Preparing for the Postal Rate Hike

Oct 01, 2006 9:30 PM  By

Any impending postal rate increase has catalogers scrambling for ways to minimize the financial hit, from reducing page counts and printing on lighter paper to cutting back on prospecting and looking into cost-savings strategies such as comailing and cobinding.

The current rate case, which was proposed in May and calls for an average rate increase of about 9% for Standard Mail, is no different — except that the U.S. Postal Service has shaken things up in terms of pricing criteria. For starters, under the pending case, 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. The USPS was expected to release specifics of the rate case this month; if approved, the new rates will be implemented in mid-2007.

In addition to the importance of shape in setting rates, Sharon Daniel, acting manager of mailing standards for the USPS, says mailers need to remember two other things: automation compatibility and good addressing. “That’s definitely the theme,” she says.

Joe Schick, director of postal affairs for Sussex, WI-based commercial printer Quad/Graphics, says his company is advising clients to step up their list hygiene. “First thing, without changing trim size, what we’re suggesting clients do is look at mailing lists and addresses and make sure they have sound, deliverable addresses that meet all the postal requirements,” he says.

Incorrect addresses in databases of companies continue to exist because approximately 17% of the U.S. population — about 44 million people — moves each year from one location to another, according to the Postal Service. Keeping up with all of those annual address changes is a daunting, unending task, but mailers would be wise to keep their lists as clean as possible.

The shape of things to come

“As in First-Class Mail, Standard Mail pricing has greater recognition of shape, and a reduced reliance on weight,” the Postal Service wrote in a summary of the rate case filing it released on May 3. “In general, Standard Mail pieces that are not compatible with our automated processing, or are parcel-shaped, would receive above-average increases.”

The vast majority of catalogers already produce books that fit within the parameters of the USPS’ flat sorting equipment. For example, the minimum size is 5″ × 6″, maximum is 12″ × 15″, and no more than 3/4″ thick or 20 oz. in weight. But even catalogers whose trim sizes wouldn’t incur extra charges may want to alter their book size to take advantage of copalletization and comailing — two practices that Don Landis, vice president of postal affairs for Menomonee Falls, WI-based printer Arandell Corp., says ‘will be a necessity.”

Copalletization consolidates the physical bundles of mail, which have already been addressed and presorted, onto pallets. Mail that has been bundled onto pallets prior to its entry into the USPS system is discounted; mail that hasn’t been palletized isn’t. Comailing goes a step further: Individual pieces of mail are combined into presorted bundles prior to being palletized. Presorted bundles receive greater USPS discounts than unsorted bundles.

Copalletization does not change the publication’s presort qualification or package makeup, whereas comailing does because each title’s file is merged with other participants’ files, and the entire “pool” is presorted into qualifying packages as a larger mailing. Copalletization saves simply by getting the mail out of sacks and onto pallets, but with comail additional savings are generated by increasing the quantity of high-discount packages.

The impending rate hike may inspire some mailers to reduce trim size or even go up in trim size “to help them be more applicable to some comailing applications,” says Schick. Already Lenox Collections, a Langhorne, PA-based manufacturer/marketer of tabletop items and collectibles, adjusted its catalog size to be more efficient in the mail as well as on press, says Lisa R. Warburton, associate production manager for the catalog division.

Lenox catalogs now measure 8″ × 10-1/2″ instead of 8-3/8″ × 10-1/2″. The company made the change with its Fall Preview 2006 edition, which dropped in early August. “A lot of catalogers are this size,” Warburton says, “and it makes it possible for us to multibind.” Multibinding entails running two different catalog editions, often from two distinct companies, on the same bindery line at the same time so that they can be comailed.

Chicago-based auto parts cataloger J.C. Whitney took similar steps with its trim size when the previous rate case was implemented in January. “We standardized the size of all our books [to 8-3/8" × 10-1/2"], standardized paper weights, and as much as we possibly could cobound and comailed our books,” says president Lawrence J. Marmon. “We now have standardized specs for our books, and as much as we can we have a standardized mail date. With the volume that we have, we were able to offset the postal rate increase.” Marmon estimates J.C. Whitney’s catalog circulation to hover around 25 million next year.

Likewise, upscale bedding merchant Cuddledown reduced the width of its catalog about 18 months ago. “We now have a common trim size of 8″ × 10-1/2″,” says Deb Dyer, marketing director for the Portland, ME-based mailer, “which already helps us save postage and paper. It also helps us when looking for comail partners.” The cataloger’s printer, Quebecor World, has helped it realize “significant” postage savings in 2006 by comailing with another catalog. “We hope to find additional savings partnering with even more catalogs in 2007,” Dyer says.

Comailing, incidentally, can provide other benefits besides cost savings. For J.C. Whitney it “has really helped from a delivery standpoint,” Marmon says. “In-home delivery had been spotty in the past, but since we began comailing this year, our books are arriving like clockwork.” (The November issue of Multichannel Merchant will include a feature detailing the whys and hows of comailing.)

Share and workshare alike

The postal discounts given to mailers that bundle and presort their catalogs prior to their entering the mail stream reflect the USPS’s greater emphasis on worksharing.

One aspect of this will result in the creation of additional sortation levels. Currently there are five sortation levels, but the proposed rate case calls for nine. And as of mid-September, the USPS had yet to release the definitions, requirements, and pricing of every level, though these details were expected to be part of the guidelines issued in October.

But it’s clear that drop-shipping deeper into the postal stream — sorting and delivering catalogs into destination delivery units (DDUs), the individual post offices, rather than into the bulk mail centers (BMCs), for instance — will play a greater role in determining final postage rates under the proposed changes.

Landis says postal discounts tie into the volume of mail. According to the pending rate case, he says the proposed per piece savings would increase from 2.7 cents to 3.4 cents for pieces weighing less than 3.3 oz. Proposed discounts for BMCs, he says, will increase from 2.2 cents per piece to 2.8 cents.

Weighty matters

Making the rate case even more complex is that mailers of lightweight pieces will likely see their rates increase by a greater percentage over than those mailing heavier pieces, says Arandell’s Landis. He expects catalogers whose books weigh 3.3 oz. or less to be hit with higher rate increases than those mailing heavier catalogs.

Considering that the average catalog weighs 3 oz., Landis believes that most catalogers will be paying more than the 9% increase that the USPS says will be the average rate hike for Standard Mail. He thinks catalogs weighing less than 3.3 oz. will see an 11%-13% rate increase, and “pieces weighing around 14 or 15 oz. might see only a half percent increase or less.”

Heavier books still cost more to mail than lighter books, though, so catalogers may benefit from going to a lighter paper, says Bruce Jensen, vice president of U.S. sales for Montreal-based printer Transcontinental’s Catalog and Magazine Group. For example, a mailer producing 100,000 84-page catalogs “would be able to save 7.2% in postage costs by dropping from a 40-lb. coated body to a 35-lb. coated body,” Jensen says. “This savings can also be enhanced by changing from a coated sheet to a supercalendered sheet” because a supercalender sheet is about 10%-15% lower in price than a coated sheet.

What’s more, Jensen continues, lower-grade papers “have gotten better and much more cost-effective,” especially now that newer presses can print as efficiently on lighter-weight stock as on heavier paper. “We’ve tested with it, and it can reduce postage 5%-8%. It depends on the size of the catalog.”

Every time there’s a postal rate case, “it spurs a lot of activity with catalogers changing basis weight of paper,” Landis notes. But some mailers are already as low as they want to go with paper stock.

Cuddledown’s Dyer, for instance, says her company doesn’t plan to switch paper in response to the pending rate case. “Over the years we’ve reduced our text basis weight from 45-lb. to 42-lb. to 40-lb. to 38-lb.,” she says. “Though changing to an even lighter basis weight can reduce postage costs, we feel we’ve reached the lowest weight upon which we’re comfortable printing. We don’t want to cheapen our brand and image of high-quality luxury bedding by having our catalog look or feel too flimsy to the consumer.”

Even so, the postal rate case “should make catalogers take a hard look at every aspect of their catalog — if they haven’t already — from size and page count, to paper weight and grade, to mail plan,” Lenox’s Warburton says. “Open communication with suppliers, and developing the best partnerships possible is the best way to be prepared for changing market conditions such as the anticipated postal increase.”

Need more information regarding the USPS rate case and how it will affect your catalogs and parcels? Then join Gene Del Polito of the Association for Postal Commerce, David Marinkovich of DHL Global Mail, and Sherry Chiger of Multichannel Merchant for a free Webinar, “How to Cope with the USPS Rate Case,” on Oct. 3. For details, visit www.MultichannelMerchant.com.

PRINTERS FEEL THE PRESSURE

Many catalogers entrust their printers with a variety of services, from prepress and list hygiene to paper management and postal logistics. So when a postal rate hike is on the horizon, catalog printers are often on the front lines.

The pending postal rate increases could have a “significant” impact on catalog customers, says Tom Murray, executive director of postal affairs and distribution for Menasha, WI-based printer Banta Corp. “Proposed classification issues will also affect our print and mailing operations,” he says. Banta is intently monitoring the events of the rate case. “We are also in high-level discussions with mailing associations, the Postal Rate Commission, and the USPS on targeted issues of this complex rate case filing.”

While the pending rate case has no doubt sent many a cataloger into panic mode, others are taking an “out of sight, out of mind” approach, says Bruce Jensen, vice president of U.S. sales for Montreal-based printer Transcontinental’s Catalog and Magazine Group. They’re waiting to deal with the rate hike when it gets here — but they could be in for quite a shock once it’s approved. The postal rate increase “makes the catalog business that much harder to play in,” Jensen says, “while it continues to stretch the demands on mid- and smaller-size catalogs.”

Not to mention the demands on smaller printers, says Don Landis, vice president of postal affairs for Menomonee Falls, WI-based printer Arandell Corp. “With this rate case, we’re going to see a weeding out of the small printers,” he says. “This could have a dramatic effect on the printing industry.” — JT