The current postal rate case calling for a 5.4% across the board rate increase will likely be settled, predicted Gene Del Polito, president of the Association for Postal Commerce.
But, he warned, the U.S. Postal Service will likely file for a higher increase — as large as 8% to 0%–in 2006. “And that’s 8 to 10% on top of the 5.4%,” he said.
Speaking at a Direct magazine webinar sponsored by Quebecor World Inc., Del Polito said that the USPS was holding back on proposing changes in mail classification and other matters in order to get back money it lost as a result of the expiration in January of Public Law 108-18.
Also speaking at the Webinar was Anita Pursley, vice president of postal affairs at Quebecor World, who explained in detail how postal rate cases currently work and why they last 10 months from filing to implementation.
To put together a rate case, she said, the USPS determines which costs are institutional (overhead) and which are attributable to given rate classes.
In late 2002, the U.S. Office of Personnel Management discovered that the USPS had overpaid the federal Civil Service Retirement System fund by more than $70 billion. The industry lobbied Congress, which then passed that law, which transferred the payment obligations to the U.S. Treasury but required that the USPS place the money it would have spent on those obligations into an escrow account.
The $3.1 billion the USPS needs to cover the CSRS escrow payments is an institutional cost, noted Pursley.
Some classification changes that might come in a 2006 rate case probably wouldn’t be as extensive as those that took effect in 1996, when third class mail became standard mail. They probably will involve fine tuning such things as periodical and parcel rate, delivery point sequencing, and tightening requirements for list hygiene, said Del Polito.
The size and scope of the 2006 rate case probably depends on what postal reform bills, if any, are passed this year, he said.
At present, postal reform bills H.R. 22 and S. 662 are pending in both the House and Senate. Currently, H.R. 22 has been marked-up and reported out of the House Government Reform Committee. S.662 is still pending in Senate Homeland Security and Governmental Affairs Committee.
For the past 11 years, postal reform bills have been introduced in Congress, spearheaded mainly by Rep. John McHugh (R-NY) who introduced the latest version of H.R. 22 in January.
Last year, postal reform bills failed to pass either the House or the Senate, although direct marketers were generally encouraged they got as far as they did.
Overall, the bills seek to fundamentally remake the USPS since it came into being in 1970. As currently constituted, both bills vary slightly, said Del Polito.
One area where the bills seek to reform the USPS is in the offering of market-competitive products. The houses differ in their approaches right now.
For example, H.R. 22 treats single-piece parcels as competitive products while S. 662 does not. Both houses agree that first class letters and cards, standard mail, periodicals, media mail, library mail and bound printed matter should remain market-dominant.
The bills also call for a new Postal Regulatory Commission to replace the existing Postal Rate Commission. The House version would determine the methods for the new PRC to regulate the USPS and would set prices based on the Consumer Price Index (CPI).
The Senate version doesn’t specify a method of regulation but requires the PRC to limit annual increases based on the CPI.
Neither bill addresses the issue of negotiated service agreements in which high volume mailers cut their own deals with the USPS.
Both bills differ on labor issues, which make up 78% of the USPS’s costs, said Del Polito. While H.R. 22 is silent on the entire area, S. 662 calls for a three-day waiting period before an employee can receive workers’ compensation pay. More importantly, it establishes a new process for settling labor disputes, requiring mediation before parties go into arbitration.
Finally on the CSRS, health insurance and military issues, both bills scuttle the escrow account and mandate that he Treasury Dept. pick up the pension costs for postal employee military service. But both bills differ on how the postal service will fund its retiree health obligations.
Can a postal reform pass this year? Del Polito gave odds of 30 to 70.
“The odds are weighted against having [a postal reform] bill go through the full process and show up on the President’s desk,” he said. “Those odds can change depending on the amount of pressure the various industry constituencies can bring to bear on the Senate, House and White House.”
In addition to lobbying their Senators and Representatives, Del Polito encouraged mailers to contact White House Chief of Staff Andrew Card to let him know how much a lack of postal reform is costing them as business people.
To hear the DIRECT Webinar, “The New Postal Rate Case: Don’t Celebrate Yet,” visit
directmag.com/webinars/postal-rate-increase-webinar/
