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Postal Service proposed rate increases leaves industry in state of shock

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Some mailers and industry stakeholders are expressing alarm following the Postal Regulatory Commission’s recommendation of a steep rate hike while delivering its opinion on U.S. Postal Service rate increases to the Postal Service’s Governors last week.

Although the average rate increase will be 7.6%, many industry watchers say that number is deceptive. Rather than a straightforward hike, the proposed changes are so complicated this time that in some cases rates could be raised as high as 40%, according to some in the catalog industry.

On Friday, DMA revised the measured reaction to the hike it had conveyed to members earlier in the week with a much stronger response, calling the recommended hike “exorbitant,” “outrageous” and “unexpected.”

In a missive to members, DMA said: “After a thorough review of the 700-page document, DMA is today expressing its deep disappointment over specific recommendations that would increase postage costs for catalog mailings by as much as 40% in some instances.”

“This is a case where the devil really did prove to be in the details,” said DMA President-CEO John A. Greco Jr., in the statement.

“In our analysis of these recommendations, it has become clear that in addition to the increased burden for many nonprofit mailings, the outrageous rate increases proposed for many types of flat mailings are far in excess of what had been expected by the mailing community, and are certain to ultimately cause a serious decline in mail volumes and a negative ripple effect for consumers, businesses and the economy.”

Greco added, “The reduction in mail volume alone might well be enough to send the Postal Service into a death spiral of reduced revenues, halts to infrastructure improvements and increases in postage rates for all classes of mail.”

David Straus, partner at Thompson Coburn and American Business Media’s Washington, D.C., counsel, likened some of the changes and new requirements for business periodicals to a Rubik’s cube.

“Right now, you pay rates on pieces and pounds,” he said. “There are different rates for pieces that are at different levels of presort. To calculate your postage, you need to know how many pieces and pounds, but [now] you also need to know how many pallets you have and how many sacks and bundles you have, and where each of those is going.” Those who use pallets will see fewer increases than those who use sacks.

At deadline, Straus said that, based on conversations with two ABM members, it looks like the impact of the recommended hikes on a typical ABM member publication on pallets could be an increase of around 16% to 17%, and as much as a 20% to 21% increase for those in sacks. American Business Media president-CEO Gordon T. Hughes II agreed that the increases for some could be very steep.

“The people that will be hit hardest will be the smallest companies that can’t co-palletize or co-mail,” he said. There are some people that are going to get hurt.”

Joyce McGarvy, VP-distribution at BtoB parent Crain Communications Inc., has been deeply involved in postal matters and has testified in Washington several times. She testified in December to the Postal Rate Commission on behalf of ABM regarding rate restructuring. As part of her testimony, McGarvy talked about the challenges in co-palletizing or co-mailing 19 of Crain’s weekly and biweekly publications. Crain can only co-palletize to a limited extent based on several factors, including magazine size and method of distribution.

“Crain has two separate co-palletization operations at two different printers every Friday night,” McGarvy said. “Because our publications are time-sensitive, we are able to co-palletize only to destinations that are close enough for us to reach using ground transportation.” For destinations that can only be reached by air, Crain must use sacks instead.

Another issue is the need for publishers, fulfillment houses and printers to modify their systems to comply with the new and uniquely complex rate structure. Implementation will take time, but the new rates, if approved, could take effect as early as May. There is some indication that the Postal Service could delay that implementation, especially for periodicals.

“There’s no way anyone can be ready,” McGarvy said.

The Direct Marketing Association’s Washington representative agreed, with an argument much like that made by American Business Media in the rate case.

“Our concern is that the Postal Service may be moving too far and too fast, leaving mailers to struggle with higher rate,s and lengthy and complex new rules that may be imposed too quickly for mailers to adjust their own systems and plan for new and more efficient mailing pieces,” said Jerry Cerasale, DMA senior VP-government affairs, in a statement.

“We think it would be better to do things right rather than to do them fast, to help avoid many operational problems and costly errors for both mailers and the USPS.”

The case now shifts back to the Postal Service, which will decide whether to accept or reject the recommendation. The Postal Service’s Governors will be accepting comments on the proposed rates until March 8, and new rates—if approved—could take effect as early as May.

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