May 12, 2007 in Business

Postal changes challenge businesses

Newhouse News Service The Spokesman-Review
 

Sorting through the changes

» For most people, the first-class rate has the greatest impact, covering cards and letters.

» While the first-class rate will rise from 39 cents to 41 cents for the first ounce, people sending heavier letters — such as wedding invitations — will see a reduction in the price. That’s because each additional ounce will cost just 17 cents, down from the current 24 cents. That means a two-ounce letter will cost 58 cents to mail, compared with 63 cents now.

» International rates are also going up.

Letters to Canada and Mexico will rise to 69 cents and to most other countries to 90 cents. Other international services are being redesigned to more closely resemble domestic rates, and the charges will vary by country.

» Prices based on size and shape are also included in the new domestic rates. For example, while a first-class regular envelope is 41 cents for the first ounce, the charge will be 90 cents for the first ounce of a large envelope and $1.13 for the first ounce of a first-class parcel. For all three each additional ounce is 17 cents.

When a company sends out about 35 million mailings each month, any increase in postal rates ratchets up the cost of doing business.

For Verizon Communication, the latest increase in postal rates will boost the cost of mailings by an average of 7.6 percent, which will cost the large telecommunications company several million dollars annually, said Christine Wacker, national support manager for its billing operations. “We just have to grin and bear it,” she said.

The U.S. Postal Service rate increase is forcing many companies to scramble to come up with additional revenue to supplement their marketing budgets or redesign their mailings to avoid getting hit with unexpected jumps in mailing expenses.

The increases, including a 2-cent increase in the cost of a first-class letter, will boost the cost of mailings for homeowners and raise business expenses for legal services, newspapers, insurance companies and other types of businesses which rely on bulk mail to reach consumers or their targets. The increases take effect Monday, except for newspapers and magazines, which are scheduled to go into effect July 15.

As part of the overhaul, the Postal Regulatory Commission, whose recommendations were acted on by the Postal Service’s Board of Governors, suggested a “forever stamp.” It will cost 41 cents — the same price of a first class letter — and could be used eternally even when postal rates rise in the future.

More controversial, however, is a plan to adopt a shape-based rating structure, which would eliminate the past system where the cost of postage was based solely on weight. The switch to a shape-based system is aimed at encourage bulk mailers to alter design of mailings and packages to allow for easier and more efficient sorting by the Postal Service.

“We’re trying to set rates that reflect the cost of handling,” said Steve Scharfman, general counsel for the commission. “It’s an honest economic signal to send to them.”

In changing the rate structure, the commission argued that larger or odd-shaped pieces are more expensive to process than letters, so it suggested separate and higher rate schedules for so-called flats (large envelopes) and parcels. “The people who are sending letters wind up cross-subsidizing the ones who are causing the problems,” Scharfman said.

The commission said rates that send the proper price signals result in more efficient processing and transportation practices, which in turn reduce costs, allowing smaller rate increases and less volume losses.

To that end, the commission is hoping businesses redesign their mailing to make them more compatible with automated sorting equipment it uses.

“What is happening here is a flight to automation,” said John Campo, vice president of Pitney Bowes, which helps companies manage their mailstream. “Theoretically, the more automation that is baked into the system, the more prices will stabilize, or if they do increase, do so at a smaller rate.”

To some businesses, however, the changes are coming too quickly for them to adapt. With the increase scheduled to take effect this month, some trade groups convinced the service’s Board of Governors to hold off on some of the regulatory commission’s recommendations.

For example, the governors said they were concerned it would impose “rate shock” on the catalog industry, particularly small businesses. The commission recommended as much as 40 percent increase for catalog mailers, which is double what the Postal Service had originally proposed.

“It is just not enough time for mailers to adjust,” said Jerry Cerasale, senior vice president of the Direct Marketing Association.


Thoughts and opinions on this story? Click here to comment >>

Get stories like this in a free daily email