Prepare Yourself for the Next Postal Rate Case

At press time, sources both within and outside the U.S. Postal Service said that by mid-October, the agency would probably announce its proposal for what’s likely to be the largest rate increase in a decade. According to most of the same sources, the new rates, which could go into effect as early as next summer, may result in catalogers’ paying 15%-16% more on average for postage.

In addition to the hefty catalog rate hike, the sources say that the USPS may seek a 9% — or three-cent — increase on the first class stamp. Each of the past three rate hikes has increased the cost of the stamp by only one cent.

Theoretically, the USPS could implement new rates next July, if the USPS Board of Governors (BOG) were to have made the rate case proposal following its monthly meetings on Sept. 10 and 11. (What with the necessary hearings, it takes at least 10 months for the Postal Rate Commission [PRC] to render its “recommended decision.”) “That means we’d face very unsavory circumstances,” says Gene Del Polito, president of the Arlington, VA-based Association for Postal Commerce. “Implementing rates in time for next fall/holiday season will cause fits among mailers. They’ll budget accordingly and mail less. So I think we’re looking at January 2003 implementation.”

A kinder, gentler BOG?

The USPS might have another reason to hold off implementation until January ’03: 2002 is an election year, and a postage increase could hurt Republican campaigns, sources say, because of the USPS’s ties with the Republican-led government.

Besides, as Linn’s Stamp News, a Website devoted to postal affairs, points out, President Bush might name as many as three new postal governors — or one-third of the nine presidentially appointed seats — later this year to replace Clinton-named governors whose terms expire. They could “alter the aggressive nature that the current board had adopted toward higher rates,” by proposing lower rate increases or delaying implementation. In addition, Bush will soon appoint a new chairman of the PRC, who might also be less willing to allow the USPS to implement large rate hikes.

But Del Polito, for one, predicts that with the upcoming rate case, the PRC will agree to all of the USPS’s requests because so many variables could affect the Postal Service’s cash requirements. “Who knows what will come out of binding arbitration with the postal unions or what will become of the economy?” Del Polito says.

In addition, over the next few years an increasing number of postal employees are expected to retire. “That means the USPS will have a heavy weight of liabilities to be paid in cash to the federal government for those retirements,” Del Polito says, “and that’s going to exacerbate its need for cash.”

Reclassification could help

On the brighter side, the Postal Service has started formulating a mail reclassification plan designed to cut costs both internally and for mailers. Although it is unlikely that the project will be formally proposed to the PRC before the new rate case is concluded, reclassification could eventually help catalogers achieve greater postal discounts.

As things stand, the rates that catalogers pay are not tied closely to the mail preparation involved. So while other classes of mailers receive appreciable discounts for preparing mail with barcodes for use with the USPS’s flats-processing equipment, catalogers don’t. But with reclassification, future rates would reflect such potential savings for catalogers.

Project leader Don O’Hara, who is the Postal Service’s executive director, product redesign, says he wants reclassification to simplify mailing procedures. Reclassification would be proposed as a revenue-neutral rate case to the PRC.

The USPS had achieved some efficiencies in its previous reclassification, which was approved in 1996. The chief architect of that project was Charles McBride, who subsequently retired from the Postal Service. But the agency recently brought him back on a contractual basis to work with O’Hara on this latest reclassification.

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