USPS Rate Hike Will Sock Small Parcel Shippers

While catalogers got off relatively lightly with the 2009 postal rates increases announced last week, small parcel shippers got hit hard.

Postal rates for catalogs, or standard mail flats, will go up 2.3% effective May 11. But standard rate parcels are increasing an average of 16%.

The average 16% increase for standard rate parcels will mostly affect mailers that send items weighing less than 1 lb., such as apparel, toiletries or CDs/DVDs.

And mailers that sell a lot of smaller items aren’t happy.

“The rates for parcel delivery services for Standard A packages (those weighing less than 1 lb.) are increasing at rates far greater than inflation and what was reported for catalog mailings,” says Louis Giesler, president of AmeriMark Direct, a direct marketer of women's apparel, shoes, name-brand cosmetics, fragrances, jewelry, watches, accessories and health-related merchandise.

“Our largest volume in this category are the machineable pieces whose rates are being increased by almost 20% and the other categories (irregular parcels) are going up about 14%,” he says.

Giesler points out that the increases follow a 35% rate increase for this category in 2007 and a 10% increase for this category last May. “While the dollars spent are less than the dollars spent on catalog postage, they are still large, and these increases will have a significant impact on the many catalogers and other businesses who ship packages that fall into these categories.”

“Every time we dig into a rate increase, we find the devil is in the details,” he adds. “Parcel rates are rising much faster than other rates, and the impact on our businesses is much greater than what is generally published.”

Because of the new “shaped-based” or “dim-weight” rate structure that the USPS put into effect in 2007, it’s harder to generalize about which merchants will be most affected by the increases.

Shipping consultant Gerard Hempstead says some merchants will actually see a reduction in their shipping costs, depending on the size, weight and shape of the parcels they ship most -- and what contracts they have in place with the USPS.

“For one of my clients, the May 11 rate adjustment is actually a decrease over what they were paying before, because of the way they can adjust to induct into the USPS,” Hempstead says. “Whereas some mailers are going to see a tremendous increase, in particular in certain types of standard mail parcels.”

With the rate structure now many times more complex, it’s going to take more targeted lobbying efforts on the part of merchants to hold down future rate increases, Hempstead says.

”Those that have been proactive -- like belonging to the parcel shippers association and voicing and promoting their needs and issues -- have fared much better than the vast market that’s disconnected with what’s going on,” he says. “Amazon.com, for example, has no alliance in Washington and is now taxed with defending a huge deficiency notice with the USPS, with no constituency to assist in its negotiation.”

No changes were announced for Express Mail, Priority, or Parcel Post, as the USPS already raised rates for those products in January. This was the first year that the USPS adjusted prices for its shipping services on a different schedule from its mailing service price adjustments.

The USPS says the rate increases are necessary to offset rising operational costs and a reduction in mail volume resulting from the continuing shift to Internet-based communications. The agency ended the 2008 fiscal year (Oct. 1, 2007 to Sept. 30, 2008) with a net loss of $2.8 billion. Mail volume dropped by 9.5 billion pieces, or 4.5%, compared to the previous fiscal year.

What’s more, the USPS had to bear additional costs for changes mandated by the Postal Act of 2006. As per the Act, the USPS had to shell out $5.6 billion to pre-fund retiree health benefits.

The Congressional Government Accountability Office (GAO) has recommended that the USPS reduce the payments for retiree health benefits in order to offset rising costs and hold down future rate increases. The GAO has also recommended that the USPS close some of its retail facilities in order to reduce maintenance and operating costs.

Meanwhile, the USPS is seeking Congressional approval to allow it to pay its share of retiree health benefits out of the Postal Service Retiree Health Benefits Fund instead of from the existing fund. The agency is also considering reducing the number of days it delivers from six to five.

Other steps the USPS is considering include adjusting carrier routes to make them more efficient, freezing the salaries of officers and executives, and reducing staffing through attrition and voluntary early retirement.

To see the full list of new prices, click here.