Rate Case Renews Reform Cries

Mailers and associations expressed concern last week about the U.S. Postal Service’s filing for an average 8.5 percent postal rate increase with the Postal Rate Commission, and they reiterated the need for postal reform.

The May 3 PRC filing also requests permission to issue a nondenominational First Class forever stamp that would be good for any future 1-ounce single-piece First Class Mail letter, no matter how prices may change beyond 2007.

Among the increases planned, Standard Mail will rise 9 percent; Priority Mail 13.8 percent; Express Mail 12.5 percent; package services 13.4 percent; and special services 11.2 percent. First Class will climb 7.1 percent to 42 cents from the current 39 cents.

If approved, the rates should take effect by June or July 2007.

Within 10 months, the PRC must transmit a recommended decision back to the USPS Board of Governors. The board may accept the case as is or send it back to the PRC, which can change or approve it. It then goes back to the board, which has three options: It may approve the PRC recommendations, reject them or allow them under protest. If accepted, the board sets the implementation date for the case, such as when the rates take effect.

“Postal rate increases are never good news for organizations that rely on the mail to get their messages and packages out, and this latest increase would mean millions of extra dollars in costs for commercial mailers and nonprofit organizations,” said Jerry Cerasale, Direct Marketing Association senior vice president for government affairs.

The governors cited rising fuel and healthcare costs as among the reasons for the filing.

“The postal service is not immune to the cost pressures affecting every household and business in America,” Postmaster General John E. Potter said in a statement. “However, by the time new rates take effect next spring, the cost of a First Class stamp will have increased by an average of just a penny a year during the last five years, less than many other consumer products and services.”

The USPS said it is extremely sensitive to rising energy costs. It operates a fleet of 260,000 delivery vehicles, supported by air transportation contracts, 17,000 long-haul surface transportation contracts and a network of 37,000 facilities.

The agency also has seen growth in health benefit payments for 621,000 current employees and 445,000 retirees. In 2005 alone, these costs rose by $437 million, reaching $6.6 billion.

The USPS said the 2006 filing is the first time in nearly five years that it proposed to adjust postage rates to cover rising operational costs. Though postal rates did change in January 2006, that resulted from a 2003 federal law requiring the USPS to place $3.1 billion in escrow. Congress has not yet determined how the postal service may apply these funds.

In announcing the rate case filing at the PRC, the USPS also stressed a movement to give business mailers incentives to create more efficient mail pieces, based on weight and shape.

Currently, USPS prices do not distinguish among letters, flats and parcels as much as they could. For example, in First Class Mail, the current price is 63 cents for a 2-ounce piece regardless of whether it is a letter, flat or parcel. The proposed prices, the USPS said, recognize that each of these shapes has substantially different processing costs and should have different prices, and this new pricing encourages efficiency. So if the contents of a flat are folded and placed into a letter-size envelope, the mailer can save as much as 20 cents. If a parcel is reconfigured as a flat, the mailer can save up to 38 cents. In both cases, USPS costs are reduced, leading to greater efficiency.

“While DMA supports providing discounts for organizations that use the mail more efficiently, this latest proposed increase is quite complex and demands close scrutiny by mailers,” Mr. Cerasale said. “The devil could be in the details, with substantially higher rates for some categories of mail. For example, the postal service noted a 90 percent increase for the price of mailing a 2-ounce First Class parcel.”

Faced with possible continued price increases that exceed the inflation rate, the DMA warned that many business and nonprofit mailers will be forced to limit mailing campaigns and seek cheaper ways to communicate with current and potential customers. Cutting back on mailings will affect not only downstream industries such as paper and printing, but also reduce USPS revenue, necessitating additional rate increases or even service cuts to keep the postal service afloat.

Art Sackler, executive director of the National Postal Policy Council, whose members include First Class mailers such as banks, financial services companies, utilities, telecommunications companies, insurers and mail service companies, agreed.

“If you look at history, including the first quarter of this postal fiscal year, there has been a decline in First Class Mail, and the reason for that has been a diversion into electronic communications,” said Mr. Sackler, speaking at a media teleconference last week sponsored by the Coalition for a 21st Century Postal Service. “So I can tell you that with the size of the current rate case here, that is going to continue.”

One group that is very concerned about the rate case is in-county newspaper mailers. The National Newspaper Association said their rates could rise nearly 25 percent.

“The National Newspaper Association vigorously opposes this increase,” said Jerry L. Reppert, NNA president and publisher of the Anna (IL) Gazette-Democrat. “This has to be one of the saddest days in the history of community newspapers. And the postal service, which has always been one of our strongest partners, seems to be saying our mail is no longer desirable because newspapers are shaped like newspapers and have to be transported in containers that the postal service no longer wants to use.”

Nonprofit mailers also were concerned, stating that the increase may prove especially harmful. Nonprofit periodicals and educational journals also face large rate increases.

“Didn’t we just do this?” said Ellenor Kirkconnell, acting executive director of the Alliance of Nonprofit Mailers. “After imposing an almost across-the-board hike in January 2006 to cover the unnecessary debt imposed by Congress that waits to be repaired, some community-based churches and charities face an average increase of 8.4 percent and as much as a 24.2 percent rate hike for some Periodicals mailers next year.”

The USPS also indicated its intent to move to an annual cycle for rate adjustments. The DMA supports the goal of annual, predictable rate adjustments but emphasizes that increases generally should be tied to the inflation rate.

“Today’s proposed increases, and the ones that went into effect in January, are far higher than the current rate of inflation,” Mr. Cerasale said. “Moreover, with annual increases, there is no need for a contingency provision, which in today’s filing is approximately $700 million.”

In announcing plans for a “forever stamp,” Mr. Cerasale also said that the DMA is pleased with USPS plans for such a stamp, noting that the agency is thinking about how to reduce the burden of annual rate changes for individual mailers.

The main issue, however, is that the proposed rate increase drives home the need for reform.

“These frequent rate increases are just temporary fixes on a system that needs serious repair,” Mr. Cerasale said. “Postal reform legislation would significantly reduce the impact of the USPS escrow payment. If the current House or Senate bills were in effect today, the proposed rate increase would be less than half of what the postal service is asking for.”

Bob McLean, executive director of the Mailers Council, agreed.

“There are two reasons why the size of this increase is larger than necessary,” he said. “One is the escrow account, which requires the postal service to collect and set aside more than $3 billion annually into a fund, money that may not be spent without congressional approval. The second is the military pension policy that created an unprecedented and indefensible change in federal policy, making a federal agency pay the military pension costs of its retirees — a stamp tax pure and simple.”

Postal reform bills awaiting action by a congressional conference committee, he said, would eliminate these two policies, saving stamp buyers billions of dollars yearly.

“We urge the White House to join with the chairmen of the two postal oversight committees and support passage of these bills,” Mr. McLean said. “Otherwise, they will be held accountable for helping price the postal service out of existence.”

The House has not yet named its conferees, but the Senate has.

Ben Cooper, chairman of the 21st Century Mailers Coalition, said in the teleconference that Rep. Tom Davis, chairman of the House Government Reform Committee, is waiting until he can find enough representatives who would pass a bill acceptable to President Bush.

Reform bill H.R. 22 passed last summer, and S. 662 passed in February.

If reform is passed, the USPS could alter its rate case, but insiders said it probably would not bring any short-term relief for mailers.

U.S. Postal Service Rate Case

  • Additional ounce rate: As the USPS increases the emphasis on shape in pricing, it can reduce the role of weight. For example, as First Class pieces become heavier, the proposed price increase declines. For letters over 1 ounce, the proposed prices are actually lower than today’s because the proposal includes a 4-cent reduction in the additional ounce rate.
  • Priority Mail Flat Rate Box: The agency proposes that the Flat Rate Box, now being tested, become a permanent Priority Mail product. The new price for the box, regardless of weight, contents or distance traveled, would be $8.80.
  • Express Mail : Currently, Express Mail has a half-pound price, and anything heavier (but less than 2 pounds) pays the 2-pound price. The USPS proposal adds a new 1-pound price. This reduces the price increase for pieces weighing less than a pound.
  • Automation letter-size pieces: The agency’s proposed pricing encourages mailers to prepare letters that support its delivery point sequencing program. Standard Mail destination entry discounts are realigned to ensure that the letters are entered at the plant that does the sorting.
  • Standard Mail parcels : A proposed pricing structure for parcels allows for expanded work-sharing options, including a new destination delivery unit incentive. Though parcel rates overall would rise to reflect their higher costs, mailers can mitigate the increase by sorting to 5-digit ZIP codes and entering the parcels at the DDU.
  • Periodicals: USPS proposed pricing includes efficiency incentives for mailers to use pallets rather than sacks, or to fill sacks with more mail. The agency also enhances drop-ship incentives, particularly for publishers of high editorial content publications.
  • Parcel Select: To enhance efficiency, the agency is building the barcode discount into the base price for Parcel Select-DBMC parcels and requiring that all parcels be barcoded. This supports USPS efforts to streamline acceptance and verification. The filing also proposes increases in the drop-ship discounts for Parcel Select.
  • Address Change Service (ACS): To encourage addressing quality and promote efficiency, the USPS is reducing most of the existing ACS fees and proposing a new, lower-priced OneCode ACS using the four-state barcode. The lowest fees would be available for First Class letters using OneCode ACS, with the first two changes for an address provided at no charge. The USPS also proposes a low-cost ACS solution for Standard Mail letters.
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