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Publishers face 5.4% increase in postal rates

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As expected, the U.S. Postal Service’s Postal Rate Commission last Tuesday approved a 5.4% across-the-board rate increase.

The USPS said the increase would take effect in early 2006 and will apply to regular-rate periodicals. It will be the first rate hike since June 2002.

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

“We never want to call a rate increase a victory, but this is the best of all possible outcomes,” said David Straus, a partner at Thompson Coburn, and ABM’s Washington counsel.

ABM President Gordon Hughes II concurred. “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,” he said.

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

Tom Martin, VP-manufacturing at Cygnus Business Media, said it will add about $350,000 to $450,000 to Cygnus’ $7 million annual postal costs. “That definitely has an impact on our overall cost structure,” he said.

Marie Myers, senior VP-manufacturing at CMP Media, said the increase will add $1 million to the publisher’s annual costs. “We’ll be doing a lot more co-mailings with our monthly publications, but that doesn’t help our weeklies,” she said.

Postal rate increases are a fact of doing business, and this one has long been 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.

While b-to-b publishers scramble to minimize the impact of the latest increase, Myers said she dreads the next one. “What I fear is a double-digit rate increase in 2007,” she said.

The rate case to determine if there will be an increase in 2007 is expected to begin next April.

Myers’ concern appears well-founded. “The average periodical increase will be significantly higher in 2007,” Straus said. “A smaller circulation publisher that doesn’t take advantage of co-mailing and co-palletizing could see a double-digit rate increase.”

Hughes agreed that the 2007 rates will have a bigger impact.

“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, Condé 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 upon.

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.”

Jerry Cerasale, senior VP-government affairs at the Direct Marketing Association, 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,” Cerasale said.

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