C. Clint Bolte & Associates

As anticipated, the United States Postal Service has requested its first rate increase from the Postal Rate Commission since 2002. This 5.4% overall bump will go into effect no earlier than January 2006. What impact might this have on the printing industry, its publishing clients and its quite diverse direct mail customer base?

The man on the street takes note that the first class stamp for a one-ounce letter will move from 37¢ to 39¢. The variety of classes of mail for periodicals, nonprofits, etc. with their levels of sorting discounts are proposed to have similar relative increases. We'll look at representative examples and get reactions from those directly impacted.

The first universal reaction is relief because a number of industry prognosticators were forecasting much higher rate hikes, some possibly into the double figures as percentage increases. "Rate stability is essential to the growth and vitality of the mailing industry," said Michael J. Critelli, Chairman & CEO of Pitney Bowes. "Ours is a $900 billion industry that collectively employs 9 million Americans and accounts for 8% of U.S. GDP. To the extent that rates must rise, a measured increase like the one proposed by the U.S. Postal Service is preferable."

Ironically the Postal Reform legislation being considered by Congress coupled with the favorable operational results of the USPS in its 2004 fiscal year may have a dampening effect on this proposed increase. But first let's consider the potential impact should the increase as requested come to pass.

The complete USPS filing is available at www.prc.gov while the specific current and proposed rates are shown on www.usps.com/ratecase/html_rates/. Select samples of these rates are shown on the following tables.

Additional proposed rate tables are also shown on the referenced URL for parcel post, bound printed matter, media mail, library mail and special services for those who specialize in these products.

Eighty-five percent of periodicals are distributed by the post office. Publishers, according to Ms. Cathleen Black, President of Hearst Magazines and a member of the Mailing Industry CEO Council, will continue to move up the logistical stream consolidating their titles at their printers or, for smaller publishers, at centralized consolidation centers. These vendors then drop-ship full truckloads closer to the final destination for delivery processing by the USPS. "That is the perfect scenario, where private sector entities become the consolidators and the Postal Service does the final delivery," commented Ms. Black in the April issue of CEO Magazine.

Mr. Bruce Biegel, Managing Director of the direct mail consultants Winterberry Group LLC, reported at the Print Outlook 2005 Conference that he expects direct mail to continue to grow at over 5% for the next couple of years. Historically when a postal rate increase is announced, there is a flurry of project activity to beat the increase and then a brief hiatus immediately following the increase. The net result has historically been no volume decrease due to rate increases. He sees the same scenario effectively being repeated in 2006.

Taking Mr. Biegel's advice, it would seem logical for printers to encourage clients to ramp up their direct mail programs now and implement full force during the third and fourth quarters of 2005 in order to beat this proposed rate increase.

Though it has not happened in recent memory, there is an outside possibility that the effective start date for the proposed postal increase could be delayed for several months. The reason for this rate request is that the Postal Service needs to generate funds to meet an escrow payment mandated by the 2003 Civil Service Retirement System reform legislation. Unless changed by Congress as part of their Postal Reform consideration, these escrow payments would be required annually and in increasing amounts.

The Postal Service turned a profit in 2004, its first since 1971. This was the result of several years of cost cutting moves. While earlier projections were for losses in 2005, the Post Office now expects to break even this year. If that should occur, then they would not need the rate increase to cover operating expenses and other obligations until 2006, i.e., to be implemented in 2007.

The Mailing & Fulfillment Service Association in a special issue of its Postal Points (See mfsanet.org) succinctly describes the alternatives available to the Postal Service's Board of Governors. "If action in Congress alters the Postal Service's escrow payment obligation, the agency (USPS) could withdraw the case and refile for a lesser amount, or could allow the case to proceed and defer implementation of any rates that the Postal Rate Commission would recommend."