Better prepare to pay more in postage: The U.S. Postal Service on May 3 filed a proposal with the Postal Rate Commission (PRC) seeking an average overall rate hike of about 8.5%, with a 9% increase for standard mail. Priority Mail is proposed to increase by 13.8%; Express Mail by 12.5%; package services by 13.4%; and periodicals by 11.7%. The proposed price increases would take affect in mid-2007.
“The Postal Service is not immune to the cost pressures affecting every household and business in America,” Postmaster General John Potter said in a statement, referring to increasing costs for fuel and health care. Potter had warned of the impending rate hike proposal at the National Postal Forum in April, hinting that it would likely be a single-digit percentage increase, similar to this year’s 5.4% hike. (See “USPS to Ask for Rate Hike Within a Month.”) But for standard mailers, 9% is awfully close to a double-digit increase.
The Postal Service also said it intends to change how it calculates postal rates moving forward. The current pricing structure for postal products relies primarily on a weight-based system, whereas the new plan combines weight with shape to allow the USPS to better align prices with processing costs. The new adjustable-rate system, however, gives mailers opportunities to obtain lower rates by finding ways for the USPS to process mail using machines and take advantage of technological advances.
The USPS is emphasizing shape in its pricing to reduce the additional-ounce rate. As mail pieces become heavier, the proposed price increases will actually begin to decline, percentage-wise.
“A lot of creativity has gone into these rate recommendations,” says Bob Pederson, the Postal Service’s acting chief financial officer. “Right now the average price increase is 8.5%, but with all the incentives available to mailers, it’s likely that future average increases will be much lower.”
Bob McLean, president of the Arlington, VA-based Mailers Council, is somewhat resigned about the postage hike. “Obviously this next rate increase is necessary, given rising fuel costs, wage issues, and network redesign issues,” he says. But he adds that if reform bills are not passed and the Postal Service remains responsible for annual escrow increases and military pension dollars, the only way it will be able to keep up with costs will be to raise rates every year.
The USPS has, in fact, said it would prefer to implement smaller increases on an annual basis than have to introduce significant hikes every two or three years. Joe Schick, director of postal affairs for Sussex, WI-based printer Quad/Graphics, says that he sees a proposed annual rate change as viable only if it is somehow tied to postal reform.
“If I’m a mailer and the USPS says they want to implement some kind of annual increase, I will be looking for a win in labor negotiations, postal network redesign, and a change in fuel costs,” Schick says. He adds that an annual rate change would work only if a hard cap were instituted. “If you think about fuel prices, what will the number look like at this time next year? It could force the Postal Service to file another case before a cap structure can be implemented,” he says.