On October 18, the USPS issued the anticipated filing with the Postal Regulatory Commission (PRC) for rate adjustments to market dominant mail and services that, if approved, will take effect on January 22, 2012. This filing calls for a standard Consumer Price Index (CPI) increase, and includes elements that I expected and others that I did not.
First and foremost, the CPI increase is predictable. On the surface, it is a relatively straightforward adjustment across the mail classes, and should not have a major impact on printers' and mailers' profit margins. These are not the heavy handed increases that some might have been expecting, especially in regard to classes that are arguably not covering their attributable costs. While the Postal Service, given their current financial circumstances, would have certainly been justified in filing an exigency rate case, I am glad that they did not. Marked increases in mail class rates would run a potential risk of driving away customers, and have long been a major concern for printers and mailers regarding what they believe would be a negative impact on the success of their businesses.
What does the USPS plan to do in lieu of excessive rate increases to cover costs and increase revenue other than the proposal they submitted? As hoped, they will continue to urge Congress to make public policy adjustments to mitigate the Postal Service’s anticipated losses and provide them with the flexibility they need to get back on track. In particular, this includes returning some (preferably all) the overpayment of the pre-funded retiree healthcare coverage. The USPS is also anticipating the President and Congress to support the five-day delivery request that in itself could save the USPS over $3 billion.
There was one important element to the rate adjustment proposal that was very welcomed, and that is the Second Ounce Free plan for First-Class Mail. Even though this might not make much sense when one focuses on the pure profit-growing objective that the Postal Service is trying to reach, there is great potential in this. In talking to some major First-Class mailers, they are approaching it with caution but are also optimistic because it could mean expanded business opportunities.
Having access to a second ounce at no additional fee can be extremely beneficial to mailers. For example, they can use the extra ounce to include additional marketing materials that will help them bring in additional revenue. In turn, given the return they are seeing on their investment, there’s a chance those mailers will invest extra money in more mailpieces. Furthermore, with this extra space, mailers will have more opportunities to experiment with ways to tie direct mail in with electronic communications, inserting materials that leverage the mobile barcode, personalized URLs, and more. These, too, show great promise in growing business, and can strengthen the value of direct mail as well.
Will it truly slow the accelerated decline in First-Class Mail? The USPS sure hopes it will, as do we, since First-Class Mail is the largest contribution margin to the Postal Service.
What All of This Means to Our Customers
In the end, the adjustments in any rate case are going to be unique to each mailer because each mailing is unique. I assure you that we will be by your side to help you adjust to any impact these rates may have on your operations. We will also be here to help you leverage the potential of offerings such as the Second Ounce Free program. And, as always, one thing our customers can continue to count on is our dedication and our deliverance of rate case ready technology in order to make each mailpiece count.
You can learn more about the 2012 Rate Changes by reviewing the BCC Solutions November eBulletin.