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The USPS Shapes Up

By Jan 01, 2007

Great. We won. Congress has passed a postal reform bill, and our worries are over, right?

Wrong. Although some reports stated that the 2007 rate hike has been overridden by reform, “that’s not the case,” says Jerry Cerasale, the Direct Marketing Association’s senior vice president for government affairs. “You can expect new rates to go into effect in May.”

That means an average 9% hike for standard mail, 11.7% for periodicals, 13.4% for package services and 7.1% for first class if the requested rates are approved by the Postal Rate Commission.

And those rates will be accompanied by a set of shape-based rule changes that will cause great discomfort for mailers.

At deadline, the USPS was set to come out with a final proposal. And mailers hoped it would reflect the objections they raised during last fall’s comment period.

But there was no guarantee that the rules will be softened from the way they’re now written.

“The postal service is moving in the direction of shape-based pricing because it more accurately reflects its costs,” says Tony Conway, executive director of the Alliance of Nonprofit Mailers.

And it will occur “regardless of postal reform,” says Bob McLean, executive director of the Mailers Council. The result, he adds, is that “a lot of mailers won’t be able to keep using the mail.”

Take the proposal to reclassify flats as parcels. BMG Columbia House, one of the largest mailers of CDs and DVDs, fears it will be forced from the postal system if that rule takes effect.

Why? Because the company will face increases of “62% to 115%” in product shipment costs, according to a letter sent last fall to postal executives by BMG vice president Clifton B. Knight Jr.

And if BMG stops using the mail for product shipments, it will “inevitably reduce, if not entirely eliminate” its “use of mail for marketing and promotional purposes,” Knight says. He points out that BMG has gone to “considerable expense” to make sure its CD and DVD shipments meet the requirements for automation flats.

McLean believes the proposed rule also will harm small newspaper publishers and check printers because their mailings are neither flats nor parcels. “Most Americans want to get their checks in a box, not in an 8-1/2 by 11-inch package,” he says.

In the end, the USPS is seeking to make mailing pieces compatible with its improved processing capabilities.

“The USPS is telling the industry that it’s going to reward automation-compatible mail,” adds Anita Pursley, vice president for postal affairs at Quebecor World.

That’s because the USPS is investing in automation. In December, its Board of Governors approved a flats sequencing system, a program that will automatically sort catalogs, magazines, large-envelope mailing pieces and circulars. The equipment is designed to sequence flat mail at a rate of 16,500 pieces per hour, and will free letter carriers from having to do the job manually.

What’s the timing for all this?

The PRC is expected to rule on the rate case in March, with implementation projected for early May.

Reform will take a little longer. “It will be 18 months before the PRC puts out regulations,” says Cerasale. He adds that the DMA and other trade groups will use that time to “ensure that the regulations meet the intent of Congress.”

USPS Wish List

Here’s what the U.S. Postal Service has proposed in its latest rate case:

  • A 3.5-ounce maximum weight for all first class letters.
  • Fewer presort requirements for first class and standard mail non-barcoded machinable letters.
  • Full trays for most enhanced carrier route mail.
  • All flats must be rectangular, flexible and of uniform thickness.
  • Consistent size standards for all flats.
  • Physical standards for automation flats should be adjusted to meet current criteria, with new standards for flexibility and deflection.
  • A new category for standard mail pieces with parcel-like characteristics. This includes rigid pieces.
  • A 10-pound minimum requirement for a parcel to qualify for presort rates.
  • The elimination of almost all bundling of parcels. Enhanced discounts will be offered to encourage drop-shipping parcels to destination delivery units, with no minimum volume requirement for parcels sorted to the five-digit level.
  • Additional options to combine different classes of parcels in sacks and on pallets to achieve finer presort levels, as long as the parcels are in the same processing category.
  • Required barcoding of parcels unless prepared in five-digit/scheme containers.

Postal Reform at Long Last

Some lame-duck Congress.

Most observers expected it to go out with a whimper. But instead it passed a bill that’s been sought by direct mailers for many years.

Postal reform.

And President Bush has signed it into law.

The bill, H.R. 6407, does several things.

For one, it ties future rate hikes to the Consumer Price Index (CPI). This will keep them “at or below the rate of inflation,” says Jerry Cerasale, the Direct Marketing Association’s senior vice president for government affairs.

And any request to exceed this cap “has to be based on extraordinary circumstances, like an oil boycott by OPEC,” Cerasale adds. “It does not include the steady rise in oil prices we’ve been seeing.” He says the CPI has been ranging from 3.1% to 3.3%.

The bill transfers responsibility for military service benefits payable to postal retirees to the Treasury Department. And it eliminates the requirement that the USPS pay $3 billion annually into an escrow account (the cause of the interim hike last year).

The USPS also will now be able to set new rates more quickly than under today’s nine-month review process, and will do so under the guidance of a new Postal Regulatory Commission.

Finally, reform will allow the USPS to be “part of the marketplace again,” Cerasale says. “Competitive classes of mail can be market priced.”

The existing Postal Rate Commission has 18 months to write rules for implementation. Why did it take so long to enact reform?

“In Washington, nothing gets done until there’s almost no time left and people realize they’ve got to get moving,” says Tony Conway, executive director of the Alliance of Nonprofit Mailers.
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If there’s one thing that affects almost every DMer’s business, it’s postal rates. For more on this subject, go to http://directmag.com/legal/postal/.