It’s that time of year—and I don’t mean just summer vacations. Many of our clients are beginning the planning process for next year’s marketing budgets, which means they’re asking us, “What do you think postage rates will be next year?”
Since the passage of the Postal Accountability and Enhancement Act (PAEA) in 2006, answering that question had been pretty straightforward. PAEA established an inflation-based rate cap for postage rates. While that cap gives the U.S. Postal Service latitude to adjust prices within postal classes, the adjustments in each class must roll up to no more than the cap. This has meant that as long as we tracked inflation, we had a good idea of what most rates would be in the coming year.
Exigency Adds Uncertainty
That all changed last year when the Postal Service requested an exigent (emergency) price increase along with its inflation-based price adjustment for 2014. The exigent request was justified based on volume declines that the Postal Service attributed to the Great Recession.
The request for exigent rates has introduced uncertainty to postal pricing in a number of ways:
- Until the Postal Regulatory Commission (PRC) ruled on the rate request in December 2013, mailers were left not knowing if rates would rise in January 2014 by the 1.6% inflation cap or by 5.9% (inflation cap plus 4.3% exigent). As we know now, mailers were hit with the full 5.9%.
- The PRC ruling allows the Postal Service to collect the exigent rates until it has recovered $3.2 billion in additional revenue, which is projected to be late summer 2015, at which point the rates should be rolled back.
- Two appeals of the PRC ruling are now before U.S. Court of Appeals for the DC Circuit. The Postal Service has asked the court to make the exigent rates permanent, while the mailing industry has asserted there was no basis for the exigent increase. A ruling on the appeals is not expected until the end of the year.
Mailers are left with many unanswered questions. Will rates be rolled back? If they are rolled back, when would that happen? And what about an increase based on the inflation cap? How do you plan a postage budget for your direct mail campaigns or decide what volume to mail if you are unsure of the cost?
The Mailing Industry is Looking for Stability
The PRC asked the Postal Service for proposals on the best way to roll back the exigent increase (assuming the court agrees that it should be temporary) and has now asked the mailing industry to comment on the Postal Service’s proposals. While industry associations are still putting the finishing touches on their official comments, a common theme we are hearing is that the mailing industry needs rates that are stable and predictable.
The ambiguity about pricing changes over the next year makes it hard for mailers to plan, especially when postage is a big part of their operational costs. In addition, the costs of multiple price changes can be significant to both mailers and the Postal Service, as we both need to update software and processes to respond to changes in discounts and rate elements.
Make Price Changes as Predictable as Possible
For these reasons, we strongly encourage the Postal Service to forego any cap-based increase in January 2015 and instead implement a single price change in 2015 that concurrently rolls back the exigent rates and incorporates any inflation-based increase. We would also encourage the Postal Service to waive any inflation-based increase in January 2016, as they would only have a few months of cap authority accumulated at that point, making the next price adjustment in January 2017. Using the rollback of exigent rates as an opportunity to drive stable, predictable postage prices over the next few years will give marketers the confidence to expand their direct mail campaigns and grow mail volumes.
Let us know what you think. How important are predictable postage rates to your marketing initiatives? What’s the best pricing strategy for the Postal Service in the coming years?
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