No rate hike: mailers are safe for 18 months. (At Deadline).

Nonprofit mailers can expect postal rates to remain steady through at least mid-2004, according to Postmaster General John Potter.

While addressing delegates at the Direct Marketing Association's (DMA) recent 85th annual conference in San Francisco, Potter said that the most recent rate increase, down-sizing and other efficiencies mean that the United States Postal Service (USPS) won't need a rate hike in 2003 and much of 2004.

Potter said that cutting 23,000 "career" employees, realigning field management, freezing capital expenditures, and cutting expenses across the board means the USPS will have a net income for FY 2003. In all, $2.9 billion was cut from the USPS's bottom line for FY 2002. "For you, that means there will be no rate hike until well into 2004," he said.

Potter said that other initiatives, such as continued negotiated rate settlements, phased-in rates, and negotiated service agreements (NSA), will hopefully stabilize the mail system and its rate structure.

Last year's rate case, which started out as an acrimonious battle, ended in a negotiated settlement after the terror attacks and anthrax scare, when mailers and the USPS realized they had to work together to keep the system afloat. Potter wants more of that cooperation.

"I'd like to see us replicate the negotiated rate settlement you helped us reach last year. That way, none of us will have to wait 10 to 18 months for the outcome," said Potter. "Today, you can plan your holiday season budget for 2003. My goal is to enable you to accurately plan your holiday mailing budgets for 2004 and 2005."

DMA President & CEO H. Robert Wientzen applauded efficiencies made at the USPS but indicated that they are not enough. "Management's got a lot more work ahead of them. After all, deficits do mean more rate hikes," he told delegates during a keynote address. "Yes, the increase may not come until 'well in 2004.' But they are coming -- and they're probably going to be bigger hits than recent hikes."

Wientzen pointed to rate hikes decreasing mail volume and exacerbating the financial problem at the USPS. "As of mid-August," he said, "Standard Mall volume was down 4.5 percent."

Neal Denton, executive director of the Alliance of Nonprofit Mailers in Washington, D.C., applauded Potter's olive branch. "That means the USPS will file a case next year. Some expect the next rate increase will be large -perhaps double--digit increases," said Denton. "I think the USPS will pursue another innovative idea and seek phased rates. Planned and properly constructed phased increases would provide rate stability and allow nonprofit mailers to better budget for postal costs."

Potter brought forward, the idea of phased rates this past spring during the rate summit convened with the Postal Rate Commission. "What we heard over and over again was the need for rate predictability," said Potter. "We heard that when we hit customers with a single, large rate increase, it causes havoc in your business planning cycle."

Under phased rates, the increases would be more frequent, but smaller and spaced out over predictable time periods. "Perhaps phased rates is a notion whose time has come," Potter said.

Potter also plans to push for negotiated service agreements that tie discounts to volume growth and with all classes of mail, including Standard Mail.

Denton believes the USPS can and should implement the process of negotiated service agreements immediately. "We've told the USPS for years that they had the authority to pursue negotiated agreements. The Rate Commission has told the USPS to pursue NSAs. If the mailer and the USPS can work together to lower the per piece "cost of a letter, it will work for everyone."

The USPS is also banking on a subscription service it initiated this past September called CONFIRM. It uses Web-based technology to enable major mailers to know the status of their mailings as they go through the processing system. "Customers using CONFIRM tell us they're able to monitor delivery performance, predict precisely when their mailings will be delivered," said Potter. It's in direct competition with independent tracking services.

CONFIRM is a system nonprofits may find very useful, according to Denton. "Mailers can use CONFIRM to track mail through the system - and better anticipate when orders, payments, donations, phone calls or turns can be expected. The USPS can use CONFIRM to identify operational problems and help to trim costs out of the collection, processing and distribution network," he said.

All of the initiatives being considered are part of a transformation plan that is available on the USPS Web site, www.usps.gov. "The transformation plan compels postal managers to think differently - to look at the business and customers with a fresh approach," said Potter.

Denton, who often locks horns with the USPS, said nonprofits should enthusiastically support the transformation process. "Potter's transformation plan is the best chance for postal reform in the pipeline today. But he's going to meet with stiff resistance from Capitol Hill when he starts consolidating facilities and trimming postal labor costs. Mailers better be ready to support his efforts at cost cutting or expect even larger increases in 2004," said Denton.

Although he acknowledges that alternative media have eaten into the mail volume, the Postmaster General is bullish on the future of direct mail. "Americans view mail as a welcome daily event. Mail is opened every day. And mail is read and acted upon," said Potter. "It's all in the mailbox. People go to their mailbox every day, not to every Web site every day. Direct mail should be a major component of your multi-channel marketing mix. If it's not, you're missing out."