May 3, 2006
Pricing and Classification Message Board
Shaping a More Efficient Future
On May 2, 2006, the Postal Service Board of Governors approved filing an omnibus rate case with the Postal Rate Commission to adjust postage rates in spring 2007 to cover increasing operational costs. Our proposal calls for a 3-cent increase in the price of a First-Class stamp and a new “forever stamp” that would be good for any future 1-ounce single-piece First-Class Mail letter, no matter how prices may change beyond 2007.
Although postal rates did change in January 2006, that change was the result of a federal law passed in 2003 requiring us to place $3.1 billion in escrow. The 2006 filing is the first time in nearly five years that we proposed to adjust postage rates to cover rising operational costs. We included several improvements in our price relationships and incentives to send the right signals to enhance efficiency, offer more choices, and ensure that all types of mail cover their costs.
Price tables showing a side-by-side comparison of today’s prices and those proposed will be available later today on usps.com/ratecase. The complete filing will be available later today on the Postal Rate Commissions Web site, prc.gov.
In summary:
§ We plan to change our prices in 2007 to respond to changes in operations and the marketplace.
§ This is the first proposal since 2001 to realign classifications and prices.
§ Today’s competitive marketplace demands efficiency. Our new prices will encourage mailers to make adjustments and help us to process their mail more effectively.
§ Our proposed prices recognize that each shape of mailpiece — letter, flat, and parcel — has different costs that need to be covered.
Mailers have More Choices and Savings Opportunities than Ever
The proposal includes:
§ Price incentives to create efficient mailpieces compatible with our processing systems.
§ Price incentives for quality addressing.
§ Price incentives to deposit flats and parcels closer to where they are delivered.
§ Opportunities to mitigate the impact of price increases.
§ Options for mailers to choose services and shapes that meet their needs.
Highlights of the New Prices
§ Shape Differentiation—Our current prices do not distinguish between letters, flats, and parcels as much as they could. For example, in First-Class Mail, our current price is 63 cents for a 2-ounce piece regardless of whether it is a letter, flat or parcel. Our proposed prices recognize that each of these shapes has substantially different processing costs and should have different prices. Our new pricing encourages efficiency. For example, if the contents of a flat are folded and placed into a letter-size envelope, the mailer can save as much as 20 cents. If a parcel is reconfigured as a flat, the mailer can save up to 38 cents. In both of these cases, our costs are reduced, leading to greater efficiency.
§ Additional Ounce Rate—As we increase the emphasis of shape in our pricing, we can reduce the role of weight. For example, as First-Class Mail pieces become heavier, the proposed price increase declines. In fact, for letters over one ounce, the proposed prices are actually lower than today’s since the proposal includes a 4-cent reduction in the additional ounce rate.
§ Priority Mail Flat Rate Box—We propose that the Flat Rate Box, which is currently being tested, become a permanent Priority Mail product. The new price for the flat-rate box, regardless of weight, contents, or distance traveled, would be $8.80.
§ Express Mail—Currently, there is a one-half pound price in Express Mail, and anything over that weight (but less than 2-pounds) pays the 2-pound price. Our proposal adds a new one-pound price. This reduces the price increase for pieces weighing less than a pound.
§ Automation Letter-Size Pieces—Our pricing encourages mailers to prepare letters that support our delivery point sequencing program. Standard Mail destination entry discounts are re-aligned to ensure that the letters are entered at the plant that does the sorting.
§ Standard Mail Parcels—A new pricing structure for parcels allows for expanded worksharing options, including a new destination delivery unit incentive. While parcels overall would increase significantly to reflect their higher costs, mailers can mitigate the increase by sorting to 5-digit ZIP Codes, and entering the parcels at the destination delivery unit.
§ Periodicals—Our pricing includes efficiency incentives for mailers to use pallets rather than sacks, or to fill sacks with more mail. We also enhance dropship incentives, particularly for publishers of high editorial content publications.
§ Parcel Select—To enhance efficiency, we are building the barcode discount into the base price for Parcel Select-DBMC parcels and requiring that all parcels be barcoded. This supports our efforts to streamline acceptance and verification. We also propose increases in the dropship discounts for Parcel Select.
§ Address Change Service (ACS)—To encourage addressing quality and promote efficiency, we are reducing most of the existing ACS fees, and proposing a new, lower-priced OneCode ACS using the four-state barcode. The lowest fees would be available for First-Class Mail letters using OneCode ACS, with the first two changes for an address provided at no charge. We also propose a low-cost ACS solution for Standard Mail letters.
Summary by Class of Mail
First-Class Mail
The overall increase proposed for First-Class Mail is 7.1 percent.
The shape of the mailpiece will play a larger role in the pricing of First-Class Mail. Today letters, flats (large envelopes), and parcels over 1-ounce have the same price at every weight increment. It costs 63 cents to mail a 2-ounce letter, 63 cents to mail a 2-ounce flat, and 63 cents to mail 2-ounce parcel. Our proposed prices recognize that each of these shapes have substantially different processing costs, and should have separate prices. Flats and parcels would see larger increases than letters because our handling costs for these larger shapes are higher. This new pricing encourages efficiency. For example, if the contents of a flat are folded and placed into a letter-size envelope, the mailer can save as much as 20 cents. If a parcel is reconfigured as a flat, the mailer can save up to 38 cents. In both of these cases, our costs are reduced, which in turn is passed on to the customers through the lower prices.
Another feature of our shape initiative includes a reduction in the additional ounce rate. The reduction from 24 to 20 cents means that heavier pieces have lower percentage increases than lighter pieces of the same shape. For letters over 1 ounce, the new prices are actually lower than today’s.
We propose similar changes to our pricing for workshare mail. The additional ounce rate for automation pieces is proposed to decrease from 23.7 cents to 15.5 cents for letters and from 23.7 cents to 20 cents for flats and parcels. The price for a 2-ounce automation-rate letter would be lower than today’s price, and flats weighing over 6 ounces would cost less than today as well.
We propose eliminating the automation carrier route rate for letters. Carrier route presorting by the mailer is not needed for our automated equipment to place letters in delivery sequence for the carrier. Five-digit scheme preparation provides an attractive option to mailers, and is optimal in terms of efficiency.
Nonmachinable letters would continue to pay higher prices that reflect their more costly manual handling. Regardless of weight, letters that do not meet the aspect ratio, or that have any other nonmachinable characteristics, would pay the flats prices.
We propose a new price structure for Business Parcels that would include presort discounts that are not available today. Also, to promote efficiency, parcels that cannot be processed on our equipment or do not bear a UCC/EAN Code 128 barcode would pay a five cent surcharge.
Standard Mail
The overall increase proposed for Standard Mail is 9 percent.
The proposed prices continue to encourage advanced preparation and destination entry of closer to destination. We continue to offer lower prices for destination bulk mail center (DBMC) and destination sectional center facility (DSCF) mail, but we eliminate destination delivery unit (DDU) rates for Enhanced Carrier Route (ECR) letters since entry at the plant is more efficient than entry at the delivery unit.
As in First-Class Mail, Standard Mail pricing has greater recognition of shape, and a reduced reliance on weight.
In general, Standard Mail pieces that are not compatible with our automated processing, or are parcel-shaped, would receive above-average increases.
The nonprofit price structure and incentives mirror those of regular Standard Mail.
Letters
To encourage greater efficiency, we propose separate prices for automation letters, machinable letters, and nonmachinable letters.
Machinable letters are not barcoded by the mailer, but can be processed on our automation. However, the processing plan for these letters makes presortation by the mailer to 3-digit or finer unnecessary. Therefore, we do not include presort discounts beyond the AADC level.
Nonmachinable letters must be handled manually, and presorting is more valuable, so the price structure is expanded to include four presort tiers instead of two. However, the prices for nonmachinable letters would increase significantly due to their higher cost.
Flats
We de-average the current Basic and 3/5 categories by creating four separate presort tiers. This encourages greater preparation, and can increase efficiency.
Currently, some pieces that qualify as automation flats are handled in a manner that is similar to parcels. Our proposal includes a new definition of an automation flat that would cause some current pieces to be re-defined as parcels. While the automation rates are too low, given the characteristics of these pieces, applying the parcel prices would result in very large price increases. Therefore, we have created an intermediate category, called Not Flat-Machinable, to temper the price increase for these pieces, or to acknowledge that some of the characteristics can facilitate their processing or delivery.
Parcels
We replace the current Residual Shape Surcharge with a full price schedule for parcels. This enables discounts that are more reflective of the savings that are generated by presorting and dropshipping parcels. While overall parcel prices would increase significantly, these new discounts allow mailers to mitigate the price increases.
Enhanced Carrier Route
Our proposal eliminates destination delivery unit (DDU) rates for letters. This is consistent with our efforts to promote delivery point sequencing of letters, which usually occurs at the mail processing plant. Entry at the delivery unit frequently results in letters being sent to the plant for processing, and then transporting them back to the delivery unit. We retain the DDU rates for flats and parcels since that is the best entry location for those shapes.
Currently mailers of saturation flats have the option of placing the address on a separate letter-sized card, rather than placing the address directly on the mailpiece. This separate card is called a detached address label, or "DAL." In our modernized processing and delivery environment, DALs are of less value from our perspective. We propose a price incentive that would encourage mailers to place the address and postage on the mailpiece by including a DAL surcharge of 1.5 cents per piece.
Priority Mail
The overall increase proposed for Priority Mail is 13.8 percent.
Most Priority Mail pieces are lightweight; 93 percent of Priority Mail volume weighs less than 5 pounds.
Priority Mail transportation and handling costs have gone up significantly, which leads to the larger-than-average price increase.
Today, prices for large, lightweight items do not adequately reflect our transportation costs. Other carriers, like UPS, FedEx, and DHL, price these pieces higher to reflect the added costs of the increased size. This pricing is known as “dimensional-weight” (or “dim-weight”) pricing and has driven much of this volume to us because our prices are lower. Since air transportation costs are incurred largely based on the cube of the parcel, but our prices are based on weight, our costs often exceed our revenue on large, lightweight parcels. Therefore, we are proposing a new dimensional weighting test for parcels larger than 1 cubic foot in the zones that use air transportation (zones 5-8). If the size of the parcel is large relative to its weight, an industry standard conversion factor would be applied to re-assign the parcel to a higher weight increment that better reflects its cost. Conversely this costing and pricing approach leads to lower proposed prices for some heavier-weight parcels.
The “balloon” charge would remain for Zones 1-4, but the applicable price for these large pieces would be the 20 pound price, instead of today’s 15 pound price.
Our proposal separates Zone 3 prices from Zones 1 and 2 prices. This change would align the Priority Mail zones with the zones used for all other classes of mail, and allow for lower price increase for shorter-distance parcels.
We propose making the Priority Mail Flat-Rate Box pricing experiment a permanent product. The new price for the flat-rate box regardless of weight, contents, or distance traveled, would be $8.80.
Express Mail
The proposed increase for Express Mail is 12.5 percent.
Many Express Mail pieces are lightweight and range between 1/2 pound and 2 pounds. Currently, prices jump from 1/2 pound to 2 pounds, and our proposal includes a new 1-pound price to fill that gap.
Periodicals
The overall increase proposed for Periodicals mail 11.7 percent.
Mail on pallets would have a lower price increase than sacked or trayed mailings. Mailers of high-editorial content publications that take advantage of discounts would see lower increases.
Outside-County
Our proposal includes incentives for preparing and entering mail deeper into the system (closer to its destination), and also includes a "per container" charge to encourage efficiency. Flats prepared in bundles, and placed directly on pallets that can be dropshipped, is the most efficient method of preparing Periodicals mailings, and the prices would encourage this activity. If preparing pallets is not a viable option, mailers would still be encouraged to use the fewest number of sacks to minimize the container charges.
Nonprofit and Classroom publications price structure would continue to mirror that of Outside-County and would continue to include a 5 percent discount (excluding advertising pounds).
In-County
In-County Periodicals pricing is based on statute, which resulted in a decrease in prices in January, 2006. However, in the current proposal, the same pricing mechanism results in an increase of 25 percent. Since In-County mail is already entered locally, the initiatives that encourage deeper entry and more efficient containerization, including the container charges, would not apply.
Package Services
Packages Services mail includes Parcel Post, Bound Printed Matter (BPM), Library Mail, and Media Mail. The overall proposed increase is 13.4 percent.
Overall, the Parcel Post average increase is 12.9 percent; retail Parcel Post would increase 13.7 percent and Parcel Select 11.8 percent. Bound Printed Matter increases 11.7 percent and Media Mail goes up 17.8 percent in the proposal.
Our proposal includes the elimination of BPM as an option at retail. Retail customers will still have options such as Express Mail, Priority Mail, Parcel Post, and Media Mail.
A lower increase for BPM and Parcel Select mail recognizes the savings generated by mailers who enter mail in bulk at downstream processing and delivery facilities. Similar to Priority Mail, we are also proposing revised balloon rate pricing for Parcel Post and Parcel Select.
Parcel Select
Barcodes allow more efficient processing and can help support our efforts to streamline acceptance and verification processes. Currently we offer a 3-cent discount for barcoding Parcel Select parcels. Our proposal would build this discount into the base price for Parcel Select-DBMC parcels and require that all parcels bear a UCC/EAN Code 128 barcode for sorting purposes. Most Parcel Select parcels are currently barcoded by mailers or consolidators, so this added requirement should not be too burdensome. To the extent barcoding is not a viable option, a surcharge would apply.
Extra Services and Other Fees
Extra services (also referred to as Special Services) and include Certified Mail, Return Receipt, Delivery Confirmation, Signature Confirmation, Registered Mail, Insurance, and Post Office Boxes. The overall proposed increase is 11.2 percent.
Address Correction Service (ACS)
One method of reducing the volume and cost of undeliverable-as-addressed (UAA) mail is to provide a correct address to the mailer or list provider as soon as possible. A new technology will allow us to electronically note the incorrect address on a letter, and then electronically send the corrected address to the mailer at a much lower cost than today. Currently, customers who use address correction service (ACS) pay at least 20 cents for each electronic notification. Many mailers hesitate to pay that amount for a number of reasons. The new option includes some free notifications for First-Class Mail letters, as well as other proposed price reductions for ACS, should help reduce the cost of handling UAA mail.
Registered Mail
Registered Mail provides maximum security and accountability, as well as proof of mailing and date of delivery. The proposed increase for Registered Mail is 50 percent. This significant increase is required for Registered Mail to cover its costs.
Insurance
Pieces with up to $50 (unnumbered) merchandise insurance would receive a delivery scan, but no signature. We reduce fees for insurance over $50 and up to $200. We would also create a new online claims process.
Fees for additional Express Mail insurance coverage are reduced with this proposal.
Certified Mail
Certified Mail service would increase from $2.40 to $2.65.
Delivery Confirmation
Delivery Confirmation service fee is built into the price for certain Priority Mail and Parcel Select parcels, and can be purchased separately for other parcels. For First-Class Mail parcels and Parcel Select, the retail option increases from 60 cents to 75 cents, and electronic from 14 to 18 cents. For Priority Mail the retail option increases from 50 to 65 cents, and electronic remains at no fee. For Standard Mail electronic, the fee increases from 14 to 18 cents.
Mailing and Permit Fees
The permit imprint application fee and all annual mailing fees are proposed to increase from $160 to $175. Annual accounting fees are proposed to increase from $500 to $550.
Post Office Boxes
The overall increase in our proposal is 10.8 percent. However, individual box holders at different locations may experience a wide variety of price changes due to our continuing efforts to realign Post Office Box prices with our real estate costs for each location. We also realign Caller Service in our proposal.
Return Receipt Service
Return Receipt service at the time would increase $1.85 to $2.15. Electronic option at the time of mailing decreases from $1.35 to 85 cents. The proposed increase for Return Receipt requested after mailing is $3.45 to $3.80.