Last May the U.S. Postal Service filed a rate case that kicked off 10 months of hearings before the Postal Rate Commission — and much speculation. Then, just before the end of February, the newly renamed Postal Regulatory Commission offered its own recommendations to the USPS Board of Governors, and in doing so made a definitive statement.
The governors have sent some of the suggestions back for a second look. But what was the PRC thinking?
First, the commission made several major changes, including cutting revenue to be generated by the rate case. This helped all mailers, and mainly was accomplished by reducing the first class stamp price increase from 3 cents to 2, or 41 cents per piece. To help make up for some of this lost revenue, the PRC raised first class rates for automated letters and flats somewhat, thereby shifting impact from consumers to commercial mailers.
Second, the PRC took the step the USPS seemed to hold back on — that is, pushing the vision of shape-based rates to its logical and cost-based end. In standard mail, the PRC lowered the increase for automated letter mail and boosted the earned drop-ship discounts to full cost coverage. Flat mail took a further huge hit across the board, and the hike for non-machinable letters went up as well.
The case in standard mail subcategories, though, is not straightforward. Winners and losers appear in niches and nuances. Each mailing has to be analyzed with an eye on the impact imparted by the PRC's actions. The key to the increases and their impact appears to hinge on mailing density — both in presort and drop ship. In short, the higher the carrier route penetration and sectional center facility (SCF) drop-ship entry point, the softer the impact of the PRC's recommendations.
The letter rates seem to be about 5% to 8% less than those requested by the USPS (now an increase of 2% to 3.5%) while flat rates as it now stands are running 5% to 8% higher (17.5% to 19%). From a budget perspective, the PRC's recommendations amount to a wash if a mail mix is roughly half letters and half flats. The more automated letter mail there is, the better a mailer fares — the more flats, the worse.
On the downside, for those with lower density and less carrier route and SCF drop-ship entry mail, the flat mail charges are staggering. It's not uncommon to see 23% to 28% rate hikes as normal. And non-machinable letters are the worst of all, at 55.6% to 88.1%!
How should one respond? Remember, rates are based on postal costs and processes; think combinations of automation and shape here. If at all possible, flats must be made to qualify as automatable letters. Shape shifting can be done in many instances, especially for lightweight flats. For larger, heavier flats, mail engineering may help. Making smaller pallets at the SCF level will afford greater SCF drop-ship penetration and a bigger discount.
And there's this: The USPS' next rate case would be subject to postal reform rules, with CPI-tied rate caps and expedited proceedings. In the end, that may be some consolation to all.
CHARLEY HOWARD is vice president for postal affairs at Harte-Hanks, Baltimore.
