Is There Light at the End of the Postal Tunnel?

That work has paid dividends. In October the PRC released final regulations to implement new, modern rate-making and classification systems for market dominant and competitive mail products. This came eight months ahead of schedule. Then on Nov. 15, the USPS Board of Governors decided that future prices will be adjusted using these new regulations. So the next postal rate change will be under the 2006 postal reform law, not the antiquated 1970 postal law.

Here’s how that affects you. First, expect a postage change in late spring or early summer of 2008. For Standard mail, First Class mail and single-piece parcels, the average increase by class will be limited to the consumer price index (CPI). Currently the CPI change is between 2 percent and 3 percent, but mailers should expect an average 3 percent postage increase. Not every mailer will receive the average increase, however, because the new law allows the USPS to differentiate among mail within each class. Fortunately, the CPI cap acts as a moderator of postal rate shifts within classes of mail. For example, flat-shaped mail comprises 25 percent of the volume of Standard mail and 34 percent of the revenue. With a 3 percent rate cap, the USPS couldn’t raise the flat-shaped mail rate by 20 percent without dramatic decreases in the rest of Standard Mail.

Likewise, it would be difficult for the USPS to decrease flat-shaped rates by 20 percent if the average increase was 3 percent. The cap, therefore, forces the USPS to continue with its 1990 philosophy — which it supported in the last rate case — of gradual change in rate relationships.

Next week in the second installment of this two-part series, I’ll look at how the shape of your catalog and the market effects (i.e., the amount of mail the USPS processes) may influence future rate increases.