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Join Our Research Team at DMA 2014
Dec 27, 2006
Article

What the New Postal Reform Law Means to You

SUMMARY: Under the new postal reform law, marketers can look forward to smaller postage rate increases from the U.S. Postal Service in the coming years.

The bad news: another postage rate increase will still take effect in the spring. The good news: the Postal Service will roll out new marketing products faster and easier.

Here's what the changes mean to you. Plus, background, factoids and useful hotlinks:
Written off as dead just a few weeks ago, the House and Senate passed H.R. 6407, the Postal Accountability and Enhancement Act, in the final hours of the 109th Congress early Dec. 9. President Bush signed the bill into law during a White House ceremony on Dec. 20.

Here’s a breakdown of what the new law means to marketers who use postal direct mail:

#1. Future rate increases will be smaller

Unlike past years when some mail categories saw 25%-30% rate hikes, the new law links postage rate increases to the Consumer Price Index. This means stamp prices can’t rise faster than inflation rates over the next 10 years.

Because of this, marketers might want to plan for smaller postage increases in the 4%-5% range every year, similar to FedEx and UPS. The new law also adds strict criteria regarding conditions for emergency rate increases.

Still, that’s cheap compared to rising costs in search marketing. According to research from MarketingSherpa’s latest Search Marketing Benchmark Guide, cost-per-click prices rose 27.5% from 2004 to 2005 and 18% from 2005 to 2006.

#2. Rates will go up in the spring

Well, it can’t all be good. The reform law will not change anything about the current rate case, which was filed in May 2006 for an average 8.5% rate increase. It’s expected that the higher rates will take effect May 6, 2007.

As with anything the Postal Service does, rate increases get confusing because of automation discounts, the number of pieces you’re mailing, weight and size, etc. However, the average increases planned are:

Standard Mail, 9%
First Class, 7.1%
Priority Mail, 13.8%
Express Mail, 12.5%
Package Services, 13.4%
Periodicals, 11.4%

(For more details on the individual mail classes, see hotlink below to the Postal Service’s explanation of the rate case.)

#3. New products will roll out more easily

The law gives the Postal Service freedom to create new products or tailor existing ones to suit customers' needs better. As a result, it should attract new business and increase revenues.

Look for more innovations, such as ones introduced in the past few years, including repositionable notes (yellow stickies) on outer envelopes and Customized MarketMail (non-rectangular, over-dimensional pieces of mail shipped without an envelope).

#4. Law's nitty-gritty details

A. Bye-bye, year-long rate cases. Postal officials will be able to set new postage rates much faster once the law is in place. The old rate-case system took up to a year to set prices for the various mail classes. Under the new law, this process has been eliminated but adds oversight from the Postal Regulatory Commission (formerly the Postal Rate Commission).

B. The law transfers responsibility of pension benefits earned by postal employees when they were in the military to the U.S. Treasury Department. For a long time, this was a sticking point with the Bush administration because the pension costs ultimately will be passed along to taxpayers. However, legislators successfully argued that no other federal agency was responsible for this payment so why should the Postal Service have to pay for it?

This will free up $27 billion that the Postal Service would have had to fund. That means they’ll be able to use the money to keep future rate increases down or introduce new products.

C. After 10 years, the Postal Regulatory Commission will be allowed to modify the price cap or adopt an alternative rate system if deemed necessary.

D. The PRC gains the power to subpoena Postal Service records to ensure that the agency is in compliance with the law and that the interests of the mailing public are being protected. The law also adds an Inspector General of the Postal Regulatory Commission, who will monitor the PRC in the use of their expanded powers.

E. If you want to applaud key lawmakers responsible for getting the reform bill through Congress, the five to thank are: Senators Susan Collins, R-ME, and Tom Carper, D-DE, and Representatives Tom Davis, R-VA, and Harry A. Waxman, D-CA. Also, Rep. John McHugh, R-NY, crafted much of the language in the original reform bill.


Useful links related to this article

PDF of the 167-page Postal Accountability and Enhancement Act:
http://www.marketingsherpa.com/cs/pae/PostalAccountabil
tyAndEnhancementAct.pdf


Full text of the Postal Accountability and Enhancement Act:
http://thomas.loc.gov/cgi-bin/query/D?c109:10:./temp/~c
09BmzJx4::


Postal Service’s explanation behind current rate case:
http://www.usps.com/ratecase/


Postal Service’s Repositionable Notes program:
http://www.usps.com/repositionablenotes/


Postal Service’s Customized MarketMail program:
http://www.usps.com/customizedmarketmail/welcome.htm



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