USPS rate structure still unpredictable

Although most direct mailers are confident that the US Postal Service’s new rate-setting regulations will be preferable to the old system, which has been in place since the 1970s, how and when future rate changes will go into effect are still a source of speculation.

The new rate-setting system requires that the average increase for a given class of mail, excluding competitive products like Express Mail and Priority Mail, cannot exceed the rate of inflation. However, within a class, such as First-Class or Standard Mail, subclasses of mail can be raised higher or lower than the consumer price index as long as the average for the entire class does not exceed the CPI.

“It’s going to be hard to say how [the USPS is] going to react,” says Hamilton
Davison, executive director of the American Catalog Mailers Association. “It can’t please everyone.”

Under the new rate regulations, the USPS could simply give everyone a cost-of-living increase, Davison adds. But then, he says, it should “use its new pricing power to go out and establish a more business-like, market-driven pricing solution that is clearly distinct from the cost-based history that it has.”

Davison feels that the USPS needs to segment its customer groups as finely as possible. For example, companies that sell high-end furniture have different mailing behaviors from those selling $5 products.

“A concern I would have is that the Postal Service not repeat massive increases for certain products within this new class system,” says Tony Conway, executive director of the Alliance of Nonprofit Mailers.

With massive rate increases, the volume of a given category just falls out, Conway adds. “It not only hurts the mailer, it hurts the Postal Service because it loses the volume and the revenue that goes with it.”

“As long as [the USPS] maintains the classes of mail it currently has, I think we’re relatively safe,” says Judy Costello, director of mailing production for PEP-Direct. She expressed concern that certain types of mail would be moved into different categories, resulting in large rate increases that would otherwise be unexpected under the new regulations. 

Newell White, owner of Postcard Services, says that the new regulations make much more sense than what the postcard business has seen in the past few years. In 2006, the USPS raised rates for postcards by one cent, and this May two cents. He feels that the USPS should hold off on any future increases, even if they are tied to the CPI.

“I think [the USPS] should take a year off and be fair about it,” he says.

The USPS’s Board of Governors has not yet decided when price changes will take effect. Its next meeting takes place December 10-11.

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