Postal: Rate Hikes Will Follow Reform Bill

Nov 16, 2007 4:04 AM  By

Catalogers can breathe a sigh of relief: It’s official that postal rate increases will follow the Postal Reform bill passed 11 months ago. The U.S. Postal Service’s Board of Governors announced Thursday that future price increases will be tied to the Consumer Price Index (CPI), or rate of inflation, for mailing services that include First Class, Standard Mail, and periodicals.

The BOG said future prices would be adjusted using new regulations issued by the Postal Regulatory Commission (PRC) on Oct. 29. The board’s decision is consistent with the Postal Reform and Accountability Act, which calls for a rate-increase cap that ties future postage increases at or below the rate of inflation. It also has strict criteria regarding conditions for emergency rate increases.

Technically, the BOG could have filed one final rate case under the old regulations in place since 1971, but voted to proceed with the new pricing regulations. “We thank the Postal Regulatory Commission for completing the new rules eight months ahead of the statutory deadline,” Postmaster General John E. Potter said in a release. “This delivers one of the main goals of the new law for business mailers–a predictable price schedule.”

With the new pricing regulations, the Postal Service has more flexibility for shipping services, including bulk parcels and expedited package services such as Priority Mail and Express Mail. “We intend to use this new flexibility to grow our competitive business offering volume discounts and contract pricing,” Potter said. “There are still many details to be worked out, but we look forward to partnering with the PRC and our customers to maximize the advantages of the new pricing rules.”

Regarding the BOG’s decision to tie future price increases to CPI, Gene Del Polito, president of the Association for Postal Commerce, says: “We were hoping this was the decision they would make. For us it will mean predictability. Increases and change will come but, by and large, we know they won’t deviate greatly from what the rate of inflation is.”

In the latest postal rate case, catalogers were hit hardest, with many facing increases from 20% to 40%. Del Polito is convinced that the Postal Service is fully aware of the tribulations facing many catalogers due to the rate hike in May. “There is absolutely no doubt in my mind that the Postal Service fully appreciates that catalogers got whacked in the last rate case and have no intention of repeating that,” he says.

But others are holding off on the celebrations. Hamilton Davison, executive director of the American Catalog Mailers Association, says the misconception in the industry is the CPI cap tied to future price increases precludes exorbitant rate hikes like the one sustained this year by catalogers. “The CPI cap is at the class level,” he says. “The entire class has to be averaged out to at or below CPI level.”

Some classes within can be all over the board, Davison says. “Our real concern is because so many other Standard Mail classes have been very active in postal policy advocacy, they’re claiming their mail is highly automated and cost effective, and the brunt of cost increases should be put on flats.”

In other news, the Postal Service recorded an eighth consecutive year of productivity growth in fiscal 2007. Total factor productivity, which measures the relationship between workload and resource usage, rose 1.7% compared to fiscal 2006. A reduction of 36 work hours, which is equivalent to $1.2 billion, attributed to the growth.

For fiscal 2007, which ended Sept. 30, the USPS incurred a net loss of $5.1 billion. Postal officials attributed the loss to mandatory funding requirements in the Postal Act of 2006. The year-end loss is about $300 million less than projected earlier this year.

“It’s important to note that we not only achieved our plan, which had to be adjusted to reflect the new law, but we overcame a slow start and did better than our mid-year projection,” Potter said. Without the financial obligations due to Postal Reform, the Postal Service would have ended the year with net income of $1.6 billion. Total revenue for fiscal 2007 was $74.9 billion and expenses totaled approximately $80 billion. Mail volume was 212 billion pieces.