At this time of year, children may be nestled all snug in their beds with visions of sugar plums dancing in their heads, but those of us involved in the mailing industry are more likely to be dreaming about what to do with our 2016 postage budgets.
Although the outlook for postage rates in 2016 is complex, the new year will bring largely good postage news for direct marketers. The complexity comes from the fact that we need to look at three different types of postage, each of which is moving in a different direction:
1. Postage rates for Competitive Products:
Competitive products include Priority Mail and Priority Mail Express, Shipping Services and international mail. These products will see an average 9.5% increase on January 17. This will be the first increase in three years for commercial Priority Mail, which is increasing by an average of 9.8%. The international mail products used most often by direct mailers will see smaller than average increases with International Surface Air Lift (ISAL) increasing 6.3% and International Priority Airmail (IPA) going up 4.2%. Shipping Services will see the largest increases with Parcel Select Lightweight prices going up 23.5%.
2. Postage rates for Market Dominant Products:
Market dominant products are the ones used most often by direct marketers: Standard Mail, First-Class Mail and Periodicals. These prices are capped based on consumer prices. The index used to determine postal prices was about 0.3% at the end of September (the most recent figures available from the Postal Regulatory Commission). With such a low cap, the Postal Service has announced that they will not pursue CPI-based price increases in 2016.
3. Exigent postage rates:
The Postal Regulatory Commission (PRC) granted the Postal Service the right to impose a greater than inflation surcharge to recoup revenue lost due to the Great Recession. This 4.3% surcharge was added to prices in January 2014. The Postal Service is on track to have collected the full amount allowed by the PRC early next spring. It is widely anticipated that the Postal Service is expected to reach its revenue target of $4.9 billion in April.
The typical direct marketer will see postage costs for acquisition and retention campaigns remain flat, and perhaps decline, in 2016.
You may be wondering why I said “perhaps” in the last sentence. As things stand now, the Postal Service will reach their revenue target this spring and the exigent surcharge should become a thing of the past. However, we also need to look at what’s going on up on Capitol Hill relative to postal reform legislation. In order to place the Postal Service in a more stable financial position, many of the proposals currently being discussed include provisions to build the exigent surcharge into the base rates for market dominant products.
Some in the mailing community say the surcharge was never meant to be permanent and should end as quickly as possible. They believe the resulting lower postage rates will stabilize mail volumes and encourage growth. Others are more concerned about the financial viability of the Postal Service. They note that most of the Postal Service’s operational profits in the past two fiscal years were driven by the exigent surcharge and allowing it to lapse could leave the Postal Service struggling financially.
We’re interested in hearing what you think. Would lower rates allow you to mail more or encourage you to continue using mail as part of your marketing program? How important is financial stability for the Postal Service? Is building the exigent surcharge into the rate base worth it if it results in a significantly stronger Postal Service? Leave a comment letting us know your thoughts.
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