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Not one, but two, postal rate hikes are in the works. Business mailers and consumers have been figuring they would see just one more rate jump before an overhaul of the U.S. Postal Service (USPS) limits annual increases. But they'll be disappointed. On Jan. 1, 2007, average rates for business mailers will climb by about 10%, while first-class stamps will go up 3¢, to 42¢ each. One year later, there'll be another increase. Rates for business mailers will rise 4%-6%, and first-class stamps will cost 44¢ apiece. There is always some opposition to postal rate hikes, but it usually fails. This time will be no exception.
The USPS wants to maximize its revenues before Congress steps in with tight restraints on future increases. Those will come with a long-awaited reform package, likely to be sent to President Bush for his signature this fall. But most of the reforms won't kick in till mid-2008, giving the Postal Service another chance to pump up revenues before new rules limit it to once-a-year adjustments for inflation, starting in 2009.
The USPS needs all the income it can get. Increased use of e-mail and a continuing shift by businesses to cheaper bulk mail continue to gnaw at the service's income. The reform measure is also likely to help the Postal Service's bottom line by ending a quirky requirement for a reserve fund. The service must now put aside more than $3 billion a year to pay the military retirement benefits of postal workers who are also veterans—something no other federal agency or quasi-governmental agency like the post office is forced to do. But of course, it still will be on the hook to pay regular retirement benefits, which could run $60 billion through the middle of the century.
Business mailers, whether they send bills, promotions, magazines or catalogs, are eager to see the reform law passed so they can bank on more predictable rate hikes. "Annual increases in line with the inflation rate will help companies plan and budget for postal costs the same way they do for energy or replacement vehicles," says Gene Del Polito, president of the Association for Postal Commerce, a business mailers' trade group.
Businesses will be able to offset at least some of the postal hikes by taking advantage of new mailing options that will begin phasing in late in 2007, after reform legislation is enacted. Perhaps the biggest break: Significant discounts if companies forgo guaranteed return mail service, a nearly meaningless service for firms that maintain up-to-date mailing lists anyway. It's also likely that businesses will be able to get reduced rates for prepaid return envelopes and cards that companies use to gin up sales of magazine subscriptions and mail-order products—a particularly effective way of bringing in new business. Today, companies are charged postage just slightly below first-class rates when a consumer returns a solicitation envelope, even though similar presorted mail qualifies for much bigger discounts.
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