January 24, 2006

Why is it that every time there is a change to postage rates, some organization starts spreading misinformation about how rates are set and in general how the system works? Usually, it comes from a competitive source to direct mail such as the newspaper industry. What surprised me this week is the posting at Americans for Tax Reform (http://www.atr.org/content/html/2006/Jan/01202006pr-postalhike.htm).

Yes, the postage rates went up to 39 cents for a First Class single piece stamp. However, the price increase isn’t about a “moneygrab” as the press release indicates. Nor is it a way to “cross-subsidize” other classes, which by the way it cannot. It is in response to lack of legislation for postal reform. Specifically, it was passed (and done so I might add with the support of many industry associations) to cover the $3.1 billion escrow payment due on September 30, 2006.

The fact is that the increase could have been completely avoided had Congress passed the Postal Reform legislation and repealed the escrow payment as part of P.L. 108-18. Since it didn’t, the mailing industry and the public at large are stuck with the 5.4% increase in our postage rates.

As the press release notes, this isn’t the only postage increase we’ll see. The USPS is going to file another rate case soon as well. However, I don’t agree that the 5.4% is only “a pittance” to the next rate increase. The USPS has indeed kept the costs down, you can see it for yourself in their financial updates. Automation is working, as is worksharing, and that is what is helping keep our rates steady.

The big question, though, is how long can we continue under the current rules? What is the point where we say, we’ve automated pretty much everything we can? It’s a tenuous balance between the USPS and the mailing industry. The USPS needs mailers to do worksharing to keep the costs down. The industry needs rate stability and predictability to grow their business. That is why I believe the average rate increase won’t be as shocking as some are predicting.