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On February 26, 2007 the Postal Regulatory Commission (PRC) announced its response to the United States Postal Service (USPS) R2006-1 rate case request to increase postage rates. The PRC indicated that the USPS must increase postal rates in order to break even in 2008 and that rate designs for many postal products will need to be adjusted.
The PRC announcement surprised some mailers with the degree of deviation from the rate increase that was anticipated based on the May 2006 USPS rate case filing. All of the PRC recommendations point to rates which are designed to manifest cost savings through work-share and to emphasize the role of mail shape with regard to managing costs overall. However, rates are expected to rise in varying degrees, hitting some mailers much harder than others. The impact on each mailer depends on a variety of individual factors, including mail shape, level of preparation, automation choices and point of entry. In the highlights below, we look to add additional clarity to the impacts on some of our customer segments; however, the complexity of the changes is such that it requires a more case-by-case analysis, in part using the provided rate calculators.
Mailers with concerns about the impact of the proposed rates have been given the opportunity to contact the Board of Governors (BOG) regarding the impact of the proposed rates on their businesses. The BOG has three options for the decision: approve as submitted, approve with a request for review in a specific area, or unanimously reject the submission. In order to reject the rate case, a unanimous vote of the BOG is required. The BOG is expected to vote on the rate increase on or before March 28, 2007, with the expectation that the new rates would go into effect in May 2007.
Check back in at RR Donnelley Postal Affairs for more information after the BOG ruling.
First-Class
Instead of the USPS-proposed increase of 3 cents, the PRC recommended a 2 cent increase for the First-Class one ounce letter, making the First-Class stamp 41 cents. First-Class mailing rates will increase an average of less than 7 percent and the USPS proposal to remove work-share discounts for single-piece First-Class Mail was rejected. Additionally, the PRC recommended that the First-Class additional ounce rate be lowered from 24 to 17 cents.
Standard
For Standard mail, the PRC accepted the USPS proposal to implement new, separate, shape-based rates in order to reflect costs more accurately. Drop-ship work-share incentives will also be expanded. The overall on-average increase in Standard Mail rates will be 9.3 percent, although some mailers anticipate an increase of 28 percent and upwards for their product. For catalogers, the more significant impacts from the standard mail increases will be, in general, on light-weight catalogs, as well as those catalogers that cannot achieve the level of carrier route presort and SCF entry that larger mailers can achieve.
Periodicals
The PRC's newly proposed Periodical rate designs are complex. Included are rates for bundles based on sortation levels and broken down into piece, bundle and sack charge categories. Rates for containers will be based on the type of container and point of entry with a tiered rate for editorial. The new rates were developed with the goal of encouraging companies to engage in a finer pre-sort with drop-shipment and to exercise more efficient mailing practices overall. The overall average increase in Periodical rates is expected to be 11.8 percent. In general, the lighter-weight magazines will experience rate increases greater than the average, as the rate structures shift revenue streams from the piece weight of the publication to the new bundle and container charges. In addition, the editorial pound rates tend to offer lower increases for magazines with lower advertising content.
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