Guest Column: Postage Rates Rising
The outlook for changes in publishers' postage costs next year ranges from virtually zero to the potential for double-digit increases that would put many publications out of business. It all depends upon the outcome of an unprecedented proposal that the United States Postal Service (USPS) has presented to the Postal Regulatory Commission (PRC).
As you likely have heard, the USPS filed a proposed pricing increase with the PRC on July 6. The proposal would raise postage an average of 5 percent to 5.5 percent for most market dominant mail classes. However, periodicals would see average increases of 8 percent, with more publishers reporting increases greater than 8 percent. The increases are relatively similar for most periodicals rates, except for 20-plus-percent increases for certain types of pallets, and Standard Mail parcels will go up 23 percent.
These changes would take place on Jan. 2, 2011, and would include some regulation modifications as incentives.
Before detailing some of the incentives and changes, the increase amount must be addressed. The USPS is requesting the increase under the "exigent clause" in the Postal Accountability and Enhancement Act, which allows changes in postage rates to exceed the rate of inflation (above Consumer Price Index parameters) under extraordinary circumstances.
Several mailer organizations and a newly formed alliance (Affordable Mail Alliance) are challenging the exigent increase as not meeting the criteria for which the clause was created. They believe that legitimate criteria would be a natural or man-made disaster that disrupted service capability for an extended period of time or disabled the Postal Service's ability to operate under optimum conditions. The exigent clause was added after 9/11 and the anthrax problems, and reinforced by damage from Hurricane Katrina. These organizations do not believe that poor USPS financial conditions meet the criteria.
Even more concerns emanate from the PRC. The PRC will be holding several hearings over the next 90 days and analyzing the request for higher rates. It can determine that the proposal is acceptable as submitted, modify it to reflect its economic analyses or reject it as unacceptable.
So, we won't know the outcome until as late as Oct. 4. Of major concern right now is the public allegation made by the Commission Chairperson that periodicals mail is only covering 76 percent of its contribution to the postal dollar. Comments made in print and on C-SPAN support that allegation and, it would seem, could prejudice the PRC's opinion.
The method of calculating this shortfall is being challenged by mailer groups for not accounting for up-to-date mailing procedures such as the recent addition of container rates, and the application of co-mailing and co-palletizing procedures. (Only periodicals mail incurs an additional charge for containers and the distance they travel.)
If a decision is made to fully compensate for the alleged 24-percent shortfall, the periodicals industry could be driven out of business completely, or from print to electronic media.
Hopefully, more logical heads will prevail, and the additional 3-percent to 4-percent increase is found to be an acceptable alternative, if indeed there is a need for it.
Are there other ways to offset and forestall this increase? Maybe.
Arguments have been presented to Congress that the amounts currently paid out for future retiree health benefits need to be re-computed. If postal-driven numbers are found acceptable, the $5.4 billion annual payment can be cut virtually in half.
The Office of the Inspector General for the Postal Service detected an error in calculating payments to the Civil Service Retirement System that was initially believed to be $75 billion, and was adjusted to between $50 billion and $55 billion by an independent review from the Segal Co. through the PRC. A bill, HR 5746, the "United States Postal Service's CSRS Obligation Modification Act of 2010," has been introduced in Congress to remedy this and put the money back into the USPS Treasury.
Finally, the USPS continues to pursue five-day delivery (eliminating Saturday delivery) as a source of $2.5 billion to $3 billion savings annually. This effort, however, is losing support in the private sector and in political circles.
If HR 5746 and the re-computation of retiree health benefit funds were successful, it would put $7.5 billion to $8 billion back into the USPS annually for 10 years. Theoretically, this could hold back an exigent increase.
These possibilities hold the intrigue of a fictional Hollywood thriller with the all-too-real possibility of unpredicted numbers in the final rate case analysis for 2011. We all need to stay vocal and prolific in our support of change to keep prices down.
The Rate Increase Proposal
Here are highlights of the pricing proposal and incentives:
● First-Class Mail: Single-piece, 1 oz. letters and postcards go up 2 cents to 46 cents and 30 cents, respectively. Commercial First-Class Mail letter and flat rates average a 5-percent to 5.6-percent increase.
Some First-Class Mail pieces with Business Reply cards or envelopes up to 1.2 oz. can pay the 1 oz. rate for one year after the case is implemented, accompanied by volume conditions and the need for Full Service Intelligent Mail barcodes.
● Standard Mail: Between a 5-percent and 6-percent increase is anticipated for flats and letters. Percentages for 1 oz. to 4 oz. machinable flats are proportionately lower to partially offset high increases from earlier pricing cases.
Discount incentives are being offered for one year for standard mail sorted to saturation levels with volume considerations and barcode (IMB) conditions.
Flats not meeting requirements of the deflection or "droop" test will force standard mail flats to the standard parcel category and periodicals flats to the nonmachinable category.
Standard mail parcels will see a 23-percent increase partly because of these changes.
● Periodicals: Most rate cells are 8.3 percent to 8.8 percent, with some under 8 percent in the high-density sorts for pieces.
Pallets to origin facilities that require additional handlings are seeing increases in the 20-percent range.
Ride-Alongs and Repositionable Notes prices will remain at the current prices of 16.5 cents and 1.5 cents, respectively.
Content changes taking effect Sept. 7 will allow supplements to bound publications with 100-percent advertising and will liberalize many non-paper materials and product samples at periodicals rates. CDs, DVDs, other media and commercially available stationery items (calendars, notepads, etc.) for sale are excluded.
● Package Services: Looking at a 5-percent to 6-percent increase overall, with individual weights seeing lower and higher amounts based on distance, weight and density.
A last reminder is that as of May 11, 2011, no matter what pricing scenario is put into effect, PostNet barcodes will no longer get automation rates. The negligible discount of 0.1 cents to 0.3 cents under the current Intelligent Mail barcodes (IMB) scenario is not very significant, but with the end of PostNet as a qualification for automation, postage can increase by 2 cents to 5 cents per piece since only presort can be claimed if IMBs are not used. PE
Eddie Mayhew is a retired Classification Specialist for the Postal Service Pricing and Classification Service Center, and has run a consulting business, Eddie Mayhew's Classification Station, since 2005. During 37 years at the USPS, he spent much of his time working with Periodicals, developing standards, forms and policies. He has been a speaker at postal and industry functions internationally for more than 25 years.
Ed Mayhew worked for the Postal Service for 37 years, becoming one of the most recognized experts on periodicals mail in the country. Ed was a part of the Rates and Classification Service Center (RCSC), ending his career as a Classification Specialist in the New Pricing and Classification Service Center in New York City. He has written rulings, instructions and articles for postal publications, appeared as an expert witness in court, a rebuttal witness for the Postal service at the Postal Rate Commission, co-authored postal handbooks and applications, and was the RCSC coordinator for six postage rate cases.
He is the 2002 winner of the Angelo R. Venizian award for contributions to the publishing industry, the first postal winner of that award in its history.
Ed has made training videos appearing on radio and TV, speaks at numerous seminars and is an 11-time top National Postal Forum speaker. He is founder and president of consultancy Eddie Mayhew’s Classification Station. Contact Ed at 973-462-5662, E-Mail at email@example.com or Twitter @eddiemclass.