Catalog Mailers May Get Hit With Massive Postal Increase

Apr 02, 2011 12:24 AM  By

Catalogers, brace yourselves: Your postal rates could increase 22% this year or next, according to Hamilton Davison, executive director of the American Catalog Mailers Association.

The reason? The Postal Regulatory Commission this week issued its Annual Compliance Determination. The ACD assesses the financial and service performance of the U.S. Postal Service in fiscal year 2010.

And for the first time in an ACD, the PRC found rates for a market dominant product, Standard Mail flats—the category affecting most catalogers—are not in compliance with the Postal Accountability and Enhancement Act of 2006. Specifically, catalog rates are not complying with the section of the PAEA requiring a fair and equitable apportionment of the cost of postal operations.

According to the ACD, the USPS has “repeatedly failed to utilize existing pricing options to address the growing Standard Mail intra-class cross subsidy. It is directed to take appropriate action to end the intra-class cross subsidy.”

The attributable cost of Standard Mail flats in fiscal 2010 exceeded revenue by $577 million, resulting in a cost coverage of 82% with a loss of 8.2 cents per piece. The ACD directs the USPS to devise a plan to improve the cost coverage of Standard Mail flats.

According to the ACD, the USPS “has the flexibility under the PAEA to hold the overall increase for the class to CPI while combining below CPI increases for, say, Standard Mail letters with above CPI increases for Standard Mail flats.” USPS officials could not be reached for comment.

Could catalog postal rates really go up that much? Yes, says PRC spokesperson Norman Scherstrom.

“The PRC has directed the USPS to implement above average price increases for the deficient products in future rate proceedings to close the gap and eventually correct it,” Scherstrom says. “The commission’s objective in providing the USPS with pricing flexibility (with no strict timetable) is to avoid or minimize the possible rate shock for affected customers as the rates move toward compliance.”

Scherstrom says Standard Mail carrier route flats do cover their costs, which include carrier route, high density, and saturation products. The products not covering costs are the MADC (mixed area distribution center), AADC (automated area distribution center), 3-digit, and 5-digit Standard Mail flats.

Davison is unsure if this massive increase will be implemented this year or in 2011. But the situation for catalogers is dire, he says. “The hammer has been brought down. The clock is now ticking.”

Worst case is the USPS could get back to the PRC “and rejigger its rate increases so it could happen this year,” Davison says. But it would take some time to find experts and get studies done, he notes. “The best case is we have a year before the substantial increase.”

From the data published by the USPS and PRC, the ACMA estimates it would take an increase of 22.3% to bring flats to full cost coverage. But this neglects to account for inevitable volume loss so the ultimate figure could be higher.

Davison hopes that the upcoming ACMA’s annual forum (June 21-22 in Washington) can serve as a summit meeting on the issue. “This is preventable if it’s addressed,” he says. “The law doesn’t protect those who sit on their hands, and the PRC wants this addressed as soon as possible.”

Catalogs aren’t covering their costs, Davison says, and “the real root cause is catalogers don’t show up to participate.” But the ACMA doesn’t have the resources to address all of this on its own: There is a real sense of urgency for catalogers to get involved—now—or face another situation like the tremendous rate hike of 2007.

Make no mistake, Davison adds, “this is a full-on crisis. If we don’t mobilize, we’ll get crucified.”