Postage costs: where we've been, where we're headed.

Postage can be a significant cost factor for agri-marketers, their communications agencies, the farm media and the trade associations and checkoff boards that serve the ag producer. To publishers, alone, it can represent nearly a quarter of their cost of goods.

Postage costs can even be a deciding factor on how marketers choose to communicate with their customers and prospects.

To obtain an update on what's happening on this front, we contacted David Straus, a prominent Washington, D.C.-based attorney with Thompson Coburn and counsel for the American Business Media (ABM), specializing in postal issues. He reports that postage rates for First Class postage have climbed 45 percent over the past 15 years, while the rates for periodicals (including most farm magazines) have nearly doubled (see figure 1). That trend is likely to continue, as the Postal Service struggles with higher costs and declining volumes, but mailers can help themselves, to an extent.

INCREASING COMPLEX RATE STRUCTURE

New, sophisticated technology, along with common sense, have allowed mailers to perform much of the work that used to be performed by the post office, saving Postal Service (USPS) costs and qualifying that mail for a plethora of discounts. Bar coding, drop shipping, palletization, carrier route pre-sort, walk sequencing, and other forms of so-called "work sharing" all have shifted much of the work burden from USPS to the mailer. USPS has encouraged the shift by offering increasing discounts to the mailers who provide these functions.

One result of this shared work is a very complex rate structure for almost all mail subclasses. That structure tends to favors one type of mailer (particularly those with large volumes and dense delivery patterns) while placing others at a disadvantage (mostly the low volume mailers).

Unless something changes, he also sees postage rates continuing to increase. Straus says, "USPS's most profitable class is 1st class, but its usage is dropping for the first time in history because of e-mail and other electronic-driven delivery systems, especially electronic bill payment and, perhaps soon, electronic bill rendition. USPS will not be able to replace that lost revenue source, so it will have to accelerate what it did in the past--continually increase its rates. Hardest hit is likely to be advertising mail, called Standard Mail, formerly third class, since that is now the largest class of mail and the only one that is growing.

THE FUTURE

"The only possible relief to continually raising rates that is in sight, at least in the short term," Straus says, "is the passage of the Postal Reform legislation that is currently pending in the U.S. Congress, although it is opposed by the administration for budget reasons.

The legislation would allow USPS to make use of literally billions of dollars that are about to be placed into an escrow account that Congress created a few years ago. The account serves no purpose, other than to relieve it of the burden of pension costs for retirees to the extent such costs are based upon military service, and permit it greater flexibility in settling rates while protecting the rights of mailers, through regulatory oversight and a CPI-based rate cap. But, because the legislation doesn't touch the third raft--labor costs--it is not likely to provide significant long-term relief.

"The lesson for agri-marketers," Straus says, "is that the cost of direct mail is likely to increase, perhaps every year, for the foreseeable future, and that the movement in marketing efforts toward alternative media will not abate. Electronic media, which avoids postal costs entirely, will be one important weapon in the arsenal of most marketers, but such media do not eliminate the need for hard-copy advertising that the recipient can stick in a briefcase, read on a plane or easily share with others. Recent studies of the importance of the business press to decision-makers are gaining widespread attention, in part, because the hard copy alternative--direct mail advertising--has become expensive and suffers from concerns of overload."

Figure 1
Postage Rate Increases In the Past 15 Years

Date Increase Was Effective   1st Class   Periodical

Feb. 3, 1991                     16%         22%
Jan. 1, 1995                     10          14
Jan. 10, 1999                     3           5
Jan. 7, 2001                      3          10
June 30, 2002                    --           3
June 30, 2003                     8          10
Jan. 8, 2005                      5           5
Total                            45%         91%