Postage Hike: Better Sooner Than Later?

The world has changed since the U.S. Postal Service filed its most recent rate case on Sept. 11, and so has the likely date of the rate hike implementation.

As this issue was going to press, the Postal Rate Commission (PRC) was expected to alter the rate case into a “settlement agreement,” which would enable the USPS Board of Governors (BOG) to implement the new rates on June 30, rather than in the fall as originally anticipated.

So it appears that catalogers will begin paying an average of 7.3% more for postage three months earlier than they had expected. But a number of observers insist that this is actually good news.

In return for circumventing the time and expense of a 10-month-long rate case, the USPS has agreed not to refile for an additional hike until the end of September at the earliest. Several sources say that, in response to the infiltration of anthrax in the mail stream and the significant decline in mail volume and revenue since Sept. 11, the USPS was planning to refile the rate case during the first quarter of this year. Even though Congress on Dec. 20 approved $500 million in appropriations to help defray the cost of cleaning up the anthrax and improving mail security, the Postal Service would still have requested a rate hike of 12%-15% in its refiling, according to various sources’ estimates, seeking an additional $1.5 billion in revenue.

And although an additional penny increase in the price of the first class stamp would have absorbed $1 billion of that amount, Gene Del Polito, president of the Association for Postal Commerce (PostCom), believes instead that catalogers and other standard mail users would take the lion’s share of the additional increase.

In the current case, the USPS is proposing a three-cent increase in the stamp. “The PRC wouldn’t have the stomach to pass along an additional penny or even greater burden to first class,” Del Polito says, because standard mail has traditionally been more profitable for the agency. In fact, as the proposal stands, the 7.3% average increase for catalog rates compares favorably to the 8.8% increase in the cost of the first class stamp.

The less tinkering, the better

What’s more, catalogers, most of whose books are categorized as nonletters or “flats,” stand to dodge another bullet by paying comparable increases to standard bulk letter mailers.

“In past rate cases, different rates have been imposed to reflect the differences in processing costs” between letters, which can be processed by machines, and nonletters, says postal consultant and former PRC chairman Ed Gleiman. “But the USPS chose not to pursue this cost differential to the extent it had in past cases.” Because a normal rate case is subjected to months of litigation before the PRC, “there’s always a danger that the PRC will do something other than what the USPS requests — such as expand the letter/flat differential or shift some costs to standard mail,” Gleiman points out.

As of early January, intervenors to the rate case — mailing industry representatives who were scheduled to deliver testimony supporting or opposing various facets of the rate hike proposal — had until Jan. 18 to voice their approval for the settlement or to request hearings before the PRC to protest it. PRC chairman George Omas, who proposed the settlement agreement on Oct. 25, told Catalog Age in early January that he was unsure how quickly the PRC will move forward with his idea if even one intervenor were to object.

“This is uncharted waters,” Omas says. “We’ve never had a major rate case settled with a negotiated agreement. I’ve been told it won’t take everybody to agree to it, but we would still want everybody to have their day in court to air their differences.”

If the PRC agrees to a settlement case, it will have to submit its recommended decision to the board of governors for final approval on the case by March 25. The BOG would then announce the increase within a month, presumably giving mailers a couple of months to prepare, as is typically the case.

But if enough intervenors demand hearings, the whole process could be delayed until mid-May, Omas says, which could back up the timing of the new rates’ implementation and throw the whole process out of whack. It could lead the cash-poor USPS to seek additional rate hikes.

Not much stability

Even if the intervenors unanimously agree to Omas’s plan, the Postal Service could propose another rate hike just three months after these new increases are implemented. In agreeing not to refile the rate case should the settlement be approved, Postmaster General Jack Potter did nothing to indicate that the agency wouldn’t request another increase at the end of its fiscal year in September.

“The real test in all of this is whether mail volume will return and if the Postal Service can get serious about cutting costs,” says Neal Denton, executive director of the Washington-based Alliance of Nonprofit Mailers. “The USPS has promised ‘breakthrough productivity’ over the past four years, but that hasn’t happened yet. And by not closing a lot of duplicate postal facilities and smaller post offices and by not seeking potential revenue builders as negotiated service agreements, we’re just on a slippery slope.”

Jerry Cerasale, senior vice president of government affairs for the Direct Marketing Association, is even more blunt. A settlement agreement “doesn’t solve anything,” he says. “There’s no reform here, and this isn’t going to stop the USPS from raising rates even greater next time.”

Sampling of Proposed Catalog Rate Increases (Standard Mail)
Class Percentage increase
Regular — basic 6.8%
Regular — 3/5-digit 8.3%
Regular — automation 3-digit barcoded 9.2%
Regular — automation 5-digit barcoded 9.2%
Enhanced carrier route — basic 9.0%
Enhanced carrier route — high density 8.3%

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