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Business Costs & Regulation

Postal Rates Headed Higher -- Again

With payrolls in jeopardy, a desperate Postal Service seeks more revenue.

Come January, mailers will have to pony up more for postage. In the cards: A 2¢ hike in the price of first-class stamps -- to 46¢ each -- and up to a 5% boost in postage for magazines, catalogs and bulk mail.

The U.S. Postal Service (USPS) realizes that raising rates will accelerate the shift by businesses and other mailers to e-mail and nudge businesses to increase their targeted Web advertising efforts.

But the USPS is in more immediate straits as it continues to rack up operating deficits. It may not be able to meet its payroll next year in light of a deficit that’s likely to balloon beyond the $7 billion in red ink it expects to run this fiscal year, which ends in September.

Stopping Saturday mail service as planned will help stanch the red ink. But it will take at least a year after Saturday service is halted -- likely sometime next year -- before big savings are realized.

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We expect the USPS to seek a special dispensation from the Postal Regulatory Commission in early July for what amounts to an emergency rate increase. The USPS does have the authority to unilaterally boost postage prices, but any increase cannot exceed the inflation rate in the previous 12 months, and in the current slow motion economic recovery, inflation is nearly zilch.

Look for the regulatory commission to OK the rate hikes by fall.

Business mailers will scream, claiming that the 2006 postal reform law intended for emergency rate increases to be approved only in the wake of an extraordinary event, such as a pandemic or a terrorist attack, that slammed postal revenues, and not in a recession-provoked downturn in mail usage.

“We’ve had 20 recessions since 1900 and the postal service has been looking at and planning for drops in mail volume for the past decade, so the decline now can’t be a surprise to it,” says Jerry Cerasale, senior vice president of government affairs for the Direct Marketing Association, a trade group representing companies that reach consumers by mailing promotional material.