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USPS May File Phased Rate Increase in '05

Mailers are taking a wait-and-see approach to news that the U.S. Postal Service may file a phased rate increase next year. The USPS is expected to file a rate case in the spring, and rates could rise in early 2006 — possibly a double-digit increase.

However, Steve Kearney, vice president of pricing and classification at the USPS, said officials are considering a phased rate increase.

“In the next rate case, we are planning for the possible introduction of annual price changes with a phasing mechanism, where we would file with the Postal Rate Commission a rate case designed to cover two years, but we would implement the rates in two phases,” Kearney said.

This could mean an equal percentage rate increase in each of two years on predetermined dates, though single-piece, First-Class rates would be set at whatever the total rate increase is for the two years. Such an approach would require approval from the USPS Board of Governors and the Postal Rate Commission. The postal service has never implemented phased rate increases.

“We are thinking about [this plan] for the next rate case, but nothing is definite until the PRC receives a filing from the Board of Governors, and a lot can change, such as our financial outlook,” Kearney said. “However, in the best of both worlds, we plan to file a rate case where the rates would be phased in two phases, and, ultimately, we'd like that to become our long-term pattern because we think customers will value the predictability and smaller increases.”

Kearney said phased rate increases also would help with the postal service's internal budget and cash-management planning.

“There is a built-in cost of uncertainty in the system,” Kearney said. “One example is that we don't keep up with our operating changes if we only change rates every four years.”

The Direct Marketing Association's membership generally favors “smaller increases spread out over time,” said Jerry Cerasale, senior vice president of government affairs at the DMA.

“There is a general, initial positive reaction to a phased rate case,” he said, but added that the devil is in the details. “If the phases are huge jumps, that tends to negate some of the positive impact.”

Bob McLean, executive director of the Mailers Council, Arlington, VA, said his membership is intrigued by the idea but has many questions. For example, he would like to know “what exceptions the postal service might include that would allow it to alter the scheduled rate increases.” He said the mailing community is somewhat split on the issue.

“Some mailers appreciate the predictability that would come from phased rates, while others don't want an increase to come any sooner than is absolutely necessary,” he said.

Ellenor Kirkconnell, assistant director of the Alliance of Nonprofit Mailers, Washington, also said the plan has many unanswered “what ifs.”

“Does this mean that [mailers] can go to the bank with a two-year increase every two years, no matter what?” she asked. “In addition, if the rate increase is equal over two years, does that mean that it will have to be a higher increase than the postal service would have proposed without phased rates? It's still not clear.”

Kirkconnell also said the USPS jumped on the concept that mailers wanted phased rates and that they will accept an increase every year as long as they can budget for it, but “most mailers would be better off without having rate increases [at all]. So whether or not they have met the mailers' needs or not is questionable.”

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