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Sep 24, 2010 12:00 AM


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UPDATE: PRC rejects proposed USPS rate hike

If the U.S. Postal Service’s (USPS) proposed rate increase goes into effect, this fall, a coalition of the businesses it affects is likely to file suit.

In July, the USPS Governors recommended postage increases including 2 cents on First-Class stamps, to 46 cents; 2 cents on postcards, to 30 cents; 8% on periodicals; 5.1% on catalogs; 23% on Standard Mail; and 7% on Media/Library Mail. According to the USPS, “Volume discounts and free additional weight are included in the proposed price changes. Price changes for the majority of products and services fall between 4% and 6%. These products and services account for about 90% of ‘Market Dominant’ revenue.” Those products targeted for above-average increases reportedly do not cover costs at their current postage levels.

Mailers, printers, marketers and their customers quickly responded to the proposal by forming the Affordable Mail Alliance (AMA), a coalition of 1,000+ nonprofits, Fortune 500 companies, small businesses, trade associations, consumer groups and citizens. The group filed a motion to dismiss on July 19.

“We’re tired of being asked to foot the bill for the USPS’ failure to control costs,” says Tony Conway, AMA spokesperson and executive director of the Alliance of Nonprofit Mailers. “The Post Office’s proposed rate hike hurts mail customers and it’s just bad business.”

The Postal Regulatory Commission (PRC) must approve the recommended price changes, which would then go into effect January 2, 2011. The decision is imminent, expected on or about October 4, 2010.

No sympathy for inefficiency

Postmaster General John E. Potter announced, in March 2010, that customers would not be asked to close the entire USPS budget gap. Potter’s goals include a change in delivery frequency (no Saturday delivery) and restructuring the USPS’ prepayment of retiree health benefits. The projected USPS shortfall for fiscal year 2011 is $7 billion.

These new price changes are expected to generate $2.3 billion in the last three quarters of the 2011 fiscal year (January through September) and an estimated $3 billion in 2012. The USPS has stated that an average 20% increase across all product lines would be required to completely close the budget gap.

In the current economic climate, those opposed to the rate increase have little sympathy for the USPS’ budget woes. As NAPL’s Printing Business Panel data suggests, most printers still are worried about the economy, particularly as it pertains to managing their costs and maintaining profitability. U.S. companies that have undergone significant economic hardship, restructuring and consolidation are calling upon the USPS to pull itself up without doing further harm to their business, and its own.

“It is widely believed in the mailing industry that the increase would almost certainly lead to accelerated declines in mail volume that would be difficult to recover,” according to Ben Cooper, executive director of The Print Council. “Unfortunately, companies that are setting postage budgets for 2011 might already be factoring in the rate increase, so some reduction might be occurring simply on the threat of an increase.”

Leo Raymond, vice president of government affairs for the Mailing & Fulfillment Service Assn. (MFSA), concurs: “Raising rates is imprudent at a time when the price sensitivity of hard-copy mail is particularly high. The effect of the recession on direct mail is barely beginning to ease, and advertisers—already looking at other media—will only be encouraged to look further if the cost of mail increases. As a result, there will be less demand for hard-copy mail, and consequently for the services of commercial printers and mailing service companies. And less mail is hardly what the Postal Service needs if it is to return to financial health.”

The AMA has noted that USPS CFO Joseph Corbett, in his testimony to the PRC, was asked why the USPS had no contingency plan for impending decreases in mail volume. He replied that the computer modeling system used to track the decline in mail volume due to diversion to Internet communications is used for “looking backward, not forward.” Conway says, “We are encouraged by the tough but fair questioning by the commissioners and believe that ultimately, they will be convinced that a rate hike 10 times the rate of inflation is not justified by law.”

Pressing need

The USPS proposal hinges on exigency. The Postal Accountability and Enhancement Act of 2006 (PAEA) limits postal rate hikes to inflation as measured by the Consumer Price Index (CPI), with an exception for “exigent circumstances.”

Does the recession constitute an emergency for the USPS? The proposal’s detractors contend that the law was meant to help the USPS in case of a major event causing a rapid drop in mail volume, such as an anthrax attack, not an economic downturn. And the AMA’s motion argues that while USPS competitors made cuts in operating costs and capacity to increase productivity, during the recession, the USPS did not: “In fiscal year 2009, when prices in the overall economy actually declined, the USPS costs per unit of output increased by more than 6%.”

“Like the AMA, we believe that the Postal Service’s legal premise for the rate proposal must be tested to determine whether it meets the statutory criteria for ‘exigency.’ Given the record in the case so far, and despite the agency’s financial challenges, we’re inclined to conclude that it does not,” says Raymond.

Raymond points out that the proposed rates, although they would generate revenue for the USPS, fall far short of covering its costs. “Accordingly, we believe that balancing the postal books through rate increases alone is no longer viable, and that aggressive labor and infrastructure cost reductions must be pursued as the primary strategy.”

David Henkel, president of direct mail provider Johnson & Quin, says, “The pending increase in postal costs certainly puts a premium on postal optimization. While production oversight is important for maximizing efficiencies, marketing service providers and other mailers must have a keen understanding of the different, complex postal discount options that are available. Knowing the advantages of the different options—destination entry, commingling, and copalletization—and what types of mailings are best suited for each option is critical as postal rates increase.”

Henkel notes that interactive digital technologies, such as personalized URLs, QR Codes, e-mail and mobile texting, can cut costs and increase the effectiveness of print mail campaigns: “Rather than having to pay for business reply mail and wait for responses, marketers can direct customers to respond online in real time. The easier we make it for recipients to participate in a campaign, the more likely they are to engage and say ‘yes’ to an offer.”

As the PRC approaches its decision, mailers, printers and their customers alike are contemplating these and other ways ways to ensure the rate hike will not put their businesses under water.

We’ll continue to report on this critical issue.

Denise Kapel is managing editor, AMERICAN PRINTER. Contact her at denise.kapel@penton.com.

Catch a break
The USPS (www.usps.com) “Reply Rides Free” program is meant to encourage the use of bill and statement mailings for marketing messages. For qualifying customers, a 1.2-ounce piece is charged the 1-ounce price if a reply envelope or card is included in the mailing.

The “Saturation Mail / High Density Incentive” program provides rebates for volume growth of Standard Mail and Nonprofit Mail letters and flats. It requires a minimum of six Saturation / High Density mailings in a fiscal year.

Check out our archive of webcasts on the Intelligent Mail Barcode and other strategies to realize postal automation discounts at americanprinter.com/webinar.