Plan for a CPI-based rate increase around 3 percent next spring, Part 2 of 2

By Jerry Cerasale

In this second of my two-part series, I’ll examine how the shape of your catalog and mail quantities effect on U.S. Postal Service processes may influence future rate increases. I’ll also provide some tips for preparing yourself now for these increases.

First, I don’t expect the USPS to eliminate the rate distinction between letters and flats. That said, the USPS will continue on the road to having shape reflected in its rate structure. Thus, the weight of a mail piece will continue to be less important than in the past. The increased reliance on shape in the last rate case reduced the effect of weight on postage. As such, heavier catalogs didn’t feel the full brunt of the last rate increase as the lightweight catalogs did.

New rate-making rules under postal reform also allow the Postal Service to consider market effects when setting rates. Therefore, the USPS might adjust rates to avoid volume loss, for example. Unfortunately, the entire dramatic effects of the May 2007 rate increase on catalog mail will not be known by the USPS when it announces its new rates in February. The USPS will announce the new rates at least three months prior to implementation to allow mailers and software providers to prepare.

Many catalog mailers have said the major shift in mailing will occur after the 2007 holiday season. In that light, the DMA and other mailer groups are urging the USPS to avoid major rate-relationship changes in the first rate change under the new law.

When the USPS looks to change rates again in 2009, it’ll then know the full effects of the extraordinarily high May ’07 rate changes. We’ll then work to have the rates adjusted to fully reflect the changes in the marketplace — both a drop in flat-shaped (catalog) mail and an increase in letter-shaped mail.

At that time, we’ll also argue that the rates should reflect the lower processing costs for flat-shaped mail that will come with the new flats sequence sortation (FSS) system. (Ironically, in the week that the Postal Regulatory Commission announced those huge postal rate increases for flats, the USPS awarded a contract of more than $800 million for FSS machines.)

We’ll all be in a learning curve on how the new rate-change procedures will work. But plan for a consumer price index (CPI)-based rate increase in the 3 percent range in May or June of 2008, followed by annual CPI-based increases in May or June in future years. This being said, the USPS does have the ability to raise rates of different types of mail within the same mail classification. But the average for the whole class can’t exceed the CPI cap. For example, flats could receive a slightly higher than CPI increase while the rest of the class received a lower than CPI increase, such as a 3 percent to 4 percent increase for flats, while other mail types within the class receive a 2 percent to 2.5 percent increase.

In the meantime, work with your suppliers to ensure you have clean, up-to-date mailing lists. Also, test new mail shapes and work with your printers to obtain the highest level of mail presortation possible. Those efforts will be rewarded no matter what future postage rates will bring. The DMA will be fighting to prevent huge rate swings — that’s why we fought 12 years for postal reform that included a CPI cap.

Finally, don’t forget negotiated service agreements (NSA) with the USPS. They can be another answer to high postage costs. It’s the DMA’s hope that we can work to have NSAs available not only to a single company, but also to a group of companies. Thus, smaller mailers could benefit from NSAs as well. The law allows the USPS to enter into these agreements to benefit its operations. This could include increasing volumes; bundling services (using automated address correction with First Class mail, for example); improving efficiency (e.g., using intelligent bar code,), etc. All NSAs originate with ideas from mailers brought to the USPS. Historically, NSAs require mailers to engage in legal and economic counsel. The DMA can and will assist its members along the way in the process, including initial consultations with our counsels.

Jerry Cerasale is senior vice president, government affairs, for The Direct Marketing Association. You can reach him at jcerasale@the-dma.org.