New Postal Rates and Their Impacts On Major First-Class Mailers

On March 19, the U.S. Postal Service Governors announced their decision on the rate case filed by the USPS in May 2006. Implementation for most of the new rates is scheduled for May 14. The decision followed an "Opinion and Recommended Decision" issued by the Postal Rate Commission (PRC) in late February and is consistent with most of the PRC's recommendations, including introduction of a Forever Stamp. A few issues, including a possible nonmachinable surcharge for 2- and 3-ounce First-Class presort letters, have been referred by the Board of Governors for reconsideration, and implementation of new prices for periodicals has been delayed until July.

The goal of the rate case was to cover increasing USPS operational costs and improve efficiencies. While the approved changes to postage rates and certain rate structures impact all mailers, much of the focus during rate case litigation was on the impact of proposed structural changes to First-Class Mail^® rates, particularly the delinking of single-piece and presort First-Class letter rates. High-volume First-Class business mailers such as Regulus that have made significant investments in postal automation confronted strident opposition to the rate case over the past 10 months by parties such as the American Postal Workers Union (APWU) and the Office of the Consumer Advocate (OCA). In this article we summarize the postal changes that most directly affect business mailers and recap the efforts and positions of various constituencies that participated in the testimony for and against the proposed changes.

A Summary of the USPS Rate and Structure Changes

In the following table, we provide a snapshot of pre-rate-case pricing, changes proposed by the USPS in May 2006, and the rates ultimately approved by the USPS Board of Governors.

Notes:

1 2-ounce rate was $0.630.

2 Presort rate.

New Shape-Based Rates

New rates account for shape as well as weight of each mail piece. Letters, flats, and parcels have significantly different processing costs that need to be addressed, according to the USPS's September 27, 2006, filing. "Our current prices do not distinguish between shapes as much as they could," the filing states. "For example, in First-Class Mail, our current price is 63 cents for a 2-ounce piece regardless of whether it is a letter, flat, or parcel."

Mailers now have the opportunity to mitigate the effect of price increases by reducing form factors. The first-ounce rate for single-piece First-Class letters is now 41 cents, compared to 80 cents for flats and $1.13 for single-piece parcels. Additional-ounce rates for single-piece letters, flats, and parcels are identical at 17 cents. According to the USPS, a mailer can potentially save 39 cents per piece by folding the contents of a First-Class large envelope and placing it in a letter-sized envelope.

Delinking of Workshare Mail From Single-Piece First-Class Mail

The rate case proposed delinking single-piece First-Class Mail from workshare mail that has been subject to address cleansing and electronic sorting to accelerate mail processing. By applying a different rate to workshare mail, discounts can be more directly linked to operational efficiencies and cost savings to the USPS derived from clean standardized mail.

The approved first-ounce rate for single-piece letters is now 41 cents, compared to 37.3 cents for single-piece presort letters and 31.2 cents for 5-digit automation letters.

Although the USPS did not impose a nonmachinable surcharge for presort First-Class Mail at the 2-ounce and 3-ounce weight levels, the Governors requested that the issue be reconsidered to incentivize mailers to provide letters that are more efficient and less expensive to process.

Additional Ounce Rates Reduced

The approved additional-ounce rate for automation First-Class letters is now 12.5 cents, compared to 17 cents for single-piece First Class-Mail. Previous additional ounce rates were 24 cents for single-piece First-Class letters and 23.7 cents for automation First-Class letters.

To encourage mailers that might normally mail flats to opt for letter-size envelopes, the USPS has made the additional-ounce rate for automation First-Class letters lower than that for automation First-Class flats. While the additional-ounce rates for automation letters and flats were previously identical at 23.7 cents, the new additional-ounce rate for automation letters is now 12.5 cents, compared to 17 cents for automation flats.

Elimination of Automation Carrier Route Rates

The USPS has eliminated the First-Class automation carrier route rate for letters. Over the past few years, the addresses that qualify for this discount have steadily declined, and the discount has lost its value.

Modifications to Address Correction Service (ACS) Pricing

The lowest fees for First Class address correction will be applied to letters using the new 4-state barcode technology called OneCode ACS. The first two records for an address will be processed at no charge. For this automated correction category, each additional correction will cost 5 cents. This is a dramatic shift from the previous 21 cents per address charge for this service.

Changes to Confirm Service Rates

The approved price level for "Platinum" Confirm service, which includes 12 months of unlimited scans, is now $19,500, compared to the previous annual fee of $10,000. Additional ID codes for additional segmentation of mailer data is $2,000 per year. The approved pricing for Confirm service differs from the rate case proposal, which eliminated the pricing level for unlimited scans and required that the number of scans received be estimated and purchased in advance.

Briefs By All Sides Were Delivered in Recent Months

As with previous rate cases, the PRC had responsibility and authority to review, modify, and make recommendations regarding the USPS proposal and hear arguments and witness testimony for and against. The purpose of the litigation was to compel the USPS to justify the pricing increase and allow parties to make recommendations for changes to the USPS proposal or submit alternate proposals. These challenges to the USPS help protect the interests of the public. The PRC submitted its recommendations to the Board of Governors at the end of February, which made the final rate change determination on March 19.

APWU Alternative Proposal

During rate case litigation, the APWU employed testimony and data from several different sources in an effort to drastically reduce the workshare discount rates recommended by the USPS. In its December 2006 Initial Brief before the PRC, the APWU contended that the USPS proposal would:

· Result in a higher than necessary, and unfair, rate for First-Class stamps because it would shift costs from presorted letters to single-piece letters

·