GOOD DEAL

Posted on by Chief Marketer Staff

Direct mailers are still pinching themselves to see if the events of the week of May 11 actually happened.

On Monday, the Postal Rate Commission recommended that the rates proposed in the 1997 postal rate case be reduced by a third and that the hikes not be implemented until January. On Tuesday, the Board of Governors announced that popular postal veteran William Henderson would replace Marvin Runyon as postmaster general.

The mood was euphoric at the Direct Marketing Association’s Government Affairs Conference in Washington, D.C. later that week. Appearing before mailers, PRC chairman Ed Gleiman and his staffers found themselves being hailed for their wise counsel, and for handling the rate case as fast as they did. (Exactly ten years ago, PRC chairman Janet Steiger was roasted by the same crew after a shockingly high rate hike recommendation by the PRC).

But the lovefest may not last for long. Postal governors, scheduled at deadline to meet on June 1 and 2, could accept the recommendation without comment, and set a date for the new rates to take effect. Or, they could ask the PRC to reconsider, or totally reject the PRC’s suggestions in favor of the original request by the USPS.

If the BOG accepts what the PRC handed down, the price to mail a single piece of regular-rate Standard A mail, both presorted and pre-barcoded, would remain at 18.3 cents. But a cataloger would have to pay 43.9 cents a piece for an 8 ounce catalog presorted by five digit ZIP code instead of the 42.4 cents he pays now. The per-piece for a three ounce flat, presorted by carrier route walk-sequence and entered at the delivery office would remain at 11.4 cents.(For a more detailed analysis of the recommendations, see Dan Minnick’s article on page 55).

The per-piece tab for nonprofit mailers would jump to 16.9 cents a piece from 13.8 cents while the cost of mailing a church bulletin would go to 16.5 cents from 14.9 cents.

Mailers contacted by DIRECT say they can live with these rates.

Cataloger Foster & Gallagher, which spent $90 million last year on postage, is unhappy with the recommended ten cent surcharge on parcels weighing less than a pound. But most of the rates are favorable, says the firm’s postal affairs manager Mark Heinz. “We obviously dislike hikes, but this one could have been worse.”

Saturation mailer ADVO Inc. is happy about the one-third reduction in the piece rate increase from around 3% to 2%. “If accepted by the Postal Service’s Governors, the Commission’s recommendations would mark the smallest increase ever recorded for saturation mail,” says CEO Robert Kamerschen.

“We’re not happy about any postal increase but we’re glad to see one that’s below the rate of inflation,” adds Ted Deikel, chairman/CEO of cataloger Fingerhut.

Gene DelPolito, president of the Advertising Mail Marketing Association, hailed the PRC for doing “a very good job of balancing out various aspects of the postal service’s request.”

What mailers are nervous about is timing. At deadline, there were unconfirmed reports that postal officials will press the BOG to accept the rates suggested by the PRC, but order that they go into effect as soon as possible which could be any time between July 1 and Sept. 1.

If history is any indicator, mailers will try to beat the hike by mailing early-but that, too, could cause problems.

“Our business plan calls for Fall books to be sent out in September,” says Allison Scherer, spokerpserson for Spiegel Inc. “It might not be possible to change the business plan.”

“We’re still trying to figure out whether the service bureaus and the Postal Service will be ready in time,” adds Marco Pescara, VP of direct marketing/catalogs for Hickory Farms. “Our biggest concern is being able to meet company’s catalog in-home dates.”

Because of its effect on holiday catalog delivery, an October 1 implementation date would be just as bad. The DMA argues that implementing new rates “before or during the 1998 holiday [mailing] season will hurt consumers, mailers, and the economy needlessly.”

Nonprofit mailers, who are being hit with a double whammy, are especially nervous about the timing. The BOG should “at least hold of implementing the new rates until October when step six of the Congressionally mandated increase in nonprofit rates goes into effect,” says Neal Denton, executive direct of the Alliance of Nonprofit Mailers. Postal governors,

(That increase, averaging about 2 percent, was mandated by the Revenue Forgone Reform Act of 1993. The act, requiring six annual increases in nonprofit rates, established a 42 year phaseout of Revenue Forgone.) Denton also notes that nonprofit periodicals are being hit with fairly sizable increases.

Some fear that an early date will be bad for-the postal service.

It “would be a huge mistake for the board to saddle the new Postmaster General (William Henderson) with an immediate rate increase that would give him problems with the mailing community instantly,” says Lee Cassidy, executive director of the National Federation of Nonprofits

In the short, mailers reveled in the PRC’s rhetoric. The PRC slashed the postal service’s proposed rate increase averaging 4.5% by a third because the USPS, well on the way to its fourth consecutive $1 billion-plus surplus, “seriously misestimated” its need for new revenue at this time.

Insights into how the PRC’s thought process came out during a Q & A with Gleiman at the Government Affairs conference. Asked why periodicals and parcel post went up, Gleiman noted that the PRC relied on the same indices for everything, whereas the USPS would use different indexes depending on what its needs were. In the case of parcel post and periodicals, “Their numbers are strange numbers,” he said.

PRC staff member Robert Cohen explained that the adjustments were based strictly on USPS revenue requirements. On a more negative note, Cohen pointed to a slight rebalancing in overhead contributions, so that first class mail is contributing slightly less and Standard A slightly more.

Fellow PRC staffer Charles Robinson pointed out that the reduced rates are part of a larger pattern in that they’re “within the boundaries of the proposed rates.” Where the postal service wanted an increase, the PRC lowered the increase; where it wanted a decrease, the PRC lowered the decrease.” Robinson also told mailers that, “the more you drop ship, the better these rates get.”

On timing, the PRC said it saw no reason to implement the new rates before next January. Why? Because of the postal service’s strong financial performance since 1995 when, for the first time in eight years it had a cash surplus of $1.8 billion. Since then, the USPS, has racked up surpluses of $1.6 billion for fiscal 1996, $1.2 billion for fiscal 1997, and appears headed for another $1 billion variance.

Postal Board Chairman Sam Winters has offered no indication of what the BOG will do. But he commented on May 12 that the modest increase in revenue will enable the USPS to build on recent performance and delivery improvements.

Saying too that it had no legal basis to challenge the agency’s multi-year, billion-dollar spending program that underpinned the plan to raise $2.4 billion in new revenue, the PRC said it was not recommending implementation of the new rates until January.

On the other hand, the PRC said it had no legal basis for challenging the multi-year, billion-dollar spending program initiated by the USPS. This was the underpinning for the request by the USPS for new revenue.

Whatever the final outcome, mailers and their associations can bask in the glow of a rare victory.

“We’re very happy,” says Chuck Jarrell, vice president of marketing at computer cataloger Insight Direct, Tempe, AZ. He notes that his company, has been moving very aggressively toward making all its direct marketing electronic, “along with the rest of the world.”

Tom Owen, vice president, sales and marketing for Total Response Inc., a third-party mailer based in Indianapolis, doubts that the smallrate increase would affect direct mailers, adding, g “it’s not enough to make them consider how else to get their message out.”

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