Postal Hikes Looming

April 1, 2007       Mark Hrywna      

An average nonprofit postal rate hike of 6.7 percent will take effect May 14, following approval by the Board of Governors of the United States Postal Service (USPS).

While rates within the subcategories will vary depending on sortation and automation levels, a new category of mail could double the cost to send some front-end premiums. Nonprofit periodicals will also get hit with a large hike.

Front-end premiums, like greeting cards and candles, were classified as Standard Mail but now all rectangular Nonprofit Standard Mail could be treated as either Not Flat-Machinable (NFM) or a parcel, which does not have a nonprofit rate.

“I can’t say there are any surprises,” said Tony Conway, executive director of the Alliance of Nonprofit Mailers, regarding the new approved rates. He had called the Postal Regulatory Commission’s (PRC) decision consistent with the Postal Service’s move toward more shape-based rates.

“As typical with decisions by the Board of Governors, the revenue needs are pretty substantial, and the rate case change represents $450 million a month coming into the Postal Service,” Conway said. “With all decisions of these kinds, that really is a driving force pushing the governors to implement it because the Postal Service needs the revenue.”

In nearly every category of mail, the PRC recommended rate increases equal to or below the Postal Service’s request. The Postal Service had requested an average 8.9-percent increase for Standard Nonprofit mail, but the Board of Governors adopted the PRC-recommended average of 6.7 percent.

The commission also recommended a two-cent increase in First Class postage to 41 cents — while USPS wanted a three-cent hike — and post cards will jump from 24 to 26 cents, all of which were approved by the USPS Board of Governors.

Following 10 months of deliberations, including six meetings in the 22 days leading up to the final vote, the Board of Governors also requested the PRC reconsider its recommendations for three items: Standard Mail Flats, Non-machinable Surcharge and Priority Mail Flat-Rate Box. The board delayed new rates for periodicals, which includes categories for nonprofit publications, until July 15. Conway said he did not expect the PRC to drag out its reconsiderations until May, but be back to the USPS “in good order.”

Increases in Standard Mail Flats will be upward of 30 to 40 percent, Conway said, and will force nonprofits to decide whether to stay in flats. “It’s a business decision everyone’s going to have to make, whether the extra cost is worth it, or trying to get that same message into an envelope.”

For Standard Nonprofit mail that is prepared to make it easier for the Postal Service to sort and deliver, typically the increases will be less than the average, Conway said. However, if the mailing does not have many incentives, the increases are substantially higher than the average.

NFM used to be Standard, Conway said, but now is almost all the way into the Parcel category. “Given the size, thickness of material, it’s more like a parcel than a Standard letter…Thickness is a big issue with this.”

Flat-size pieces must be rectangular, flexible and uniform in thickness. Boxes and box-like pieces are not flats, and neither are tight envelopes completely filled to form box-like pieces. Any bumps, protrusions or irregularities cannot cause more than 1/4-inch variance in thickness. Pieces that don’t meet standards would cost the NFM rate or parcel rate.

The Direct Marketing Association Nonprofit Federation had asked the Board of Governors to delay the new requirements for a year so nonprofits have time to test them. Nonprofits needed time to reorient mail pieces to see into which category they would fit, Executive Director Senny Boone said. If the piece doesn’t meet the new NFM category, it would be classified as a parcel, which is not a nonprofit rate, she said.

She called the decision on the NFM category “a big disappointment” and said the DMA will have to decide what to do next, including perhaps appealing to the congressional Postal Oversight Committee.

Generally, front-end premiums have been mailed as flats and most nonprofits mail through the Standard Nonprofit Rate, Boone said, but even rate hikes within that category vary from 2-percent decreases to 125-percent hikes, depending on the variety of factors that include automating and sortation levels.

Postage already is the biggest expense for Christian Relief Services in Alexandria, Va. “We live and die by direct mail,” said Paul Krizek, vice president and general counsel, adding that premiums encourage supporters to read their letters and advertise the charity. “We will have to completely retool the way in which we do direct mail and we will need at least a year to do so,” he said.

“For sure, we will mail a lot less and if it goes up quickly and too soon, it will have a severe negative effect on our income and thus our programs in the field will take a big hit,” he said.

The charity recently completed a $3-million teen center on the Cheyenne River Sioux Indian Reservation, not funded entirely by direct mail, Krizek said, “but without the direct mail income, we wouldn’t have had the flexibility or ability to go after the foundations and corporate support.

“This could be devastating to Christian Relief Services,” Krizek said.

Project Hope mails at least once a month and is in the process of testing a greeting card package that was done in the past, according to Becky Graninger, vice president of direct marketing at the Millwood, Va.-based charity, about 60 miles west of Washington, D.C.

Project Hope is working with Barton-Cotton, a Baltimore-based fundraising consultant, on testing the new greeting card package that features boxes which are collapsible. “They’ve been running tests and have a sense of what’s going to happen from the response perspective if they go with a format different from the traditional box,” Graninger said.

“With the premium test that we’re doing, it (rate hike) could affect whether that’s a successful test or not because cost is a more significant factor on that package than on a plain package, so that just adds more weight to carefully read the results of that test before we do a roll-out,” she said.

Graninger said her charity won’t mail any less because of the rate hikes, but it will “squeeze the margin so to speak,” adding that she was pleased to see the rate for First Class additional ounce decline. Currently, the cost to mail a 2-ounce letter First Class is 63 cents, and the PRC recommended 58 cents, a drop of almost 8 percent. “At least there was something positive in all that.”

Jean Simmons, director of direct response fundraising for Baltimore-based Catholic Relief Services (CRS), said the rate increase recommendations were a little lower than she was anticipating, particularly in the Third Class nonprofit rate. Originally she expected about a 9-percent hike and instead it’s more like 6 percent.

Almost a fifth of the CRS file is mailed as First Class presorted multiple times a year, so a First Class increase of 2 cents would add anywhere from $180,000 to $200,000 to its postage budget for Fiscal Year 2008, she said.

In general, First Class mail accounts for 43 percent of all the nation’s mail volume and 48 percent of revenue while Standard Mail, which includes the subcategory Standard Nonprofit, comprises 51 percent of volume and almost a third of revenue.

Lutheran World Relief in Baltimore mails to its 40,000 house file about five times a year, said Fran Toxler, director for mission advancement, but it’s an acquisition mailing this year that probably will be impacted more by postal hikes. The charity might take into consideration how many acquisition mailings, usually around 100,000, are sent, she added.

Postal rate hikes won’t stop them from mailing, Toxler said, but they might “eat away at the budget, which could affect our gift revenue, which could affect our programming. When you project gift revenue, and expenses are larger than projected, obviously net revenue is going to be down.” NPT