POSTAL: Rate hike outrage…

Near-15% postage increase proposal has mailers up in arms

For several months, the U.S. Postal Service had warned that it would propose a rate hike for next year. But given that fiscal 1999 produced the agency’s fourth consecutive surplus, postal watchdogs were expecting something in the neighborhood of a 6% increase for catalog mailers.

Instead, on Jan. 10, the Postal Service stunned catalogers by proposing a rate increase of more than 14% for catalogs presorted to three- or five-digit zip codes and drop-shipped to destination-entry sectional center facilities (SCFs) or bulk mail centers (BMCs).

“Why punish mailers when we’re trying to improve mailing productivity?” says a perplexed Michael Tiernan, president/CEO of multititle apparel and gifts mailer The Mark Group. Like other mailers contacted, Tiernan hopes that the Postal Rate Commission (PRC) recommends a lower rate hike once it wraps up 10 months of briefs and hearings next fall.

Nonprofit catalogs didn’t fair much better than their commercial brethren. For nonprofit catalogs that are barcoded and presorted to three- or five-digit zip codes and drop-shipped to destination-entry sectional center facilities, the Postal Service proposes a 10.6% increase.

The jump in flats rates isn’t the only blow to catalogers. The USPS wants to increase Priority Mail rates, currently $3.20 for up to 2 lbs., to $3.45 for 1 lb. and $3.85 for 2 lbs. The Priority Mail flat rate, which allows shippers to fit anything they want into a Priority Mail envelope, regardless of weight, is currently also $3.20. The USPS wants to increase that rate 20.3%, to $3.85.

At press time, Postmaster General William Henderson would not grant an interview concerning the size of the catalog rate increase. USPS public relations rep Greg Frey would only comment that the proposed rates are strictly based on the cost of processing and delivering individual classes of mail. In essence, the USPS claims that its cost to deliver a first-class letter has risen just 3% – hence the proposed 1-cent increase in the cost of a first-class stamp, to $0.34 – while the cost to process and deliver most catalogs has increased nearly five times that amount. By contrast, when the USPS implemented the previous rate increase, in January 1999, it also upped the stamp price by a penny, or 3%, but raised catalog rates an average of just 4.5%.

Still time to plan

Assuming that the PRC approves the USPS proposal, which it’s done more often than not in the past, there’s one saving grace for mailers: The agency promises that it won’t implement the increase until January 2001, giving catalogers time to decide on mailing plans for next year.

The Mark Group’s Tiernan, for one, says that “these kinds of increases will accelerate our investment in our Websites. I think the Postal Service needs to consider that there’s an alternative for us called the Internet. And if postal prices escalate and increase ours and other catalogers’ investment in the Internet, Standard A mail volume is going to decrease.”

For his part, Jim Feinson, president/COO of the Burlington, VT-based Gardener’s Supply Co. catalog, says he’s unsure how the rate increase will affect his company’s 2001 circulation plans. But “since we now have new methods to reach customers through e-mail or other ways,” he says, “it will probably cause us to shift our customer contact strategies.”

“The Postal Service will regret having done whatever it did to make this rate increase possible,” predicts Gene Del Polito, president of the Association for Postal Commerce (formerly the Advertising Mail Marketing Association). Now that the Web has become an accepted marketing channel, Del Polito believes that the increase will cut into catalog mail volume more than past rate hikes. The agency will then be forced to seek large rate increases in the future to make up for the revenueshortfalls. “And that means the death spiral for the USPS has begun,” he says.

Among other catalogers, the $23 million California Style, which mails the California Style and Monterey Bay women’s apparel catalogs, has yet to determine how the proposed rate hike will change its plans. “We’re reviewing every line item in our overall costs to see where we can offset this expense,” says marketing director Aida Nunez. “We have to see what makes the most sense.”

Randy Acton, president/ CEO of Radcliff, KY-based military and outdoor goods mailer U.S. Cavalry, says that he doubts the rate increase will change his mailing plans for next year. “But it will erode our customers’ willingness to buy, because we’ll get a backlash from raising our shipping and handling rates to make up for the postage increase.”

DBL Distributing, a Scottsdale, AZ-based electronic accessories distributor, also plans no circulation changes, even though its catalog runs close to 400 pages. “Boycotting the Postal Service won’t do me much good,” says David Lorsch, president/CEO of the $65 million-$70 million company. “Our Web business is good, but at this point it can’t replace our catalog business, because our catalog can’t be as conveniently viewed online as it can on your desk in print. We’re just going to have to swallow the higher postage as increased overhead.”

A number of observers believe that the cost data that the USPS used in compiling the current rate case were outdated. As Alliance of Nonprofit Mailers executive director Neal Denton points out, “The USPS is using obsolete cost and revenue data from its fiscal year 1998 to project ahead to its fiscal year 2001. And the stale 1997-98 data ignore the effects of the billion-dollar postage hikes of January 1999,” he says. “But by waiting just two more months, the USPS could have used more current fiscal year 1999 numbers.”

Even PRC chairman Ed Gleiman said in a speech given shortly before the rate case announcement that “it would be nice if the USPS filed its case in late February or even March.” This way, he said, the agency could have incorporated cost and revenue data from its fiscal year ended last September, “and we could avoid the kind of wrangling over stale numbers that became the focus of the last rate case.”

Last year, the Alliance of Nonprofit Mailers unsuccessfully sued the USPS for using outdated cost figures in its last rate case, which it alleged led to unneccessary rate increases implemented last January.

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