"This is a clear signal that the Postal Service is not effectively controlling its costs," said Jim O'Brien, director of distribution and postal affairs for the Postal Service's largest customer, Time Inc. "In private industry, you would never do something like this to your customers. We feel that this is going to exacerbate declining volume within the Postal Service. I think everyone is going to re-evaluate the costs of various sources."
Joe Bourdow, president of Val-Pak Direct Marketing Systems, a unit of Cox Target Media, said his company is still assessing the increase, but the hike may force it to slow growth this year. "We feel like we have been betrayed," he said.
Postal Service officials portrayed the latest hike of 2.6% for magazines and from 1.3% to 2% for direct mailers as a necessary step to overcome failure of the Postal Rate Commission to provide it sufficient revenues to cover its costs in last year's rate case.
The increase was announced by the Postal Service Board of Governors on May 8 and takes effect July 1. A hike that took effect Jan. 7-with increases of 9.9% for magazines and 4.5% for direct marketers-left the Postal Service with a $950 million shortfall, they said.
The Board of Governors also said higher fuel prices, the economic downturn and the delay in implementing the higher rates will lead to the Postal Service showing a deficit this year, making another rate hike next year inevitable. The Board of Governors earlier ordered the Postal Service to prepare a rate increase request that could be filed with the Postal Rate Commission this summer. "If this were a normal business, we would have incentives [to use the mail at slack times]. Unfortunately, the law does not allow us to offer incentives," said Greg Frey, media-relations representative for the Postal Service.
Nina Link, president of the Magazine Publishers of America, said the combination of the January and July increases will cost publishers $50 million and that in July they will be paying 12.5% more than they paid last year. "[Publishers] are really, really angry," she said.
Ed Gleiman, former chairman of the Postal Rate Commission and now a consultant for the Direct Marketing Association, said the rates as approved last week for direct mailers result in bigger increases than the Postal Service ever requested last year. The Postal Service originally asked a 4.9% increase for standard mail with routing codes, and got a 4.5% increase in January; the latest increase adds 1.3%.
Michael Sherman, president of Federated Department Stores' Fingerhut, the Postal Service's largest mail-order account, and a member of the Blue Ribbon Committee the Postal Service created to look at postal reform, said there is a need for change in postal laws. "Where else can a business keep going on and raising prices as an answer to its problems?" he said. "Is this [rate hike] going to kill us? No. The question is, how reliable is the Postal Service going to be in the future? You can't operate at a deficit."
Sal Ferraro, senior VP-sales and marketing at AGA Catalog Marketing and Design, which handles creative, production and fulfillment for catalogers including Spiegel and Chadwick's of Boston, said catalogs cannot simply react to the rate hike by transferring higher costs to consumers.
Lynn Carlson, general manager of Harper's magazine, described the hike as "not great news" but said Harper's has little choice. Postage accounts for 10% of the magazine's costs, she said. "We feel blindsided about it. This came out of nowhere, but we will have to just suck it up," she said.
One publishing executive who declined to be identified called the postal rate a red herring. "I'm not happy the price went up. I am not out volunteering to pay more, but postal rates are not our biggest problem by a long shot," he said.
Contributing: Jon Fine