Joel Quadracci
Chairman, President & CEO

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Standard Mail Update

A message from Joe Schick, Quad/Graphics, Director of Postal Affairs

The U.S. Postal Service Board of Governors (BOG) has made its decision regarding Standard Mail flats pricing and … they punted. They chose not to change the rates, temporarily or permanently.

Just to recap, on March 19, the Governors asked the Postal Regulatory Commission (PRC) to reconsider some of the rates originally recommended on February 26 and to be implemented on
May 14. In response to this request, on May 25 the PRC proposed interim rate relief for Standard Mail Regular flats, giving the Governors the ability to make a temporary rate reduction for catalog and flats mailers. Specifically, the PRC suggested a transitional temporary rate reduction of 3 cents per piece for Standard Mail Regular flats and 2 cents per piece for Standard Mail Regular Nonprofit flats. This per-piece rate reduction did not include mail qualifying as enhanced carrier route presort, and these rates would have been in effect only until September 29, 2007.

However, since the Governors did not accept the PRC’s recommendation, the rates that we have now will remain in effect until the next rate increase.

Speaking of the next rate increase, the USPS is already working on different rate scenarios. It is expected that it will raise rates again in 2008, but the process for raising rates is still not known. Remember that under the new postal law, the USPS still has the option of filing one last rate case following the guidelines of the old law. If the USPS chooses not to take this option, rate setting would then move to a Consumer Price Index (CPI) based increase.

Under the new law, the USPS will be able to set new rates more quickly than the current 10-month-long, contentious postal rate process, and will do so under the guidance of the Postal Regulatory Commission. Rates for USPS market-dominant products must be tied to the Consumer Price Index for all Urban Consumers (CPI-U). Once the industry moves to the index-based rate system, it will allow mailers to budget for postage rate increases knowing they will track inflation.

We do know that the Postal Service is currently working on another rate case under the old law. Whether or not it is actually filed depends on the new rules, which the PRC will have ready by the fall. Industry mailing associations are working to negotiate with the USPS to ensure that it does NOT file another rate case before the new law takes effect. We want the USPS to move under CPI, which should help limit the size of future increases. Part of these negotiations includes accepting another rate increase in the April to June 2008 timeframe of 1.5% to 3% percent across the board for all rate cells. The USPS would then continue with annualized CPI-based increases the following year around the same time.

If the USPS chooses to file an omnibus rate case later this year, we will probably be looking at a larger increase in late 2008 or early 2009. There is no telling what the increases would be at this time, but we could expect to see at least 5% on average — and potentially a much greater increase for periodicals (for some of the same reasons that Standard Mail flats got whacked this time).

I would expect that by the end of September or early October, which coincides with the end of USPS fiscal year, we‘ll know how the USPS plans to proceed. We’ll keep you posted.

Have questions or comments? Contact Joe Schick