Postal rate increase in line with expectations

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As expected, the U.S. Postal Service's independent Postal Rate Commission this month approved a 5.4% across-the-board rate increase. The increase, the first since June 2002, will take effect in early 2006 and will apply to regular-rate periodicals.

The commission's decision was supported by major mailers and associations representing them, including American Business Media, the Magazine Publishers of America and the Direct Marketing Association.

"We don't like any rate hike," said Jerry Cerasale, senior VP-government affairs at the DMA, "but we're pleased that the commission adopted the settlement the DMA and most major mailers signed on to."

David Straus, a partner at law firm Thompson Coburn and ABM's Washington counsel, agreed. "We never want to call a rate increase a victory, but this is the best of all possible outcomes," he said.

"I think it is especially good, given the fact that the post office had to deal with catastrophes like Hurricane Katrina," ABM President Gordon Hughes said. "We, along with many other major mailers, presented a good solid case to keep it low, and the post office figured out how to do it."

The increase obviously will hit the bottom line for b-to-b publishers.

Tom Martin, VP-manufacturing at Cygnus Business Media, said the rate hike will add about $350,000 to $450,000 to Cygnus' $7 million in annual postal spending. "That definitely has an impact on our overall cost structure," Martin said.

Marie Myers, senior VP-manufacturing at CMP Media, said the increase would add $1 million to the tech publisher's annual postal costs. "We'll be doing a lot more co-mailings with our monthly publications, but that doesn't help our weeklies," she said. CMP publishes three b-to-b weeklies: CRN, EE Times and Information Week .

Rate hike no surprise

Postal increases are a fact of business for major mailers, and this latest hike has been long expected.

"Any good b-to-b publisher is trying a number of things to offset the increases, including cutting circulation, partnering with other companies and/or co-mailing," Martin said.

And while b-to-b publishers scramble to minimize the impact of the latest postal rate increase, they're already looking beyond to 2007. "What I fear is a double-digit rate increase in 2007, which is what they're now talking about," Myers said.

Straus said that concern is well founded. "I think the average periodical increase will be significantly higher in 2007," he said. "A smaller circulation publisher that doesn't take advantage of co-mailing and co-palletizing [in order to be eligible for lower negotiated rates] could see a double-digit rate increase."

Hughes agreed the 2007 rates will have a bigger impact on the industry than the 2006 rates.

"That will be the mother of all rate cases," Hughes said. "The Time Warner case was a precursor of the kind of fight we're going to see."

Hughes was referring to a complaint rejected last month by the Postal Rate Commission. The complaint was filed by Time Warner, Conde Nast and other large publishers that contended the current rate structure for periodicals is unfair. The publishers wanted rate changes that would reward them for palletizing and presorting magazine shipments.

The commission said the existing structure was not unlawful but that it could be improved.

Mixed reactions

B-to-b mailing executives had mixed reactions to the commission's ruling.

"This was a middle-of-the-road decision by the postal department so as not to alienate anyone," Martin said.

Hughes said the major publishers that brought the complaint had clear motives. "Time Warner does a lot of work upfront, and they want lower unit rates," he said. "They were trying to raise the visibility of that issue."

The DMA's Cerasale said that in that regard, the publishers' complaint succeeded.

"Although Time did not get what it wanted in the short run, in the long run they got some information and guidance to the commission and to the postal service to look at the underlying cost of what's happening in periodical mail," he said.

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