Thursday, October 7, 2010

Rate Increase Coming in 2011

In a letter to the Postal Regulatory Commission, the Postal Service asked for clarification regarding the total increase in rates under the cap.   The Postal Service stated that it wanted the clarification so that it could better to do its financial planning for Fiscal Year 2011.  However, mailers should clearly understand that rates will be rising in calendar year 2011.

Rate increases will be relatively modest.   Rate increases will be rising on average around 2% and most likely slightly below that figure.  

The price of  a single piece stamp will likely increase by a penny to 45 cents. (2.3%)   Bulk First Class mail will rise slightly less to ensure that rates for the entire class rise less than the cap.

The largest rate increases will likely be felt by Standard Mail parcels and non-machinable flats.   The Postal Service will likely raise these rates by between double and quadruple the cap for Standard Mail as a whole. The large rate increase on this product will occur due to the confluence of two factors that generally influence pricing decisions at any firm offering a product in commercial markets.  First, it is in the Postal Service's interest to ensure that all parcel products earn a positive return, and eventually a return equal to the firm wide average.   As single piece First Class mail volume declines, the Postal Service can no longer to price products that do not have a legislatively mandated discounted rate at a loss. 

Second, both UPS and FedEx are making significant changes in their rate structure that would allow the Postal Service to raise rates in small parcels significantly without affecting its market position.   The two private sector carriers are raising the minimum shipment charges on express shipments and expected to raise the minimums on ground parcels that large shippers pay for low weight shipments going to destinations in zones 2 through 4 or 5.  For smaller shippers what matters is not only the rate increases that the private carriers set for the base rate but also changes in accessorial charges for remote and home delivery, as well as changes in the method of calculating package density that can push a light-weight parcel into a heavier weight cell.   All of these changes combined means that shippers spending less than $100,000 annually on parcel and express shipments may see rate increases from in light weight parcels in the high single digit range from the private sector carriers early in 2011.   

The previous two times that that the Postal Service raised rates under the cap, the increase went into affect late in 2nd calendar quarter.   Clearly the Postal Service would like to raise rates earlier.   Whether the Postal Service could propose a rate increase under the cap that would go into affect earlier in 2011, and closer to the timing of the rate increases of United Parcel Service and FedEx requires greater knowledge of the law than I have. 

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