Battle Lines Forming Over Postage Rates
RANDOLPH E. SCHMID
May. 21, 1987
WASHINGTON (AP) _ A behind-the-scenes battle is brewing over postage rates for the multimillion-dollar advertising industry, while public attention focuses on the proposed increase in the price of a first-class stamp.
On one side is the Postal Service, which wants the third-class business, and the direct-mail industry, which wants to keep rates down.
On the other are people like newspaper publishers, who complain that direct-mail advertisers have an unfair advantage because their third-class mail rates are, in effect, subsidized by more expensive first-class mail.
Postal officials, with their tax subsidy gone, are required to operate more like a normal business these days. And that means competing with newspapers, television, radio and other media for dollars spent to bring advertising messages into American homes - a competition hightened by the rapid growth of direct-mail advertisers using third-class mail.
Their success is reflected in the bulging home mailbox of recent years.
The Postal Service argues that advertising mail carries its own weight, but the publishers aren't so sure.
Most classes of mail will face an increase in the new rates, which are expected to go into effect next year.
First class is to go up about 15 percent, to 25 cents, and third-class rates are to rise 23 percent, an increase that Gene Del Polito of the Third Class Mail Association says is excessive.
For many direct-mail advertisers, that will be ''tough to swallow,'' said Del Polito.
Even with the new rates, though, advertising mail will remain priced below first-class letters.
Questioning those rates is the American Newspaper Publishers Association, which contends that the third-class postage rate doesn't actually cover its own costs.
''We are looking for a fair and level playing field, and that's what we feel doesn't exist at this particular time,'' said Sandra C. Hardy, vice president of Calkins Newspapers of Levittown, Pa., and head of the ANPA committee overseeing postal matters.
These and other arguments will be considered by the independent Postal Rate Commission, an agency charged with reviewing postal pricing. That process is expected to take 10 months or so.
The Commission will then issue a ruling on the rates proposed by the Postal Service last month. If it approves, the new charges can go into effect immediately. If it disagrees they can compromise, start the process over or the Postal Service can impose the new rates on its own, if its board of governors acts unanimously.
When the old U.S. Post Office became the U.S. Postal Service, Congress eliminated its tax subsidy and instructed the new agency to set postage rates that would result in each class of mail paying its own way.
That sounds simple. It isn't.
The price of each stamp includes two factors - the so-called institutional costs and the attributable costs.
Institutional costs are what other businesses call overhead, the basic expense of having buildings, employees, trucks and so forth. Attributable costs are the direct cost of handling each type of mail.
Currently, first-class mail - letters to grandma, bills and other such individual messages - makes up nearly 52 percent of all mail, but pays more than 70 percent of overhead costs. Advertising mail, nearly 40 percent of volume, carries less than 15 percent of overhead.
That means, says Hardy, that other classes of mail are subsidizing third class.
Not so, responds Don Allen, director of the office of rates for the Postal Service.
The basic postal system has to be there to deliver any mail at all, so you can't attribute shares of the overhead among types of mail, he says.
Allen believes that the publishers' use of percentages to compare classes confuses the issue. Instead, he talks about the actual charges for each kind of mail.
As long as each class pays for its actual cost of delivery and makes some contribution to overhead, ''there is no subsidy,'' he says.
Under the law, he says, rates for each kind of mail vary for many reasons, such as value and competition.
While Postal officials refuse to call advertising ''junk mail,'' they recognize that it has less value than first-class letters.
The rates also recognize competition, he says, with prices helping draw in business from advertisers who can choose some other method of delivery - newspapers, for instance.
That same argument is cited by the publishers, who contend that lowering rates for competitive service penalizes the public, which is forced to pay more for letters it can't send by any other method.
Using statistics for 1985, Allen reported that for regular rate third-class mail, delivery cost the Postal Service 7.1 cents per item, and income was 10.1 cents - leaving 3.0 cents for overhead costs. For first class, the delivery cost was 14.2 cents and income was 23.1 cents per item, leaving 8.9 cents for overhead. And for second-class items - newspapers and magazines - the overhead contribution was 2.6 cents, with delivery costing 11 cents and revenue totaling 13.6 cents each, he said.
As long as a type of mail covers its actual costs of delivery and makes a contribution to overhead, there isn't any subsidy, he said.
If advertising mail didn't contribute to paying overhead, rates would have to go up for other classes, Allen added.
On the other hand, says Hardy, if third class contributed a larger share - in proportion to its volume - rates for other classes could come down.
The second front in the battle is the actual delivery cost.
First-class rates are higher because service is better, Allen says. It costs the agency more to handle and deliver this mail than third class, which is often sorted by the mailer and brought to the Postal Service in large volume.
But Hardy responds that an ANPA study found that actual delivery was nearly as good for third class as first - only about one-day later in most cases.
And, she added, the biggest difference is the weight charge - first class costs 22 cents for the first ounce and 17 cents for each extra ounce.
For third class, the basic rate, ranging from 8.3 cents to 12.5 cents per item, covers nearly four ounces.
And bulk mailers are allowed to place the address of the recipient on a card, separate from the packet of advertising items being mailed, she added.
This requires double handling by the letter carrier, and thus the ANPA feels these cards and advertising packets should be considered two separate items and each charged postage.
Allen responds that the system saves money by making it easier for the mail carrier to sort only the cards, and simply deliver one ad packet with each.
End Adv Thursday PMs May 21