Mailers regroup after postage increase plan

John Potter, CEO and postmaster general of the USPS, described the organization’s challenges in restoring financial stability in stark terms last week. He expects a cumulative shortfall of $238 billion by 2020 as mail volume drops by 27 billion pieces.

He added that the USPS is working with the Postal Regulatory Commission to determine the size of an exigent price increase and its timing.

“We are not talking about anywhere near double-digit increases,” Potter said. More specific information about the rate increase is expected within weeks.

Potter also described the agency’s efforts to move to a five-day delivery schedule, work with Congress to change the USPS’ pension-payment system and improve and modernize the agency’s consumer-facing services.

While the proposal of five-day home delivery gets the most media attention, marketers and media companies have the price increase on their minds, industry experts say.

“What was shocking is that they said they are going to file for an exigent price increase, and also talked about making further adjustments to periodical mail on top of that,” says James O’Brien, VP of distribution and postal affairs at Time Inc. “I think people understand the Postal Service’s situation – everybody gets it. But it’s hard to sell your CEO or CFO on the fact that postage is going to go up in 2011.”

Regarding the rate increase, O’Brien adds “it could put some people out of business. Not Time Inc., but some marginal players out there who may not be able to absorb this increase.”

Kelly Browning, EVP at the American Institute for Cancer Research, says changes to the USPS’ rate increase system “makes it look like they are pulling back from the whole concept of postal reform.”

“That is particularly troubling for the direct mailing community because rate stability is something we needed for a long time, and we still need because it gives us more stability,” he says. “It allows us to plan year-to-year and plan on knowing what the range of the increases will be.”

The Postal Service ran a net loss of $3.8 billion for its 2009 fiscal year, which ended September 30, 2009. Although it earned a profit of $179 million for last December – the peak time of the year for gift and card mailing – it reported a loss of $592 million for January 2010.

For the 2010 fiscal year, the agency has predicted a revenue decline of $2.2 billion, as well as a net loss of $7.8 billion, cost reductions of more than $3.5 billion and a reduction in mail volume of 11 billion pieces.

Hamilton Davison, executive director of the American Catalog Mailers Association, expects the Postal Service to keep the exigent increase to the single digits. He says that the USPS will also have no choice but to again raise prices if Congress doesn’t give it the flexibility to cut in other areas.

“It’s unclear right now whether it will be spread across all mailers or be different by mailers or products,” he says. “If Congress doesn’t allow them to do what they need to do, they are going to go heavily on pricing, and they know that would be completely counterproductive. Most mailers are suffering.”

Most stakeholder groups, he adds, realize that “everyone has to give a little bit.”

Jerry Cerasale, SVP of government affairs at the Direct Marketing Association, says that his organization’s members are split on the USPS’ attempt to move to five-day delivery. He adds that the group is also against the price increase that Potter described.

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