On Eve of Postal Rate Hike, DMA's Greco Updates Members on Rate Case Status

May 11, 2007 — On the eve of the May 14 implementation of new postal rates at the United States Postal Service (USPS), Direct Marketing Association (DMA) President & CEO John A. Greco, Jr. today e-mailed members regarding the status of the ongoing postal rate case at the Postal Regulatory Commission (PRC).

The full text of Greco’s update follows:

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I share your great concern over the rapidly approaching postal rate change that will take effect on Monday, May 14. I am writing today to update you on this seemingly never-ending rate case — what has happened, what we expect next, and how DMA’s tactics have evolved due to some unfortunate outside influences.

As you are aware, the Postal Regulatory Commission (PRC) issued its decision on recommended rate increases on February 26, 2007. Its highly controversial decision included outrageous postage increases for many mailers, especially those for Standard Mail flats and Nonprofit Not Flat Machinable (NFM) mail.

In May 2006, the US Postal Service (USPS) filed a request with the PRC to increase postage rates. Throughout the administrative proceeding that followed, DMA focused its efforts on the size of the Postal Service’s rate increase request. We cross-examined USPS witnesses and presented our own witness who argued that the USPS was seeking too much money. We also supported sister organizations on work-sharing discounts and parcel rates, among other initiatives.

When the PRC issued its decision in February, thanks in large part to the arguments presented by DMA, it did lower the USPS’s rate increase request. Unfortunately, although the PRC’s “average” rate increase per class was below the USPS’s initial request, that “average” masked a wide divergence from the USPS’s request. As a result, many mailers would be hit with rate increases considerably larger — sometimes even twice or greater — than those originally requested by the USPS.

Standard Mail Flats

In its May 2006 rate case filing, the USPS had requested rate increases in the 9% to 12% range for Standard Mail flats. However, the PRC recommended increases in the 20% to 40% range. That PRC recommendation overturned a 17-year program to gradually increase the rate differential between letter-shaped and flat-shaped Standard Mail, and resulted in an additional $678 million in costs for Standard flats marketers.

The response from DMA members, particularly catalogers, was immediate. Members shared with us how devastating this increase would be to their business, and how much less mail volume they would send as a direct result of the PRC’s proposed increases. Clearly, the PRC should have understood the simple but practical impact of their unjustified decision — i.e., when rates are raised significantly, mail volume is drastically reduced, resulting in USPS revenue reductions as volume declines.

DMA immediately issued a call to action to all members to contact the Governors of the USPS, urging them to reject the PRC recommendations for Standard Mail flats. We purposely urged mailers to specifically explain how the PRC’s extreme and unanticipated recommendations would affect their future mailing plans versus the rate increases the USPS initially had requested. More than 160 companies responded to our call to action, 85 of which were not DMA members.

In addition, DMA sent a separate letter to the Governors, asking that they reject the PRC’s Standard Mail flats recommendations, specifically pointing out that the mail volume the PRC had assumed would now be unrealistic, based upon the doubling of the USPS’s requested increase.

We also pointed out that with fewer catalogs in the mail there would be a significant drop in customer orders, which, in turn, would trigger a drop in mail volume that those orders would have generated.

Moreover, we emphasized that, due to the significant volume loss from the PRC rates, the Standard Mail flats rates could be lowered without raising the rates of other mailers.

Thankfully, our efforts prevailed. On March 19, the Governors returned the Standard Mail flats increases to the PRC for reconsideration. However, the Governors asked the PRC to rebalance the rates in Standard Mail (i.e., raise letter-shaped mail rates and lower flat-shaped mail rates).

The Governors on March 19 also allowed two other rates to proceed “under protest” and returned to the PRC for reconsideration: the non-machineable surcharge for First-Class Mail and the “box” rate for Priority Mail.

However, unfortunately for our mailing community, the Governors allowed the PRC-recommended rates to take effect “under protest.” That meant that the rates would take effect at 12:01 a.m. on Monday, May 14, 2007.

With the resubmission to the PRC, the original DMA strategy was to push for quick PRC reconsideration so that any rate reduction stemming from its reconsideration could be put in place by May 14.

Again, DMA issued a call to action, asking members to write letters to the PRC that focused on the harm its recommended rates would have on businesses and mail volume. Our members, once more, were quick to respond.

An Unexpected Complication at the PRC

Sadly, in the midst of this strategy, an ad hoc Coalition of Catalog Mailers (CCM) filed a motion with the PRC to reopen the rate case record. This action immediately stopped all reconsideration for Standard Mail flats rates, though the PRC reconsideration of the other two rates continued unabated.

The CCM motion was filed without any discussion with or consideration of other mailer associations, including DMA. In support of its motion, CCM asked the PRC to give catalogers time to adjust to the high rates rather than the more desirable action of lowering the high rates. As a result, the message received from the catalogers to the PRC is not opposition to higher rates, but simply the implementation date.

I would like to be very clear that DMA does not support this strategy. Rather, we believe strongly and very vocally that Standard flats rates should be lowered.

The PRC denied the CCM’s motion on the very day (April 27) that it issued its reconsidered decision on the non-machinable surcharge and the Priority box rate. Those lowered rates were accepted by the Postal Governors and will take effect this Monday. No one will ever pay the high rates initially recommended by the PRC for those two mail categories.

If the CCM had not undermined DMA strategy, it is very likely that the PRC would have reconsidered its decision for Standard Mail flats in time to stop this Monday’s postal rate increase for flats mailers.

DMA: Same Strategy, Different Tactics

In light of this unfortunate situation, while maintaining our overall strategy regarding the Standard Mail flats remand, DMA was forced to adopt different tactics.

We have continued our focus on the PRC, sending another call to action that asked our members to contact the PRC. Also, on May 4, we filed comments with the PRC in which we outlined how it could lower the rates for Standard flats without increasing rates for any other mailer. DMA again demonstrated the cause-and-effect impact that lower rates would actually increase volume, which in turn would increase USPS revenue.

Also, we continued to work toward our goal of avoiding intra-class warfare. This is imperative, because, if divided, our position will be weakened because the PRC and USPS can — and will — play one Standard Mail group against another. United, we can get these rates lowered without hurting others.

We have already seen results of “Standard Mailer vs. Standard Mailer” in filings at the PRC. The USPS is calling for a 3-cent drop in flat rates and a 0.7-cent increase in letter rates. Certain flat-shaped mailers are calling for greater increases in letter-shaped mail, while letter-shaped mailers argue that they have “subsidized” flat-shaped mail long enough.

So, our strategy at the PRC remains one of unity. To that end, we have given the PRC a roadmap that helps flat-shaped mailers without adversely affecting letter-shaped mailers. No Standard Mail has subsidized any other group of mailers. Every subgroup of Standard Mail covers its costs and contributes to offset the overhead burden of USPS. False accusations and rumors only hurt the community’s cause.

In addition, DMA has asked the USPS Board to delay the implementation of Standard Mail Regular rates pending the PRC’s reconsideration. While we have not yet heard back from the USPS, we think a delay is reasonable to avoid another rate change in the near future if the PRC does adjust Standard Mail flats rates, which was DMA’s strategy prior to the CCM filing. However, time is obviously running out, so mailers do need to be ready to implement the new rates this Monday.

DMA’s Mission: Stop Another Rate Case

DMA’s longer-term strategy is to stop another postal rate case filing. There is no need to have the PRC again recommend differences in the letter/flat rate differential. With the USPS’s purchase of Flats Sequencing System (FSS) machines to further automate flat-shaped mail sorting, we never know what the PRC will or will not recognize for ratemaking.

Next, let us move to the Consumer Price Index (CPI) capped ratemaking process, which the new postal reform law includes among its provisions. If we had been under a CPI-ratemaking procedure now, the PRC could not have exploded the Standard Mail flat rates as it did.

The DMA Board of Directors and staff are in constant communication with the USPS and other mailers to fashion a mutual proposal to the PRC to begin the new ratesetting procedures in the summer of 2008 — so that rates will no longer rise above inflation. If we fail to prevent another postal rate case under the old, pre-reform law, we could again face outrageous rate increases — far above CPI rate increase — as early as January 2009.

Nonprofit Not Flat-Machinable (NFM) Rates

Next, let me update you on Nonprofit Not Flat-Machinable (NFM), which is a new category of mail. NFM rates will be required by the USPS beginning May 14 for mailpieces that no longer meet the test for Standard rates because of rigid, uneven or box-like enclosures.

The rate increases for the NFM are drastic, ranging from 100% to 400% for nonprofit organizations that use mail with enclosures (e.g., greeting cards, calendars, pins, candles, rosary beads, CDs, magnifiers for the blind, etc.) to raise funds, and those who send out items such as books for children.

The NFM rate also is taking effect May 14 with virtually no notice to the thousands of nonprofit organizations that are affected. The standards that now put many fundraising mailings such as greeting cards into the higher rates were finalized on February 14, giving nonprofits only three months’ time to reconfigure their mailpieces. Many nonprofit organizations have not had the resources to meet the May 14 deadline.

The high cost of the NFM rate will have a devastating effect on nonprofit organizations that were counting on these mailings for their fundraising for this year — not to mention their beneficiaries. Most nonprofits plan their fundraising campaigns at least one year ahead, and they had not budgeted for such a massive rate hike.

This new NFM classification is going into effect with little notice, very little time for compliance, and will result in postal rate increases between 100% and 400%, which are far more punishing than those hikes for any other mailer.

In a letter to the USPS Board that was signed by more than 200 nonprofit organizations, the DMA Nonprofit Federation (DMANF) stressed that nonprofit mailers desperately need a delay through December 31, 2007, in order to help the nonprofits review their mailpieces to try to conform to the new standards or to find less expensive alternatives.

In its March 19 decision, the USPS Board virtually ignored the pleas for additional time for nonprofit rate implementation. Consequently, the DMANF again pleaded with the Board to extend the May 14 implementation date.

Unfortunately, the DMANF just received a response from the USPS denying the requested extension. The DMANF is also asking key members of Congress to help get an extension until December 31, 2007.

A Final Word

Clearly, on this eve of the new rates implementation, we still have a challenge on our hands. We must keep pressure on the PRC to modify or delay increases in the current rate case and to delay implementation of the NFM rates for nonprofits.

As we move forward, DMA’s core postal mission is basically three-fold: 1) to stop another rate case filing, 2) to work with the USPS to transition into the new postal reform law’s CPI-capped ratemaking process as soon as possible, and 3) to encourage new, innovative USPS policies to keep rates low for the entire mailing community.

In closing, I again want to stress the necessity of working together. Only if we band together do we have a chance to lower Standard Mail flat rates without raising other rates and to prevent another above-inflation rate increase. As Benjamin Franklin, the first Postmaster General, said just before signing the Declaration of Independence, “we must . . . all hang together, or assuredly we shall all hang separately.”

As a business community, we must work together to avoid destructive policies. And if we speak in one voice, we will be significantly more effective.

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