NOT AGAIN: Direct mailers are staggered by the proposed postal rate hike

Reaction ranged from disgust to outrage in January when the U.S. Postal Service said it would seek up to double-digit hikes for some commercial mail starting early next year. Catalogers, who suffered the most in prior rate cases, were hit hard again – many face a 14% increase. (The USPS attributed this to the cost of processing flat mail). Also being slammed with double-digit increases are nonprofit mailers and publishers.

In contrast, the first class stamp will go up by a penny to 34 cents. The average first class increase, 3.6%, is below the projected growth of U.S. inflation – about 5% – but commercial mail will go up by an average of 7.7% if the rates are enacted.

“It looks to me as though [the USPS] has really taken a shot at direct marketers,” says Jerry Cerasale, the Direct Marketing Association’s senior vice president, government affairs. “We all know the postal service needs money, but to propose a rate increase significantly over the [national] rate of inflation is just preposterous.”

Experts predict that in the face of steep rate hikes, the USPS will see a drop in revenue and volume as mailers seek alternatives.

“If the postal service ever intended to give a better impetus for direct marketers to go to the Internet, I can’t think of one,” adds Gene Del Polito, president of the Association for Postal Commerce (formerly the Advertising Mail Marketing Association), Arlington, VA. He called the increase “revolting.”

“The only reason the USPS is able to grow is because we in the direct mail industry need them,” agrees Lee Cassidy, executive director of the National Federation of Nonprofits. “But if they did have competition, and I mean real competition, they’d soon be out of business the way they operate.”

Equally galling to mailers is that the USPS ended fiscal 1999 with a $343 million surplus, its fourth in as many years. Despite this, Board of Governors chairman Einar V. Dyhrkopp said the board, which approved the filing of the rate case with the Postal Rate Commission, felt “the time was right for a rate increase.”

A USPS spokesperson said the postal service is carrying a $3.8 million debt load, and will face deficits in 2001 without a hike.

But longtime USPS observer Lee Epstein, chairman of Mailmen Inc., a Hauppauge, NY, lettershop, questions these assertions and wonders whether the USPS still knows its role. “The postal service hasn’t figured out where it stands with all the new technology, and that’s the problem,” he says. “Is it just going to be a package delivery service? We’ve got FedEx for that.”

DMers are also irritated that the USPS has relied on financial data from fiscal 1998 to make its case.

“The USPS is using obsolete cost and revenue data from fiscal 1998 to project ahead to fiscal 2001,” says Neal Denton, executive director of the Alliance of Nonprofit Mailers. That data, he adds, “ignores” the effects of the January 1999 rate hike that raised $2 billion in new revenue, helping the USPS gross just over $61 billion in fiscal 1999.

Denton and Cassidy say the USPS should have delayed seeking an increase until it had the final audited financial data from fiscal 1999, which ended in September. The two blast the postal service’s governing board for once again allowing the USPS to get away with it.

Two years ago, the USPS angered the PRC by submitting outdated data from 1997 in support of its then proposed rate increase. Requests by the PRC for more up-to-date financial information were rejected by both the USPS and its Board of Governors.

Though he refuses to discuss the rate case, PRC chairman Ed Gleiman says it would have been better if the USPS delayed its filing by about two months to provide the commission with the most recent financial data. “We could avoid the kind of wrangling over stale numbers that became the focus of the last rate case,” he says.

What happens next? Roughly ten months of rate-case litigation. A dozen organizations and companies have already filed papers to participate in the commission hearings on the proposal. (They include the Mail Advertising Service Association, American Bankers Association, Advo Inc., Dow Jones Inc., Magazine Publishers Association, Newspaper Association of America, National Federation of Nonprofits, Time Warner Inc., the DMA, McGraw Hill Cos., United Parcel Service and the PRC’s Office of Consumer Affairs.)

After hearing testimony for and against the proposed increase, the PRC will file a recommendation with the postal service’s Board of Governors, which by law has the option of accepting or rejecting all or parts of the PRC’s recommendations. While the board can send parts of the recommendation back to the PRC for additional review, it can, by unanimous agreement, ignore the PRC’s recommendations and order a rate increase that’s either higher or lower than the PRC’s recommendations or the postal service’s request.

The USPS proposal calls for the following general rate changes:

– The price of a Standard A basic automatable letter will rise by 9.3% from 18.3 cents to 20 cents.

– The basic automatable flat will rise by 9% from 24.5 cents to 26.7 cents.

– The nonprofit basic automatable letter will rise from 11.9 cents to 12.9 cents.

– The nonprofit basic automatable flat will drop from 18.2 cents to 17.8 cents.

The USPS is also proposing a one cent increase in postcard postage, a 25 cent increase for 1-pound Priority Mail and a 55 cent increase for a half-pound Express Mail package.

And if the rate case filing is approved as written, the following changes will also go into effect:

– Rates for commercial ECR mail will increase by 4.9%.

– The maximum weight for automation letters will be increased to 3.5 ounces.

– Pieces subject to residual shape surcharge would also be eligible for the parcel barcode discount. Delivery confirmation, return receipt for merchandise, and bulk insurance service would be available for all parcels.