PRC May cause Fresh Postal Pain

JUST WHEN IT SEEMS LIKE the postal outlook is improving for catalogers — what with the CPI-capped rate hikes, the denial of the exigent rate case last year, a new Postmaster General who seems to get the plight of catalog mailers — then wham! The hammer comes down, and Standard Mail flats are facing a 22% rate increase this year or next.

What happened? The story on page 7 explains the deal, but briefly: The Postal Regulatory Commission’s Annual Compliance Determination for fiscal 2010 found that rates for Standard Mail flats are not in compliance with the 2006 Postal Accountability and Enhancement Act when it comes to “a fair and equitable apportionment of the cost of postal operations.”

In English, the PRC feels catalog mail isn’t covering its costs, and it wants the U.S. Postal Service to raise rates enough to make up for it. From the data published by the USPS and PRC, the American Catalog Mailers Association estimates it would take a 22.3% increase to bring flats to full-cost coverage.

I find it hard to believe catalogs aren’t covering their costs. My understanding is that most catalogs today are processed the same as magazines. Does it really cost more to handle a Lands’ End catalog than it does an issue of Newsweek?

Catalogers can’t say they haven’t been warned, though. ACMA president/executive director Hamilton Davison pointed out in his April Multichannel Merchant article that the PRC is running out of patience with “underwater flats,” and that the Commissioners perceive catalogs to be a money-losing proposition for the USPS.

“This must be addressed or catalogs could be hit with another massive round of postage increases,” Davison said in the article. Well, here we are.

ACMA executives have even contended in recent PRC filings that the Commission’s perception of catalog processing costs is inaccurate. But the ACMA can do only so much on its own. (And if the news of this potential rate hike isn’t enough to get mailers involved in the postal cause, I don’t know what is.)

What will happen if catalog postal rates do go up 22% in the next 12 to 24 months? The same thing we saw after the massive rate hike of 2007.

Some merchants will go under. And there will be a new rash of Chapter 11 filings and an increase in fire sales of catalog companies. Some will drop catalogs altogether, and most — if not all — will mail less. A lot less.

I hope the USPS and the PRC understand that catalog mail volume will plummet — again — if they allow another rate hike of this magnitude. Then again, if they continue to drive catalogs out of the mail stream, they won’t have to worry about Standard Mail flats not covering their costs.