PRC Issues Recommendations on the Postal Rate Case

Feb 27, 2007 4:10 AM  By

On Feb. 26 the Postal Regulatory Commission (PRC) issued its recommendations on the rate case filed by the U.S. Postal Service last May. For the most part, the PRC agreed with the changes proposed in the case, though it did recommend raising the cost of a first-class stamp by two cents, to $0.41, rather than three cents.

The rate case now goes to the USPS Board of Governors (BOG), which has to wait at least 10 days before voting on the PRC recommendation. Besides voting on the PRC’s recommendations, the BOG determines the implementation date for the new rates. Observers expect the rates to go into effect May 6.

The rate case is designed to increase revenue for the USPS by about $4 billion. In its decision, the PRC says this amount of additional revenue is necessary for the Postal Service to break even next year.

Bob McLean, executive director of the Arlington, VA-based Mailers Council, says he was pleasantly surprised by the PRC’s recommendation of a smaller first-class rate increase. “The reduction of the revenue was unanticipated,” McLean says. “I thought they’d go with what was proposed. What they did was either accept most of the proposed rates or reduce them.”

Unlike the rate hike implemented in January 2006 — 5.4% across the board — the pending case is much more variable. The PRC recommendations call for an average rate increase of 7.6%, less than the Postal Service’s proposed 8.1% hike. It recommends an average standard-mail increase of 9.3%.

But the PRC’s recommendations failed to reduce, or reduce significantly, rates in classes most likely to affect direct marketers, according to the Direct Marketing Association. DMA president/CEO John Greco Jr. said in a statement that “we had hoped that more could have been done to offset the extraordinarily high increases for non-flat machinable and parcel mailings. This is not only the second such increase in two years, but it is also far in excess of the rate of inflation.”

In his opening remarks today, PRC chairman Dan Blair said, “This is a prime example of the Postal Regulatory Commission working together with the Postal Service in the best interest of the citizen mailer.” That statement, McLean says, is telling because historically there has been a strained relationship between the USPS and the PRC. “Blair went out of his way to compliment the Board of Governors,” McLean says. “Clearly the PRC is trying to send a signal.”

Included in the PRC recommendations is a provision for a “forever stamp,” which allows customers the opportunity to buy a nonexpiring first-class stamp that would be valid regardless of future rate changes.

The PRC took its strongest stance against the USPS, McLean says, in the area of work-sharing. “The PRC took a lot of exception in work-sharing. The PRC went out of its way to focus as much attention to work-sharing by class, clearly encouraging the Postal Service to operate additional work-sharing opportunities wherever possible.”

The PRC also recommended the following:

* A $0.26 rate for postcards, a penny less than the Postal Service sought.
* The first ounce of a first-class mail piece would rise to $0.41, but each additional ounce would cost $0.17; currently each additional ounce of first-class mail costs $0.24.
* Express Mail, flat rate up from $14.40 to $16.25.
* Three-ounce barcoded bank statement down from $0.739 to $0.584.

With the rate case, the USPS is trying to align how much it charges for postage with the actual costs of processing the various types of mail. For that reason, a mail piece’s shape will be as critical as its weight in determining its postage. The current price structure is based primarily on weight, but the Postal Service has determined that certain large but lightweight mail pieces actually cost more to process than some smaller, heavier pieces. Another goal of the rate case is to encourage mailers to take on more of the mail preparation tasks, such as sorting, by offering work-sharing discounts. Several of the revisions introduced in January relax the rules regarding sorting and bundling, however, most likely in hopes of encouraging more mailers to participate.

McLean believes the tentative May 6 implementation date might be too soon for mailers. “We think it should be extended a couple of weeks because of the rules changes and the number of tasks that mailers must undertake with rules changes,” he says.

Jerry Cerasale, the DMA’s senior vice president for government affairs, agrees. “Our concern is that the Postal Service may be moving too far and too fast, leaving mailers to struggle with higher rates and lengthy and complex new rules that may be imposed too quickly for mailers to adjust their own systems and plan for new and more efficient mailing pieces,” he said in a statement. “We think it would be better to do things right, rather than to do them fast, to help avoid many operational problems and costly errors for both mailers and the USPS.”

Last week MULTICHANNEL MERCHANT produced a Webinar titled “What Every Mailer Must Know to Prepare for the USPS Rate Case,” hosted by Gene Del Polito, president of the Association for Postal Commerce, and David Marinkovich of DHL Global Mail. To access a free recording of the Webinar, go to MultichannelMerchant.com/events/webinars/rate_update/.

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Postal Service Releases Rate Case Updates
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Five Steps to Shape-Based Postal Compliance
USPS Releases Details of Rate Case

Preparing for the Postal Rate Hike