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IT'S NOT ALL BAD NEWS.

Yes, mailers will be hit with a postage increase next year. But they may be able to save money by drop shipping and commingling.

That's one way of looking at the latest rate blast from the U.S. Postal Service.

On May 3, the USPS proposed new rates to take effect in 2007 that would force standard mailers to fork over some 9% more for postage and raise specific categories higher still.

For example, the 8-ounce standard mail parcel rate would go up by 64% to $1.30. Mailers could reduce the impact by taking advantage of greater drop-ship discounts or redesigning the parcel as a flat and then drop shipping it.

And 5-ounce automated catalog rates would increase from 32.1 cents per ounce to nearly 34 cents. The price for a first class stamp would rise by 3 cents.

The USPS proposal also created an adjustable rate system by giving mailers the opportunity to obtain lower rates as they find ways to configure their mail into shapes that cut processing costs for the postal service.

Despite the discounts, mailers and their trade groups are unhappy.

“The postal service is asking for all the increases they've been looking for since 2002,” said Association for Postal Commerce president Gene Del Polito. “When [the hikes] all finally take effect in 2007, they will be way ahead of the rate of inflation.”

“Nobody is ever overjoyed when the postal service files a rate case,” added Arnie Zaslow, executive vice president of ATD-American, a cataloger of institutional supplies. “We just have to mail smarter, eliminate dupes and do other things like that.”

ATD-American plans to keep mailing more than 4 million catalogs per year to customers and prospects. But ATD is now getting up to 25% of its business from its Web site, which began handling transactions only six months ago.

“As long as the postal service keeps raising the rates, the more mailers are going to look for alternative means of marketing,” Zaslow said.

Why is the USPS looking for more money?

In part, the request is being driven by higher fuel and health-care costs. Last year the postal service spent $6.6 billion on health benefits, some $437 million more than in 2004.

“The postal service is not immune to the cost pressures affecting every household and business in America,” said Postmaster General Jack Potter.

What galls mailers, though, is that rate filings may become a yearly event if the USPS proceeds with its reported intent to make annual adjustments.

“It's not good for business and it's unfair to mailers who try to keep their costs down,” said Michael Murphy, president of printer Japs-Olson.

The Direct Marketing Association took a similar position. Jerry Cerasale, senior vice president for government affairs at the DMA, noted that “this latest increase could mean millions of extra dollars in costs for commercial mailers and nonprofit organizations.”

In addition, the DMA criticized the USPS' idea of annual rate hikes. While the trade group supports predictable yearly increases, it feels they should be tied to the inflation rate.

“The proposed increases, and the ones that went into effect in January, are far higher than the current rate of inflation,” Cerasale said. “Moreover, with annual increases, there is no need for a contingency provision, which in the postal service's filing is approximately $700 million.”

In one oddball note to the filing, the USPS asked for a “forever stamp,” special first-class postage that could be used indefinitely no matter how many future rate hikes take place. This would “help ease the transition to any future price adjustments,” said Postal Board of Governors Chairman James C. Miller III.

What should mailers do in the meantime? There are many ways to minimize the damage, according to direct mail printers.

Among other things, the new rates will force mailers to look more at list hygiene because the penalty for not doing so is higher than in the past, said Tom Wicka, executive vice president of sales and marketing at printer IWCO Direct.

In addition, Wicka argued that the rates will encourage mailers to look for discounts at the sectional center facility and bulk mail center levels.

“It's a pretty significant increase,” Wicka said of the proposal. He noted that the raise would come about a year after the 5.4% hike that just took effect in January.

IWCO's clients are mostly high-volume financial services, retail and loyalty program mailers.

Japs-Olson's Murphy is encouraging his customers to take advantage of the proposed drop-shipping discounts. What once was a “luxury” for mailers is fast becoming a necessity, he said.

Also recommended by the USPS is a new 85-cent container charge for palleted mailings. This would add a new financial burden to small, cash-strapped nonprofits that send periodicals, said Ellenor Kirkconnell, acting executive director of the Alliance of Nonprofit Mailers. Printer Quebecor World is working on a new service to help firms get around the charge, a co-mailing program similar to one it started last year for periodical mailers. The service, due to be beta-tested later this year, will help standard mailers get more pieces onto a pallet than they do now to help alleviate the extra charge, said Anita Pursley, the printer's vice president of postal affairs.

But there are other minuses in the rate filing. One is that it would become more expensive to mail CDs and DVDs in so-called jewel boxes. The price would jump 78% for a jewel box sent at standard mail rates.

And what will catalogers do?

Despite the hikes, they aren't likely to give up on the mail, said consultant and Direct columnist Katie Muldoon. What may happen is that catalogs will get smaller and some will become traffic generators for Web sites. “We're already seeing some of that,” she said.

Meanwhile, some critics blame the rate case on the failure of Congress to pass postal reform legislation.

“The decision by the postal service to raise postage rates early in 2007 comes as no surprise, and serves as another reminder that without passage of the first comprehensive postal reform bill since 1971 we can expect large rate increases every year for decades to come,” said Bob McLean, executive director of the Mailers Council.

Will reform happen?

At press time, the House and Senate had yet to set up a conference committee to resolve differences between their respective postal reform bills H.R. 22 (passed last year) and S. 662 (passed in February).

As a result, there's been no resolution regarding who will pay for the civil service and military pensions of former postal workers. The USPS overpaid $70 billion to the Civil Service Retirement System fund, and that money was later placed in an escrow account.

This is just one of the issues holding up passage of postal reform.

New Standard Mail Rates — and Discounts

Product description	Current price	Proposed price	Potential modification	Proposed price with modification
Parcel — 8 ounces, basic presort, no drop ship	$0.794	$1.301	Enter at destination bulk mail center	$1.101
Parcel — 12 ounces, 3- or 5-digit presort, destination sectional center facility	$0.823	$0.939	Enter at destination delivery unit, 5-digit presort	$0.801
4-ounce rigid automation flat, destination sectional center facility entry	$0.275	$0.491	Use flexible packaging for automation	$0.291
Saturation flat, 3 ounces, detached address label used, destination delivery unit entry	$0.136	$0.155	Put address on flat (no detached address label)	$0.140
Source: U.S. Postal Service