Rates for standard mail flats – the category affecting catalog mailers – could rise even more next year after the Postal Regulatory Commission remanded the proposed 2.57% increase to the U.S. Postal Service for further consideration because the category fails to cover its attributable costs.
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This directive to the USPS stems from the PRC’s Annual Compliance Determination report in 2011 that revealed in fiscal year 2010 standard mail flats failed to comply with the section of the Postal Accountability and Enhancement Act of 2006 requiring a fair and equitable apportionment of the cost of postal operations.
The attributable cost of standard mail flats in fiscal 2010 exceeded revenue by $577 million, resulting in cost coverage of 82% with a loss of 8.2 cents per piece. The ACD report directed the USPS to devise a plan to improve the cost coverage of standard mail flats – something which Hamilton Davison, president and executive director of the American Catalog Mailers Association, said has not happened.
According to the PRC order, the USPS must respond by Nov. 26. New postal rates are effective Jan. 27, 2013.
Davison said today the USPS must resubmit its proposal for all standard mail rates, but specifically it must respond to the standard mail flats directive by either increasing rates or reducing costs for full attributable cost coverage.
“We’ve been watching the situation closely and working with all parties involved to address it,” Davison said. “Costs have continued to worsen (for standard mail flats) since 2007. Maybe the costing system is not returning predictable results? What I don’t get is how variable costs can be increasing at twice the rate of cost inputs. That’s troubling. We’re getting ready to be thrown off the cliff for data that might not be accurate.”
Davison said since the ACD report was issued in early 2011, the PRC and USPS have been “silent on this. There is supposed to be a USPS costing system and the PRC is supposed to approve the costing system. And there is a lack of clarity that falls on the standard mail flats strategy.”
Even if the standard mail flats category receives a higher rate increase next year because of this, Davison said one thing is certain: There needs to be a USPS plan for full cost coverage, which includes a schedule of price increases or a plan to reduce costs or both. Given the short timeframe, a loftier rate increase seems likely for standard mail flats.
Reid Rossman, vice president, digital and digital marketing, for Kino Lorber, which sells classic and foreign language arts films to both businesses and consumers, said his company is small – mailing about 250,000 catalogs per year – but a higher increase for standard mail flats next year would impact his prospecting efforts.
“We’ll be watching this carefully,” Rossman said. “Our core mail strategy is not expected to change in 2013. While this increase won’t stop us from sending catalogs to our customers, it may affect how deep we can prospect through direct mail. It might affect the type of paper we use also.”
Rossman said his company “doesn’t have a choice” but to create a circulation plan, but “the thing that gets us is we’re at the ceiling of where we can be.”
Typically, Kino Lorber prospects twice a year – in the spring and holiday season, Rossman said.
Jim Tierney is a senior writer for Multichannel Merchant. You can connect with him on Twitter (TierneyMCM) and LinkedIn, or call him at 203-358-4265.