Rate Case Fights Getting Expensive

Standard-A and periodical mailers are gearing up to fight a possible new postal rate increase but are concerned about the costs of litigating a new rate case after having done so just last year.

Though the U.S. Postal Service has not formally stated how much of an increase it will seek, the agency's Board of Governors said that the USPS must begin preparing a new rate case to ensure its financial future. Insiders said the increase would be hefty, with increases averaging 15 percent to 20 percent and even higher for magazines. The USPS, which faces a possible net loss of $3 billion this year, is reportedly seeking $6 billion in new revenue.

The Magazine Publishers of America this week expressed outrage and disbelief over the reports. Postal rates rose an average of 4.6 percent on Jan. 7.

“The postal service's new plan to impose a whopping rate increase is simply unbelievable,” said Nina Link, president/CEO of the MPA. “It would follow on the heels of a 9.9 percent rate increase for periodicals that took effect only a few short weeks ago. … The impact of such an increase will be felt by tens of millions of households across America who every day receive magazines, parcels, letters and every other kind of mail.”

Associations and large mailers are also outraged because they have to budget for another rate case only a year and a half after the last case began. Traditionally, rate cases have taken place every three years.

“Most in the mailing industry figured the rate case would begin in 2002. We didn't think it would come so soon,” said Jim Cregan, executive vice president at the MPA.

It is expensive to litigate a case, and related costs make up a large portion of a mailing association's budget, mailers said.

“For some of the larger associations, costs can run anywhere from a quarter of a million and up,” said Robert E. McLean, executive director at the Mailers Council, a coalition of more than 50 corporations, nonprofit organizations and major mailing associations that use the USPS to deliver correspondence, publications, parcels, greeting cards and payments. Collectively, the council accounts for as much as 70 percent of the nation's mail volume.

The costs of fighting a rate case can include everything from inhouse staff to lawyers to myriad paperwork that has to be filed, “and the money that these associations will have to fork over for another rate case has probably already been committed and a lot of it has probably already been spent,” McLean said.

Jerry Cerasale, senior vice president for government affairs at the Direct Marketing Association, would not reveal how much the DMA spends on rate cases, but he said, “We spend a significant amount of funds — we are not in the low end of the range.” However, Cerasale said the DMA usually works closely with other associations in rate cases to share expenses.

“We were able to achieve this in the past rate case, and we will continue in this next one,” Cerasale said.

In addition, Cerasale said the DMA would fight the rate case, no matter how much it costs, because “the potential cost to the industry — to not get some corrections — can be devastating. … In the last rate case, we managed to cut $800 million out of the rate case, and that's a lot of money. Therefore, the return on investment is pretty high.”

Regardless, the costs associated with the rate case will undoubtedly be even greater this time around.

“This is not just litigating a rate case,” Cregan said. “In addition to dealing with the immediacy of another rate case and trying to stop it, everybody involved is now looking at postal reform.”

The MPA also expressed serious concern about the future of the postal system.

“The country needs an affordable, dependable postal system providing universal service far into the future,” Link said. “We want to keep the mailbags full. Continuously increasing rates is precisely the wrong approach. A private-sector business concerned about its future would cut costs and rationalize operations before raising prices. The postal service should do the same.”

She added, “The long-term viability of the postal system depends on the ability of the postal service to contain costs and operate with greater efficiency and productivity. Today, we are calling on the postal service to freeze hiring and take other actions rather than strap a huge postal rate hike on the backs of consumers.”

Link said other actions should include “leveraging existing assets, eliminating unneeded capacity and using existing borrowing authority to smooth out annual fluctuations. Passing along increasing costs by raising prices should be last on the list of alternatives explored by the postal management.

“These actions would be a sensible alternative to raising rates at this time while enabling the Congress, the new administration, the USPS Board of Governors and the incoming postmaster general to fully review the future of the postal service,” she said.

The MPA — which represents more than 240 domestic publishing companies in the consumer magazine business — already started an effort to fight another increase. Last year, it launched a three-year, $10 million advocacy campaign to fight the 15 percent magazine rate increase that the USPS originally filed with the Postal Rate Commission, the oversight board of the USPS, and to pursue postal reform aggressively. Rates for magazine publishers increased 9.9 percent in January.

The goals of the campaign include bringing the USPS rate increase to the attention of the American public and Washington insiders; persuading the USPS to bring the rate increase for periodicals more in line with the rate of inflation and the more modest increases proposed for other classes of mail; and reforming the way the USPS does business.

The USPS board and postal management will discuss reform and rate issues at its Board of Governors meeting and strategic retreat next week.

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