USPS Proposes 5.6% Rate Hike; Mailer Group Opposes Exigent Case

In an exigent rate case filed July 6 with the Postal Regulatory Commission, the U.S. Postal Service proposed a rate hike averaging 5.6%.

Catalog or Standard Mail flats rates would go up 5.1%, first-class mail stamps would increase 2 cents to 46 cents, first-class mail postcard prices would rise 2 cents to 30 cents, periodicals would see an 8% increase and Standard Mail parcel rates would increase about 23%. If passed, the rates are slated for implementation Jan. 2, 2011.

But the considerable opposition to the exigent rate case could play a key role in the PRC’s 90-day decision-making process culminating with its Oct. 4 verdict. An upstart group called the Affordable Mail Alliance, which now represents 129 postal customers, is asking the PRC to reject the USPS proposal to increase postal rates by 10 times the rate permissible by law.

“Never has the entire postal customer base risen as one in opposition against a rate case,” said Jim Cregan, executive vice president of government affairs for the Magazine Publishers of America, during a conference call the Affordable Mail Alliance held right after the USPS announcement of the proposed price increases. “It’s an unfortunate and unnecessary diversion from the job we’re trying to do for the Postal Service,” Cregan said. “It is wrong based on law, economics, and on public policy.”

Under the provisions of the 2006 postal reform law, rate hikes should be tied to the Consumer Price Index (CPI), or rate of inflation. This is the first time the USPS is requesting price increases above the rate of inflation, which is allowed under postal reform law as long as the Postal Service can demonstrate “exceptional or extraordinary circumstance.”

The USPS no doubt feels the steady drop in mail volume since 2007 and its mounting financial losses count as extraordinary circumstance. Even with the proposed increase, the agency’s projected net loss would be $4.7 billion for fiscal 2011.

Without the proposed price increases, postal officials estimate a $7 billion net loss in fiscal 2011. The Postal Service says it would have needed to raise rates an average of 20% across all product lines to completely close that projected gap.

But for mailers, a 5% increase is far too much right now, and the mailing community is outraged. “Volume is dropping and the answer is to raise postage? It makes no sense,” says Jerry Cerasale, senior vice president of government affairs for the Direct Marketing Association and member of the Affordable Mail Alliance.

“The Postal Service’s plan to right its ship is to hit its customers first,” Cerasale says. “It should be looking to reduce excess capacity and control the inflation of postal costs.”

Tony Conway, the executive director for the Alliance of Nonprofit Mailers, says the USPS is equipped to handle 300 billion pieces of mail per year, and this year it will handle about 170 billion pieces. “The system is twice as big as it needs to be. The rate increase shouldn’t be the first shot. It should be the last shot.”

Don Landis, vice president of postal affairs for catalog printer Arandell Corp., says he believes an exigent rate case is illegal. The idea of any postage increase at this time is “self-defeating and will lead to further decline in volume,” he notes. “I believe the USPS has not done all it can within its power to further reduce cost.”

What’s more, Cerasale believes that the $50 billion the USPS was overcharged for payments to the Civil Service Retirement System (CSRS) from 1972 to 2009 should be transferred to prefunding annual retiree health benefits.

The USPS has asked Congress to waive its annual $5.5 billion payment for retiree health benefits. If Congress waives that payment before its Sept. 30 adjournment, withdrawing the exigent rate case “might be something to consider,” says Stephen M. Kearney, senior vice president, customer relations for the USPS.

If the exigent rate case is passed, a 5% increase in postage will come out of circulation volume for most catalogers, says

Hamilton Davison, executive director of the American Catalog Mailers Association, which is also part of the Affordable Mail Alliance. That will further push mail volume down “and reduce the use of USPS products across many of its categories,” he says.

It’s not just about the higher costs: ”We are also very concerned about the precedent this sets,” Davison says. “Can the USPS hit mailers anytime there is a budget gap? We feel that is not what Congress meant to accomplish when writing a rate cap mechanism into postal reform (PAEA) in 2006.”

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