Proposed postal rate hikes leave mailers in shock

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Mailers are expressing shock and outrage following the Postal Regulatory Commission's recommendation late last month of steep hikes in postal rates and several changes in requirements for mailers.

The complicated rates, which must be approved by the U.S. Postal Service's board of governors to go into effect, drew quick criticism from the direct marketing and publishing industries. Although the average increase will be 7.6%, some mailers could see increases of as much as 40%, according to some in the catalog industry.

"There are some segments that are going to get crucified," said Glen Holt, VP-new business development at PetEdge, a cataloger that markets to pet industry retailers and veterinarians. Holt said those hit hardest will be the small companies. "If you are a small mailer, this will put you out of business," he said.

PetEdge mails 300,000 to 500,000 catalogs a month. For its 256-page "full-line" catalog, Holt said the increase may be around 7% or slightly higher. "At this point, we're playing with assumptions," he said. Given the complexity of the proposed rates, he said he does not yet have an exact figure.

One direct marketing and fulfillment consultancy said it would also be affected substantially if steep increases take effect.

"We do a lot of direct marketing ourselves, mailing to potential customers," said Jeff Barry, marketing manager at F. Curtis Barry & Co. "We're going to have to scale back" mailings if the increases pass, he added. "We were looking at between one and two mail drops each month to our database of 10,000."

B-to-b catalogers are among the consultancy's clients. "We're looking at companies that will potentially lose a lot of sales because they are going to reduce their circulation," Barry said.

PetEdge said it might send less mail, depending on the size of the rate increase. "If our costs go up, our profits go down," Holt said. "Basically what will happen is we will be less able to mail to that marginal customer."

The Direct Marketing Association called the recommended hikes "exorbitant" and "outrageous."

"The reduction in mail volume alone might well be enough to send the Postal Service into a death spiral of reduced revenue, halts to infra- structure improvements and increases in postage rates for all classes of mail," DMA President-CEO John A. Greco Jr. said in statement. Greco could not be reached for further comment.

Holt agreed with Greco's assessment. "If they make it more difficult for businesses to use the mail," he said, "it could be the start of a real downward spiral for the post office."

"The problem is, if people cut back on catalogs and everyone starts paying their bills online, what's going to be left? Are we going to be paying a dollar for postage? What primarily pays for the post office in this nation is bills and magazines and catalogs."

One executive said the new rates are simply part of the larger picture of postal reform. "I think this is all part of the beginning of the transition related to postal reform," said Mike Monahan, exec VP and president of Global Mailing Solutions and Services at Pitney Bowes, a major provider of mailing services. "We supported reform. We saw what the Postal Service put out. The Postal Rate Commission opined on it, and we'll wait to see what the [postal board of] governors say," he said.

"We see this directionally as something that will make the Postal Service viable over the long term, and this is the early days of the process," Monahan said. "Everyone has their calculators out and is figuring out what it means for them, and it varies quite dramatically from customer to customer."

David Straus, a partner at Thompson Coburn and American Business Media's Washington, D.C., counsel, likened 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." Under the proposed rates, those who use pallets will see smaller increases than those who use sacks.

Citing conversations with two ABM members, Straus said the impact of the recommended rates on a typical ABM member publication on pallets could be an increase of around 16% to 17%, compared with an increase of 20% to 21% for one in sacks.

ABM President-CEO Gordon T. Hughes II agreed that the increases for some publishers 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. She testified in December to the Postal Rate Commission on behalf of ABM regarding rate restructuring. In her testimony, she talked about the challenges of 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.

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 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 DMA's Washington representative agreed.

"Our concern is that the Postal Service may be moving too far and too fast, leaving mailers to struggle with higher rates and lengthy and complex new rules that may be imposed too quickly for mailers to adjust their own systems," said Jerry Cera-sale, DMA senior VP-government affairs, in a statement.

The proposed postal changes also include new data hygiene requirements, which have some direct marketing companies concerned and add another layer of complexity to the new rules and requirements.

"There are all kinds of new requirements on data hygiene and list processing in order to get the discounted rates," said Keith Goodman, VP-corporate solutions at Modern Postcard. "This is the first time that [a rate recommendation] has been this wide-sweeping with this many requirements that I can remember. It's not just a rate hike."

Goodman said the increases for postcards are less egregious than some other mailers' increases. "It's a less than 10% increase," he said. "I'm not happy about it, but I'm happy it isn't more."

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