increase will most affect mailers that send items weighing under a pound, such as apparel, or music items such as CD, said Jerry Cerasale, SVP for government affairs for the Direct Mar­keting Association.

Overall, Cerasale said that the DMA and other groups advocated for no rate increase, and he believes the further loss of mail vol­ume due to the increases may cancel out any additional revenue the USPS might see because of it.

“Historically, when [the Postal Service] raises rates, it gets more revenue, but times are changing,” he said. “They may still generate additional revenue, but it may be much less revenue than anticipated.”

The modest increase for Standard Mail Flats, the category affecting most catalogers, was largely seen as a victory for that indus­try. However, Hamilton Davison, president of the American Catalog Mailer’s Associa­tion, said that victory was only minor.

“Our rates did not go down, the rates just increased by less than others did,” he said. “I’m appreciative of the Postal Service real­izing the fundamental issues that catalogers face. On the other hand, this hasn’t solved all the problems we are facing.”

Ideally, Davison said he would have liked to have seen “no increase for a couple of years,” and given the economy and cost of mailing, catalogers will have to continue to invest money in more cost-effective alterna­tive media.

“We’re going to continue to look at non-mail alternatives like e-mail, driving con­sumers to Web sites, and digital catalogs,” he said. “We are in the midst of a full-blown crisis for the mailing industry — however, it is addressable.”

The Congressional Government Account­ability Office (GAO) issued a report in late January with recommendation on how the USPS could reduce costs.

One option would be to reduce the USPS payment for retiree health benefits, which Postmaster General John Potter, in testi­mony before Congress, said could save the agency $2 billion this year. The agency is seeking Congressional approval to allow it to pay its share of retiree health benefits out of the Postal Service Retiree Health Benefits Fund instead of its own pocket.

The GAO said another option was “to close unnecessary retail facilities and thereby reduce its large maintenance backlog.”

“USPS’s network of retail facilities has been largely static despite population shifts and changes in mailing behavior,” the GAO explained. “It is important to note that large [urban] retail facilities… generate much larger costs for the retail network than the smallest rural facilities and may therefore potentially generate more cost savings.”

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