Mailers hit with second postal rate hike this year
WHILE MAILERS DECRY POSTAL RATE HIKES and go through the usual song and dance of saying they’ll mail smarter or stop mailing altogether, the plain fact is that they can’t stay away from the mailbox.
And that’s just as well, because postal increases are coming fast and furious.
Next month, a 1.6% hike will go into effect on top of January’s 4.6%. And the U.S. Postal Service is preparing to file another rate case this October that could raise postage by as much as 15% (although it may spread the increase out over three years, at 5% annually).
“No company on this planet increases prices when business is falling off,” says Direct Marketing Association president H. Robert Wientzen. “No doubt the post office is suffering financial problems and a decrease in revenue. What we don’t accept is the knee-jerk reaction that to continue to raise prices makes any sense.”
Wientzen adds, “A lot of catalogs will begin prospecting only on the Internet because it will be too expensive to do so through the mail,” he says.
This latest increase is so upsetting to many people that it’s becoming a political issue. Syndicated columnist Robert Novak warned President George W. Bush in April that the postal service — which he referred to as a “dysfunctional agency in thrall to powerful labor unions” — needs strong medicine to survive.
Many politicians agree. For example, Rep. Dan Burton (R-IN) of the Government Reform Committee and Rep. Fred Thompson (R-TN) are spearheading reform in their respective committees. And still another postal reform bill could come from Rep. John McHugh (R-NY), who has tried for six years to get his measure (HR-22) out of committee. McHugh has sought, among other things, to give the USPS authority to negotiate its own contracts and create new products without seeking the approval of the Postal Rate Commission. This would make it easier for the USPS to compete with private industry. He has yet to introduce one in 2001.
But last month, the USPS Board of Governors submitted a postal reform plan to two congressional panels. It called for more market-driven reforms and for a reworking of its dealings with labor unions. And a number of government officials are calling for privatization of the USPS.
Meanwhile, postal officials have floated the idea of spreading the 15% rate increase expected next year over three years. But Wientzen is not impressed. “This has come out of the blue,” he says. “It is not an acceptable answer.”
Wientzen adds that the idea resulted from discussions with the USPS last year, when mailers said that they could “tolerate small increases if they’re predictable and well within the range of inflation. But we’re not talking here about increases even roughly within the range of inflation.”
Many observers fear that the hikes — whatever form they take — will depress mail volume. And there is reason for concern.
As of April 20, close to four months after the January hike, Standard A mail volume had dipped 0.9% to 7.05 billion pieces, although revenue increased by 4.4% to $1.26 billion compared with the same period a year ago. Standard A mail accounts for 44% of the mail stream, according to the DMA.
Maybe the USPS figures that a slight drop in rates won’t matter much. After all, Standard A volume and income have gone up steadily over the last several years.
But catalogers, to name only one group, tend to suffer after a hike.
Normally, cataloger income grows 6% to 9% per year on average. But it rose by only 4.5% after the 1991 hike, and by 4% after the 1995 increase, says DMA spokesman Lou Mastria.
Despite the increases, some catalogers are planning to mail more this year. Five-year-old cataloger Star Struck, which markets sports apparel through two annual drops in March and September, will raise its volume from about 600,000 to 700,000, says operations director Jason Scheets.
So far, the Bethel, CT-based firm has resorted to conventional coping strategies like reducing paper weight from 40 pounds to 36, and working with its list broker to target the most profitable prospects.
Larger mailers like Fingerhut, which sends out around 400 million catalogs a year, also feel the pinch. “How do you plan for a postal increase that you didn’t expect?” asks Michael Sherman, president of the Minnetonka, MN-based cataloger.
“Mailers who use parcel post are taking it on the chin,” adds Jack Alexander, VP/general manager at Stark Brothers Nursery, a Louisiana, MO cataloger. “These increases are adding to a vicious cycle that will only result in more increases: When the USPS fails to control costs, it raises rates. When it raises rates, volume decreases. When volume goes down, costs go up, and the spiral continues.”
Network
