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Hold Off the Cheers
May 1, 2005 12:00 PM
, BY LARRY RIGGS AND RICHARD H. LEVEY
Examine the format of the direct mail pieces you send out, lobby your congressperson and don't be lulled into a false sense of security about this postal rate case. Because the worst is yet to come. That's the word from postal experts who feel that mailers will still be undone by the lack of true postal reform. If reform is not signed into law this year, in fact, we'll have “the mother of all rate cases” in 2006, warned Gene Del Polito, president of the Association for Postal Commerce. “The mail owners think they just dodged a bullet,” added Charley Howard, vice president of postal affairs and special projects for Harte-Hanks Inc. “No, they haven't, because that bullet hasn't been fired. It will come next year.” Granted, the short-term news is good. The U.S. Postal Service filed a rate case with the Postal Rate Commission on April 8, seeking an expedited decision to raise postage by 5.4% for almost all categories. That's far less than “the double-digit rate increase that previously had been discussed,” said Jerry Cerasale, the Direct Marketing Association's senior vice president for government affairs. And it is likely to be approved as written. “The postal service put off all classification changes and everything else it might have been considering to come up with a rate case that everybody could sign off on,” Del Polito noted. But the problems that could have led to much higher rates are still lurking in the background. For example, the USPS will be grappling in 2006 with a $3.1 billion payment to the Civil Service Retirement System (CSRS) funds. This issue dates back to 2002, when the U.S. Office of Personnel Management discovered that the USPS had overpaid the CSRS fund by more than $70 billion. The industry lobbied Congress, which then passed a law transferring the payment obligations to the U.S. Treasury but requiring that the USPS place the money it would have spent on those obligations into an escrow account. Unfortunately, that law, P.L. 108, expired at the end of 2004, bringing the process back to square one. And the upcoming payment ostensibly created the need for this rate case. “If Congress passes and the president signs legislation overturning the escrow requirement, this case could be withdrawn,” said USPS spokesman Jerry McKiernan. There is room for compromise. Howard speculated that the USPS might get partial relief on the CSRS escrow payment, in which case even the 5.4% rate hike might be delayed until April 2006. But that would only be a temporary reprieve, and mailers would still feel the pinch. With Standard Mail securing its position as a dominant volume within the system, that classification will take on a higher percentage of the postal service's fixed costs, Howard said. The USPS may well institute a new layer of rates to maximize revenue from Standard Mail. Despite all that, reform moved closer to fruition April 13 when the House Government Reform Committee passed H.R. 22, a bill authored by Rep. John M. McHugh (R-NY) and Committee Chairman Tom Davis (R-VA). McHugh has been trying for a decade to get a reform bill passed. This would be the first significant reform of the postal service since the Nixon administration. Besides providing relief on the escrow issue, the bill is favorable to mailers in other ways. Introduced last January, H.R. 22 initially placed a five-year limitation on work-sharing discounts that exceed the costs avoided by the USPS due to mailer preparation and transportation. That measure has been removed to conform with the Senate version. In addition, McHugh's bill has been revised to reflect input from the Bush administration and the Senate. It now calls for:
Del Polito is optimistic. “For the first time, reform may have legs,” he said. But he cautioned that the USPS will still have to file a major case next year, addressing all the classification issues that this one didn't. And how does this year's case shape up? For Standard Mail weighing 3.3 ounces or less, the USPS proposes raising the presorted basic letter rate to 28.2 cents from 26.6 and the presorted basic non-letter rate to 36.3 cents from 34.4. For larger pieces, it recommends hiking the presorted basic rate to 20.9 cents from 19.8. For nonprofit Standard Mail weighing 3.3 ounces or less, the USPS suggests boosting the presorted basic letter rate to 17.4 cents per piece from 16.5, and the presorted basic non-letter rate to 24.2 cents from 23. For larger nonprofit pieces, it asks that the presorted basic rate go up to 11.6 cents from 11. First class postage would increase to 39 cents from 37 and the charge for additional ounces would go to 24 cents from 23. Presorted first class rates would be raised to 37.1 cents from 35.2 and postcard rates would increase to 24 cents from 23 cents. To combat this, mailers might limit the number of containers they use to gain penetration into the post office. The more containers the USPS has to process, the higher the cost to mailers. In some cases those costs might be reduced. Take letter solicitations: Since most letters are processed at the Sectional Center Facility (SCF) level, mailers should consider focusing on larger SCF pallets rather than five-digit pallets. If the delivery window allows for it, switch to the lower processing level, Howard recommended. Another possibility is that the USPS may adjust how it calculates how pieces are categorized. For instance, some digest-shaped mailing pieces currently considered automated letters are actually processed on flat automated equipment. In the next rate case, the USPS may base classifications on the equipment that's used to process pieces, rather than on the mailing piece's shape. “I think there is a likelihood of this happening,” Howard said. “Mailers will have to start being more creative. Flats are where most of the creative design work is.” CURRENT AND PROPOSED STANDARD MAIL REGULAR RATES
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