Start Date Is Crucial in Rate Case

The testimony phase of R2000-1 is complete. The Postal Rate Commission has retired to contemplate the important rate decisions it has to make. We will learn the PRC’s recommendation around Nov. 10. The commission’s decision is only a recommendation because the U.S. Postal Service’s Board of Governors has the responsibility for the rate increase and its implementation date.

The Postal Reorganization Act of 1970 lets the governors establish their own postal rates but only by a unanimous vote. Because this is considered unlikely in the current situation, the recommended decision of the PRC will be what the rates will be. However, the starting date for the new rates is solely the responsibility of the governors. Rumor has it that new rates could be implemented as early as Jan. 7. That’s what I want to discuss.

But first, let’s go over the process that begins when the PRC issues its recommended decision. At that time, two actions are set in motion. The postal service’s staff begins an analysis of the PRC decision so it can make an accept/reject recommendation to the Board of Governors. The governors have a regularly scheduled meeting Nov. 13-14. This is a week later than normal, probably because Election Day falls the week before. This meeting, coming on the heels of the PRC decision, is probably too soon for a full USPS review and board decision. Therefore, unless a special meeting is called, the board will probably make its rate increase decision at its Dec. 4-5 meeting.

The second action that begins with the PRC decision is industry lobbying. The governors’ rules permit the mailing industry and other interested parties to petition the governors for the 10-day period that begins with the PRC decision.

Many in the industry will undoubtedly petition the governors to reject some or all of the PRC decision. In my view, this will accomplish little. The key issue to lobby the governors about is the starting date for the new rates. Lobbying the governors will not be easy, as they have done an excellent job of insulating themselves from postal customers. Therefore, let’s discuss what’s involved in implementing new rates.

Implementing new rates is always complex. Computers may not run the entire world, but they run the way mailers submit their mailings to the postal service. If the only thing that happened as a result of a postal rate case were the imposition of higher rates, matters would be relatively simple. But rates are not the only thing that change. The postal service uses the rate changes to develop new “makeup” rules. Makeup rules define the way a mailer barcodes, sorts, bundles and enters mail into the postal network. This sounds innocuous, but it involves thousands of hours of programming time.

In preparation for the changes expected from R2000-1, the postal service and industry have spent a lot of time resolving and agreeing to the makeup changes expected from R2000-1 rate requirements. These makeup changes are then translated into programming code so that the mailing output meets postal requirements.

A relatively small number of software companies supply this programming makeup coding. Their code not only manipulates the physical output for all components of all classes of mail, it also calculates the postage to be paid. To this mass of supplied code, larger mailers have developed programs that interface with their own fulfillment or marketing files. Both sets of code need to be completed, debugged and integrated in order for a mailing to be correct.

It’s hard to generalize, but it’s believed that most, though not all, of this work has been completed by software suppliers and mailers. However, all of this work has been done under the assumption that the PRC will propose rates and a rate structure that is consistent with all the programming that has been done. Though the PRC will probably do what is anticipated, it might make changes, which would require recoding.

To this complexity of change, we need to note the obvious: The mailing community continues to mail on a daily basis. And the mailing process usually begins at least a month in advance of the mail date, because of the complexities of the mailings brought on by list segmentation, magazine or catalog makeup or multistep inserting requirements.

Let’s put some dates into this. Assume the PRC issues its recommended decision Nov. 10. Assume an unexpected modification, however minor, will be made to the USPS rate design proposal. My guess is that it will take four to six weeks to finalize coding and to debug whatever modification is necessary to both software supplier and mailer code. We are now somewhere between Dec. 8 and 22. This chronology assumes that all goes correctly and that there are no major surprises. I should note that one of the major postal software suppliers, which shall remain nameless, has stated that its software won’t be ready for two months after Nov. 10.

Now back to those December dates. By that time, mailing labels for the February issues of monthly magazines are already selected, and the physical makeup and postage calculation are already completed. Catalogers and other high-volume mailers have similar lead-time stories to tell.

While mailers face the complexity of getting software ready and interfacing it with their mailing programs, the postal service also faces a challenge – the challenge of soft revenues and increasing expenses. The rate case the PRC is considering would provide the USPS with about $2.5 billion in additional annual revenue, about $200 million each month. Therefore, any delay in implementing new rates would be costly to the postal service.

So the problem matches the postal service’s need for revenue against the inability of reliable software to produce properly prepared mail by early January.

It’s a difficult choice for the governors. Perhaps it calls for a King Solomon-type decision – two different implementation dates depending on the kind of mail involved. For example, the governors could increase the single-piece rate in mid-January, because that mail is minimally affected by mail makeup changes and software needs. All other commercial rates could be increased in February, or when accurate and reliable software should become available.

This solution would provide a good portion of the money needed by the postal service and would give the mailing community the time it needs to provide accurate, well-prepared mail.

• Cary H. Baer is a direct marketing consultant and chairman of the Association for Postal Commerce (Postcom), New York.

Related Posts