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Understanding the U. S. Postal Service Rate Case and Its Impact on Your Business

By Jim Herrin, North American Market Manager - Tyvek® Envelopes
(see bio)

Q. The U.S. Postal Service (Postal Service) recently unveiled a new approach to pricing that, in its words, will “reshape the future of mail.” What do businesses need to know to fully understand the impact of the new rate case?

A. In the past, postal rates were determined first by the class of service, then primarily by the weight of the mail piece. With the recent rate changes, weight is still important, but “shape” (mailpiece size and physical attributes) is also now a significant factor in determining postage.

The decision to amend the rates was based largely on the fact that shape dictates how the Postal Service handles and sorts mail. Certain shapes are more challenging to handle with automated sorting machines and, as a result, must be processed at slower rates or sorted by hand. The slower the processing speed, the higher the costs to move the piece through the mailstream.

The Postal Service’s previous approach was to average the costs of handling various shapes, using only weight to determine postage rates. In the past, a three ounce letter would cost the same as a three ounce parcel, even though the letter costs less to process.

What the Postal Service essentially did in their latest rate case was to assign a postal rate that more closely reflects the real cost of handling each type of mailpiece. So today, a three ounce parcel costs $1.47 to mail, and the letter costs just $0.75.

Q. Will companies be able to save money as a result of the new rates? If so, how?

 
Tyvek® envelopes offer superior toughness and protection, plus they are also lightweight, which helps reduce a mailpiece’s postage weight class.
A. Yes, in some situations, companies can reduce their postage costs. The headline that most people read at the time of the rate change was that “rates have gone up,” and this is true for some of the rates.  But what many people don’t realize is that some of the rates went down too—for example, rates were reduced for most first class letters and for flats greater than six ounces. 
Changing the shape of the mailpiece is one way to significantly reduce your postage cost.  Often, mailpieces sent as parcels today can be changed to flats.  Depending upon the contents being sent, a corrugated box can be replaced by an envelope and the resulting mailpiece would qualify as a flat, and benefit from the lower flat rate. For example, the cost of sending a nine ounce parcel is $2.49, while a nine ounce flat costs $2.16. One important consideration with this approach is the need for a strong envelope that’s capable of delivering these contents intact. Tyvek® envelopes offer superior toughness and protection, plus they are also lightweight, which helps reduce the mailpiece’s postage weight class.
In addition to changing the shape of the mailpiece, there are other ways to save money with the new rates. The Postal Service has significantly increased Presort and Automation discounts offered on flats. Previously, these discounts were not large enough to warrant investing in the equipment required to presort larger envelopes. Now, companies will be able to justify this investment and will increasingly see benefits in presorting and automating their flats. In certain weight classes, the best worksharing rate (5-Digit Automation) can save you as much as 50 percent off the new single piece postage rate. 
If purchasing this equipment is cost prohibitive or there is not a large enough volume to qualify for these discounts, businesses can still take advantage of the new rate discounts by working with a consolidator or mail service company.

Q. What changes have you seen in the way businesses use the mail since the new rates went into effect?

A. It is still early to draw conclusions, as many businesses are still in the process of reevaluating their mailpieces and deciding, for example, if it makes sense to fold their contents in order to move from flats to letter size.  This is not always a simple decision.  Businesses also need to consider the purpose of the mailpiece and the overall impact of folding the contents to a letter size. More often than not, the maillpiece was originally designed as a flat for its ability to “get the attention” of the recipient or to project an image of importance.

For example, a financial statement sent to an investor is a critical part of the “product” offered by the investment firm. This statement is a “tangible element” of the firm’s service and it sends a message about the quality of service provided by the financial institution. The statement’s form and appearance could have a significant impact on their clients’ perception of the service they are receiving.

At first glance, folding a statement may seem like a small change, but it could have a larger impact on the overarching image of that company. These are some of the factors businesses need to take into account before changing their mail design.

Other businesses are giving more thought to bundling marketing pieces with transactional mail.  As with folded pieces, businesses need to consider the potential impact of combined mailings to make sure they don’t compromise results for the sake of reducing costs. They also need to closely manage the total weight of the mail piece as more contents are added, in order to minimize the additional postage cost of moving to a higher weight class (in First Class Mail, an additional ounce costs $0.17 per piece). One way to offset the increase in content weight is with lighter envelopes.

It’s important to keep in mind that as heavier or bulkier contents are added to mailings, the higher the risks of having damage or loss occur to the envelope and its contents. A business selecting this approach should be sure to choose an envelope designed to retain the integrity of its contents. A lesson can be learned from the example of the Chamber of Commerce at a popular southern resort town who was experiencing lost contents and delivery problems with their expensive Vacation Guide mailings, due to tearing that occurred with their paper envelopes. They switched to a Tyvek® envelope, because it is designed to withstand the rigors of the postal process much better than paper. As a result, they eliminated these delivery problems and increased the likelihood that their valuable Tourism Mail Campaigns would attract visitors.

Q. How are envelope manufacturers and suppliers responding to the rate changes?

A. This rate case is much more complex than anything that has preceded it. Manufacturers and suppliers are working hard to understand the requirements of different shapes, how the Postal Service assesses what category a piece of mail is, and then determining the potential impact. As an industry, we need to make sure that we are informed on all of the opportunities presented by the rate case and then work hand in hand with mailers to provide feedback and guidance to allow them to take advantage of these changes. 
The Postal Service offers local resources to assist businesses with these new rates. They can also provide input on the design of a mailpiece to make sure it meets the appropriate requirements and qualifies for a specific rate. So, if a business has questions regarding their mail piece design, the interpretation of the rates, or other mailing practices, they can also call their local Post Office to receive assistance. 

Q. In what ways is DuPont working with its customers to help them better understand and take advantage of the rate case?

A. We have begun to sit down with our customers to work through these changes and identify opportunities, such as leveraging the lightweight, toughness of DuPont™ Tyvek® envelopes to redesign their parcels to flats. We are also developing tools and information for converters to pass on to their customers to assist them in understanding the new rates and minimize their costs.

Q. With postal rate increases expected to continue in the future, what does that mean for the future of mail – especially in an age of increasing electronic communication?

A. History says that as rates go up, mail volume goes down. I would not be surprised to see the volume go down this year. But the mail service has shown remarkable resilience because it is still a very effective advertising stream and it’s a critical medium for personal and business correspondence. It also provides a personal touch that you just don't get with other means of communication.

About the Author

Jim Herrin
North America Market Manager – Tyvek® Envelopes
DuPont Nonwovens

Mr. Herrin is the North America market manager for DuPont™ Tyvek® envelopes and packaging, based in Wilmington, Delaware.

He joined DuPont in 1989 and has held various sales, marketing and product manager positions in several DuPont businesses.  In 2004, Mr. Herrin became business manager for DuPont™ Tyvek® mailing envelopes in the DuPont Nonwovens business.  In 2006, he assumed the market manager role for both the Tyvek® envelopes and packaging segments.

Mr. Herrin has an engineering degree from Virginia Polytechnic Institute and State University (Virginia Tech) in Blacksburg, Virginia.