Media Companies Blast Proposed 2007 Postal Increases

Yearly Rate Boosts Also Planned

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WASHINGTON (AdAge.com) -- The U.S. Postal Service delivered a double dose of bad news to media companies and direct marketers today: It is seeking a major rate increase to take effect next year, and it expects to file annual rate increases in the future.

Then the news got worse: The Postal Service is seeking to boost rates as much as 11.4% on magazines and 24.2% on newspapers (though the increase for out-of-county rates, which is the most widely used newspaper rate, would be 11.2%); mailers of CDs and samples could also face big hikes.

Incentive to switch packaging
Postal Service officials said some of the percentages reflect a desire to give incentives for companies to use packaging that is easier to process electronically. The goal is also to put a penalty on hard-to-process mail.

A 2-ounce letter, a 2-ounce flat and a 2-ounce parcel (now charged the same 63-cent rate) will see different increases under the rate proposal, with the 2-ounce parcel seeing as much as a 90% increase.

Postal officials predicted that when companies examine the rates closely, it will quickly become apparent that switching packaging can significantly lower the cost. For instance, businesses that switch from mailing CDs in jewel boxes to mailing CDs in other packaging will pay significantly less.

"Business will be given a choice of continuing to mail the way they do now and paying more or changing the shape and saving money,” said Stephen M. Kearney, VP-pricing and classification. Postal officials said one reason for the rate hikes are rising fuel prices.

Awaiting approval
The rate hikes, which are slated to take effect next May if approved by the Postal Rate Commission, still could be significant for many marketers.

While the cost of a first-class stamp will rise to 42 cents from 39 cents, the cost for additional ounces will actually decrease. The Postal Service will also offer a "forever" stamp that ensures against future rate hikes. There are increases of as much as 13.8% in priority mail and 12.5% in express mail.

Marketing and media groups said the rates reinforce the need for postal reform in Congress, which they said could have cut the increase in half. Part of the postal-reform battle is over how much additional revenue the Postal Service needs to fund employee pension plans.

"We are concerned about the magnitude of the proposed increase," said Nina Link, president-CEO of the Magazine Publishers of America. "Our rates just went up 5.4% in January. So if the Postal Service gets its way, by early next year, we will have incurred a compounded increase of 17.4% in less than a year and a half. This increase is on top of the compounded increases of about 24% that magazines sustained from 2000 to 2002."

Litigation planned by MPA
Jim Cregan, MPA's exec VP-government affairs, said the group would "aggressively litigate" the increase at the Postal Rate Commission.

Jerry Cerasale, the Direct Marketing Association's senior VP-government affairs, said the rate hikes include a 9% boost in the general-rate class most widely used by direct marketers. He said DMA has yet to assess the impact the new incentive-keyed structure will have in lessening the impact on individual marketers, but "no one expected" the size of some of the rate increases, he added.

He said that while the DMA would like to see predictable annual rates, the idea is to get increases within the rate of inflation.

The DMA warned that price increases above the rate of inflation can hurt postal business, and that mailers could ultimately be forced to limit mailing campaigns and switch to less expensive ways of communicating.

Paul Boyle, senior VP-public policy for the Newspaper Association of America, said the newspaper rate increases would have the biggest effect on weeklies, rather than the dailies his group represents.

"We were told that this would be the mother of all rate cases, and looking at this, it is true," he said, adding that his association is still looking at the effect the increases will have on total market-coverage products they mail nonsubscribers.
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