USPS makes its rate case

When the U.S. Postal Service filed for a 5.4% average rate increase on April 8, the announcement was almost anticlimactic. Only six months earlier, observers were predicting an increase of as much as 18%. “You have to tip your hat to the Postal Service for holding down costs,” says Jerry Cerasale, the DMA’s senior vice president for government affairs. “No one likes postal rate increases, but this is better than most.”

An increase is still an increase, though. If the proposed rate case is enacted in January 2006 as requested, the cost of sending a piece of Standard (nonletter) Mail will rise next year from $0.34 to $0.36, and Standard Mail Enhanced Carrier Route rates will go from $0.19 to $0.20. newschannel continued from cover Just about all other classes of mail will see comparable rate increases as well (see chart at right).

But because the proposed increases are lower than originally anticipated, and because mailers have known that an increase was imminent for 2006, so far no one is predicting that catalogers will race to push up their early-2006 mailings to late 2005.

“Years ago catalogers fearing a postal increase might have rushed to get mailings out in December to avoid having to pay the new rates in January,” says Jeff Kelly, a senior vice president for Peterborough, NH-based list services firm Millard Group. “But times have changed.” Marketers have learned that it doesn’t pay to stuff mailboxes in the fourth quarter, he adds.

“These postal increases seem to come around every two or three years,” Kelly says, “and like it or not the Postal Service is the only game in town.”

That may be so regarding delivery of catalogs, but the USPS has plenty of competition when it comes to parcel delivery.

“Shippers are hungry,” says Mark Taylor, CEO of Plymouth, MI-based shipping systems provider Taylor Systems Engineering Corp. “FedEx, UPS, and DHL are currently targeting large catalog companies to compete with the Postal Service.”

Taylor says that ground rates for the three major carriers are on average $1.49 more per pound than those of USPS. But he believes that the carriers will use the pending rate hike as an opportunity to negotiate with — and win the parcel business of — USPS clients. (For tips on how to benefit from the opportunity, see “Negotiating a better parcel carrier contract,” page 38.)

Another reason that mailers aren’t panicking may be that the USPS has said that it could withdraw its request for a rate increase — if Congress repeals Public Law 108-18, which calls for an increase in the amount of money the Postal Service needs to put into the Civil Service Retirement System escrow fund. (See “Postal reform: the saga continues” in the January issue.)

“We have been hearing that a new bill is being put together to try to overturn the escrow situation,” says Charley Howard, vice president of postal affairs for San Antonio, TX-based database services provider Harte-Hanks. “The word is that both the House and the Senate want to repeal the military retirement fund.”

Likely scenarios

Few are betting the proverbial farm that Congress will overturn the law in time; Howard, for instance, thinks there’s only a 25% chance that the law will be repealed. In the meantime, intervenors — organizations and individuals who want to testify regarding the rate case — have until May 2 to request a waiver of the rate hike.

The next step is the preconference hearing, scheduled for May 5. “The prehearing conference is a chance for all the parties to identify themselves formally as intervenors and to state whatever opinions they may have about the case,” says USPS spokesperson Steven William. It also allows the USPS attorneys to state how they would like to proceed, such as scheduling a settlement meeting for the parties to informally discuss matters.

From there the USPS has up to 10 months, by law, to deliberate the rate case. The Postal Rate Commission (PRC) then submits a recommended decision to the USPS board of governors.

The DMA’s Cerasale believes that one of two compromise scenarios is likely to develop before January 2006. The first could result in only a 2.7% increase in almost all mail rates, or half of the proposed rate case. The second scenario, which he believes is more likely, would delay implementation of the rate increases until April 2006. This would allow postal officials more time to try to get Public Law 108-18 repealed.

More calls for reform

In what may be a first, mailers aren’t blaming the USPS for the proposed rate hike. “It’s not about the problems within the Postal Service. It’s solely about making up the money owed in escrow for retirement benefits,” Howard says. “The bottom line is that the Postal Service is making money, but the government will just not let them off the hook” in regard to the escrow fund. Howard points out that the USPS closed out fiscal 2004 by erasing a $200 million loss and posting a $1.2 billion gain.

“The rate increase is a direct result of a Congress that has failed to act,” says Mike Muoio, CEO of Oshkosh, WI-based multititle mailer Miles Kimball. “Congress has proven that they do not understand the overall importance of the mail, by putting less money into the Postal Service, and it will have a damaging overall effect on an industry that is fundamental to Congress.”

Chris Bradley, president of Portland, ME-based bedding merchant Cuddledown, agrees. “In general, whenever postal costs go up, you mail less. The real issue for our industry is will people be motivated enough to contact Congress to try to reverse this unfair treatment.”

Many in the industry hope that the Postal Service’s dilemma will finally call attention to the need to reform the agency. For 10 years, Rep. John McHugh (R-NY) has been trying to get Congress to pass a reform bill that would give the USPS flexibility to compete with private carriers and to run more like a business, among other changes (see “Postal reform gets rolling,” below).

“For too long people looked at the Postal Service with an ‘if it ain’t broke why fix it’ mentality,” Harte-Hanks’ Howard says. But with the escrow situation, he and other mailers think it’s evident that the system is indeed “broke.”

As far as Bradley’s concerned, the federal government’s failure to “do the right thing” regarding reform in general and Public Law 108-18 in particular has not only been grossly unfair to the Postal Service but also has hurt the catalog industry. “Catalogers have been paying the burden of history for a long time,” Bradley says. “If Congress won’t take action, then we have to.”

What to Expect

Category (per piece) Current Proposed
Standard Mail Regular Nonletters $0.344 $0.363
Standard Mail Enhanced Carrier Nonletters $0.194 $0.204
Bound Printed Matter (flats) Presorted $1.078 $1.136
Bound Printed Matter (parcels) Presorted $1.155 $1.217
Source: USPS copyright 2005

Catalog Age is cohosting two free Webinars devoted to helping mailers rethink their tactics in light of the pending USPS rate hike:

  • “The New Postal Rate Case: Don’t Celebrate Yet” is scheduled for May 4

  • “For Parcel Shippers Only: Insider Tips on How to Handle the Postal Rate Increases” is scheduled for May 5

For details and to register, visit www.CatalogAgemag.com/webinars

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