Businesses eye postal rate plan - includes related article on mail room cost control

Nation's Business, Dec, 1995 by Laura M. Litvan

The Postal Service's proposal for a major rate restructuring would reduce some firms' mailing costs and raise others'.

Bill Kasiner owns two companies in Rochester, N.Y., neither of which would likely exist without efficient mail delivery. One, a computer dating service called A Perfect Match, depends on reliable delivery of the brochures that Kasiner and co-owner Debra Hoevenaar periodically send to singles. The other, Rochester Quarterly, is a general-interest magazine that demands timely delivery to subscribers.

Sound like jobs for the postman? Not to Kasiner.

Three years ago, he switched delivery responsibilities from the U.S. Postal Service to an Atlanta-based firm, Publishers Express. Kasiner says the switch to private delivery service saves about 5 cents per magazine and about 6 cents for each brochure he sends. It also means better and more attentive service, he says.

"They deliver faster as well as for less money," Kasiner says. "Also, they have better customer service. The postman never checked back to see how things were going."

Kasiner's story is the kind that sends shivers down the spines of Postal Service officials, who have long-standing concerns about losing customers. Beginning with the invention of the telegraph by Samuel F.B. Morse in the mid-19th century, each advance in communications technology has siphoned off part of the nation's letter-mail stream. In recent years, the trend has accelerated as a result of low-cost telecommunications options, including faxes and mail transmission via on-line services or the Internet.

And, as Kasiner's experience illustrates, private-delivery competitors such as Publishers Express have also begun diverting customers from traditional post offices.

But the Postal Service is fighting back. It has proposed major changes designed to stabilize its costs and keep its best customers from taking their business elsewhere. The Postal Service says its proposal, which likely will be ruled on by the independent Postal Rate Commission in Janus, amounts to the most significant change in mail rules since American postal delivery was established in Colonial times. It would radically alter the way businesses are charged for mailing services.

The new rate structure would generate the same annual revenue for the Postal Service as the current rate system does. Small and medium-sized companies would be affected unevenly, however, depending on their marl volume and the type and amount of work they do with their mail before taking it to the post office.

The lowest of the new rates would be awarded to businesses with large volumes of mail delivered to the post office in a condition that would permit fully automated processing. In contrast, rates would rise for businesses that send small amounts of mail and do little or no preparation.

The Postal Service is trying to encourage businesses to generate mail it can handle efficiently, says Loren Smith, the Postal Service's senior vice president for marketing. "The bottom line is, if you want universal service and the lowest possible rates--and you're doing that with a huge system that handles more than 180 billion pieces of marl a year--it must be efficient," he says.

Smith says that if the Postal Service can't effectively use automation to reduce its costs, it will continue to lose high-volume business customers to other forms of delivery, eventually forcing rates even further upward for the smaller mailers who remain. Still, its rate proposal has sparked controversy, with some complaining that the plan would unfairly create "winners and losers" among businesses.

Among the opponents of the Postal Service plan is Gordon Hughes, president of American Business Press, a New York-based association that represents 840 small publishers of magazines whose mailing costs could increase substantially under the proposal. "We're literally fighting for our lives," he says. The plan would have a "devastating impact" on many small businesses, notably those that lack the capability to automate their mail fully, he says.

Even without opposition from segments of the business community, the plan's approval is no sure thing. It was submitted in March to the Postal Rate Commission, which under federal law has 10 months to review the proposal and either approve it or recommend modifications to the Postal Service Board of Governors. The board can then approve, reject, or accept under protest the commission's recommendations.

The rate commission and the Postal Service have not always seen eye to eye on pricing matters. In 1994, for example, the commission concurred with a proposal to raise the price of a first-class stamp to 32 cents, but it rejected a proposal for a 10 percent across-the-board rate increase for publications and bulk mailers. The commission contended that some business-mailer costs should rise further than proposed because the Postal Service over time had been shifting a "disproportionate amount" of costs to first-class mailers.

Privately, several mall-industry observers say they believe the rate commission will recommend at least several adjustments to the rate-reorganization proposal. In particular, they say, publishers of small-circulation periodicals--who have been more organized in opposition to the Postal Service proposal than have other categories of small-volume mailers-may win changes that would allow more of them to qualify for lower rates.