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Mailing & Fulfillment Special Report — Rate Case Realities

March 2007 By Leo Raymond
FOR THOSE of us who work in the postal world every day, a rate case is an interesting but not overwhelming event. Most of us generally understand where it comes from, how it’s litigated and what it all means in the end. But for many professionals—such as printers—who may be less directly involved in the production of mail, the arcana of postal matters gets even murkier when there’s a rate case. So, as the current case is drawing to a close, it might be useful to step back, consider what it’s all about and draw some general conclusions.

First, don’t get confused by the process. Basically, the U.S. Postal Service (USPS) does the math, projecting mail volume and its financial circumstances over a future period, then breaking the answer down to postage rates. Its regulator, the Postal Rate Commission, renamed the Postal Regulatory Commission (PRC) last month, performs its statutory role and conducts a trial-like proceeding, complete with witnesses and testimony. In the end, after 10 months of litigation, the PRC issues a “recommended decision” that the USPS governors consider, then accept or reject. (In the latter case, things get really interesting, but that’s not likely to occur this time.) Finally, the governors set the date for when the new rates, and any associated rule changes, will take effect. This year, the publicly circulated date is May 6, although that may change.

Second, don’t get too fixated on the numbers. Postage rates are important, of course, but they don’t tell the whole story. It’s more important to know why they are what they are, because they reflect costs that the USPS is experiencing, or cost savings that the mailing industry has enabled by worksharing, i.e., what it does with mail before turning it over to the Postal Service.

Finally, stay focused on the bigger picture—how larger changes in how the Postal Service operates are being reflected in the prices and rules affected by the rate case. By doing this, you can get a better understanding of how mail and mail processing are changing and, as a result, how those who produce mail can adapt and thus improve their own business situations.

IT’S ALL ABOUT EFFICIENCY. The Postal Service has always been a labor-intensive operation; about three-fourths of its costs are for labor (salaries and benefits). And, although it has spent billions on automation in recent years, that proportion has hardly changed. But that may be deceiving: inflation has driven up the cost of labor even as the number of employees has decreased steadily, despite equally steady growth in total mail volume. Nonetheless, aware of the impact of rising postage costs on mail volume, the Postal Service persists in looking for ways to become more efficient, an objective that unavoidably has to mean reducing labor costs.
 

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