Running Scared

Posted on by Chief Marketer Staff

They’re here.

The new postal rates, debated for almost a year, are scheduled to hit May 14. And they’re reasonable, unless you happen to be a catalog mailer.

If so, you could be facing a very nasty hike, thanks to the Postal Regulatory Commission, which wants to give the U.S. Postal Service more than it asked for in the 2006 rate case.

At press time, the U.S. Postal Service Board of Governors had asked the PRC to come to its senses and rethink that suggestion. But postal experts don’t have high hopes that it will.

“Realistically it doesn’t seem like there’s enough time between now and May 14 to come up with a new set of recommendations,” says Gene Del Polito, president of the Association for Postal Commerce. “The PRC would have to rejiggle a hell of a lot of rates on the basis of very little evidence that whatever rates they change could be sustained in law.”

Bob McLean, executive director of the Mailers Council, adds that the postal board has no power to set any deadlines for the PRC. And except for periodical rates, which the governors delayed until July, all the new prices will go into effect on schedule.

The governors challenged the PRC on non-machinable first class letters and priority mail flat rate boxes. But they let stand the majority of standard mail rate hikes, including an overall 9.5% increase, and the shape-based pricing formula the PRC had suggested.

Del Polito, for one, feels the governors did not seem sufficiently upset by the PRC’s rate recommendation for flats.

“Usually in the past the governors have been much more explicit in their unhappiness,” he says. “But if you look at the wording in their decision, they tried to be as polite and gentle as they possibly could.”

What did the governors say?

They claimed they were “concerned about the effect the steep increases in the prices of standard mail flats would have on the vitality of the catalog industry.” And they acknowledged that some PRC-recommended increases were as much as 40%, more than twice what the USPS originally had proposed.

For example, “those catalogs which pay the piece rates for automation flats entered at sectional center facilities closest to the delivery destination face a 41.1% increase under the commission’s proposal, but would have experienced an 18.5% increase under the postal service’s proposal,” the governors wrote.

Despite these sympathetic notes, catalogers were bracing themselves for the loss of their final appeal. One was Federated Department Stores Inc.

“Obviously, the postage increase is going to increase our mailing costs and that’s not something we’re particularly happy about,” says Federated spokesman Jim Sluzewski. “This is something that could lead to a reduction in the number of catalog pages or the number of mailings, but we’re still looking at it. Our budgets are not unlimited.”

Federated, which sends out the Bloomingdale’s-by-Mail catalog and direct mail promotions for Macy’s stores, ships some 25 billion catalog pages per year, Sluzewski says.

Then there’s business-to-business cataloger Edmund Optics. It expects the new rates will strongly affect its strategy.

“We had budgeted for a 10% increase, which is what we were expecting. So to have it be closer to 20% is really a huge impact for us,” says vice president of marketing Marissa Edmund.

Edmund mails 1.6 million catalogs twice a year. It’s locked into its current mailing schedule because it printed books for the spring drop last December.

The new rates will cost the company about $200,000 per year, Edmund estimates.

“The only thing I can really change now [to accommodate the increase] is what we mail in the summer and fall,” she says.

But Edmund plans to stick with the mail as a primary marketing vehicle. “We almost have no choice,” she says. “We wouldn’t really be able to use FedEx or UPS to mail our catalogs, but we’re certainly going to look at all our options,”

At deadline, Edmund was mulling the launch of a master source-book catalog with 48 more pages of new products and technical information than it has in its current 356-page edition. And it will be printed on heavier paper, Edmund says.

“We’ve been trying to stay under the pound [per-piece rate] because that’s where we’ve had postal savings in the past,” she adds, noting the new book might cost as much as $6 per piece to mail. Edmund hopes the catalog will lift overall sales by at least 20%.

Meanwhile, B-to-B cataloger ATD-American claims it beat the USPS to the punch by pumping up its mailings before the new rates took effect.

“We have a program set already where we’re going to be increasing our mailing anyway,” says executive vice president Arnie Zaslow.

Zaslow adds: “By the time you lay it on top of those increases that have occurred in the last five to 10 years, it’s an enormous difference. It used to cost 12 cents [per piece]; now it’s 70 cents.”

But back to the postal governors. They debunked the PRC’s statement that “mailers should be able to convert lightweight pieces to more efficient, less costly letters if they feel that these cost-based rates are no longer the most cost-effective way to send their mailings.”

And they discounted experience presented by Bookspan as evidence that mailers will change the shape of their pieces when offered financial incentives.

“We are not confident that Bookspan provides a completely reliable guide for standard mail rates in current circumstances,” the governors wrote.

Finally, the governors decried the rule that letter mail can only be up to 0.25 inch thick.

“The commission did not explain how flat-size mail pieces that already exceed the maximum letter thickness could change from flat shape to letter shape,” they wrote. “Moreover, the commission’s rate design significantly increases the price not only of lightweight flats but also most heavyweight flats.”

NONPROFIT RATES

Nonprofit mailers are also worried, despite the modest overall increase recommended for them by the PRC: 6.7%, compared with the 8.9% requested by the USPS.

“A postage increase for a nonprofit is never a good thing because it takes away bottom-line dollars from our programs,” says Susan Loth, director of fundraising for Disabled American Veterans. “Obviously when the rates go up there’s going to be a lot of extra expense and you don’t know where you’re going to recoup the extra revenue from. A lot of times the American public will step up [with larger contributions], but there’s no guarantee.”

DAV mails more than 62 million pieces annually, both standard and first class. This includes six donor blasts and 11 prospect mailings.

Catholic Relief Services is also trying to figure out how to cope with the rate hikes. The charity, which sends out 24 million pieces of standard and first class mail per year, is looking to take further advantage of things like commingling and work-sharing discounts. It also plans to adjust its mailings to help cope with the increases, says Jean Simmons, the group’s director of direct response fundraising.

Some charities send mail packages containing “front-end” premiums like pens, magnets or greeting cards in their acquisition mailings, a fact that could change their status from flats to parcels, says Ellenor Kirkconnell, assistant director of the Alliance of Nonprofit Mailers.

Is there any good news? Sure. The May 14 implementation is eight days later than the expected date of May 6.

Average Percent Rate Changes
First class mail USPS proposed PRC recommendation
Letters and cards 6.9% 6.9%
Periodicals
Within county 24.4 18.3
Outside county 11.7 11.7
Standard mail
Regular 9.6 9.5
Nonprofit 8.9 6.7
Enhanced carrier route 8.9 6.9
Nonprofit ECR 8.8 8.8
Competitive services
Parcel post 17.4 16.6
Priority mail 13.6 13.6
Express mail 12.5 12.5
Special services
Registered mail 50.2 20.7
Certified mail 10.4 10.4
Money orders 12.1 8.8
P.O. Boxes 10.1 10.1
Overall average increase 8.1 7.6
Source: Postal Regulatory Commission
Mail Volume and Related Revenue
Volume (millions) Percent volume Revenue ($ millions) Percent revenue
First class 91,033 43.0 $37,070 47.8
Priority mail 829 0.4 $5.193 6.7
Periodicals 8,777 4.2 $2,474 3.2
Standard mail 108,101 51.1 $23,393 30.2
Package services 1,196 0.6 $2,667 3.4
Other mail 1,548 0.7 $6,771 8.7
Total 211,485 100.0 $77,568 100.0
Selected Rates Used By Bulk and Work-sharing Mailers
Standard regular rate mail Current (cents) PRC recommendation
Highly targeted (three-digit presort, 2-oz. letter, barcoded) 21.4 23.3
Targeted (five-digit presort, 9-oz. flat) 57.0 62.9
Local department store advertisement(five-digit presort, 3-oz. flat,sectional center facility entry) 27.7 32.1
Saturation local mail (carrier routewalk sequence, 3-oz. flat, destination delivery unit entry)
without detached address label 13.6 13.6
with detached address label 13.6 15.1
Standard nonprofit mail
Targeted appeal (basic presort,1-oz. letter) 17.0 16.4
Church bulletin (five-digit presort, letter) 11.8 12.7
Source: Postal Regulatory Commission
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For the latest news on postal regulations, visit http://directmag.com/legal/postal/.

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