A Publication of WTVP

As part of its May 14, 2007 rate change, the United States Postal Service (USPS) will introduce shape-based pricing, one of the most dramatic postage structure changes in years. The initiative is being implemented as a way for the USPS to better align postage rates with its mail processing costs, and its implications for mailers are expected to be twofold. First, there will be a significant increase in postage costs for various types of mail pieces—in some cases 53 percent to 106 percent—and secondly, it could significantly change how a company processes its mail. In addition to the shape-based pricing initiative, traditional first class postage is expected to increase more than 5 percent to $.41, up from $.39.

When shape-based pricing goes into effect, there is the potential for organizations unprepared for the new processing requirements to experience frustration and increased costs as they become accustomed to the numerous changes being introduced. Any new postal rate increase causes disruptions within organizations for a variety of reasons. However, shape-based pricing is going to require that companies plan for and structure their mail processing in an entirely different manner if they expect to minimize cost increases and possibly save money on some mailings.

Weight vs. Shape
Currently, the USPS primarily uses a weight-based method to determine postage costs for letters, flats and parcels. With mail processing costs rising, and with the need to encourage customers to prepare mail in ways that increase efficiency for USPS processing methods, the shape-based pricing initiative moves from a pure weight determination factor for postage costs to one that combines size, thickness and weight. Because of their shape differences, letters, flats and parcels will now all be priced differently, since each is handled and processed differently. Simply put, an item that is easier for the USPS to process will cost less than an item that is not. For example, if a letter is too thick or too large, it will need to be posted at the flat (large envelope) postage rate. And any mail piece that does not fit within the new guidelines for letter size or flat size will be considered a parcel, thus subject to significantly higher parcel prices. Having to calculate these rate differentials can be frustrating, time consuming and expensive.

Impact on Mail Centers
The effects of shape-based pricing are expected to impact all mailers in a variety of ways. Small volume mailers will need to manually measure the size and thickness of letters and flats to ensure proper postage. Mid to high-volume mailers, in order to keep the mail stream flowing efficiently, will need to utilize today’s high-speed automated equipment to apply postage. However, no matter the size of the mailing operation, all mailers will now need to be aware of the size, thickness and weight of their mail pieces if they hope to minimize cost increases and maintain mail processing productivity.

How could this impact your company?
These changes will add a new level of complexity to your mailing operations that may significantly impact your mailroom productivity and overall mailing operations costs. Unless you have an automated shape-based pricing compliant mailing solution, you will need to ask yourself:

• Are you staffed to handle the increase of manual mail sorting?
• Have you budgeted for the increased cost of postage and labor?
• What happens if you miscalculate the postage and your customer has to pay the surcharge?
• How much postage are you willing to waste if you guess wrong and pay too much?

It is strongly suggested that mail center operators educate themselves regarding the new requirements and take advantage of ways to reduce costs. Here are 10 strategies you can use to minimize the effects of shape-based pricing on your mailroom’s bottom line:

1. Audit your postage usage. Look at the volume of mail that leaves your mailroom weekly, monthly and annually. Evaluate how much these items weigh, their postage rates and what type of packaging is used.

2. Calculate the impact of shape-based pricing. Estimate the impact of the proposed postage increase by applying the new rates and evaluating the potential increased mail preparation workload, sorting mail by size, thickness or weight.

3. Pay attention to shape. Be aware of the shape of the mail pieces you send, as this is an important factor with shape-based pricing. Investigate developing new direct mail pieces to ensure that they not only look good, but are cost-effective as well. For example, a marketing agency might recommend a 6”x 6” envelope to stand out, but due to USPS regulations regarding aspect ratio, this nice-looking marketing piece would require the non-machineable surcharge.

4. Look for ways to increase mailroom productivity. Shapebased pricing introduces additional complexity to your mailroom. This could mean increased labor, delayed mail or inaccurate and wasted postage. Manually sorting mail prior to metering is not the answer, and guessing about the correct amount of postage could mean your mail arrives at your customer with postage due. The newest digital mailing systems have dynamic weighing platforms, which can automatically measure the length, width, thickness and weight of a mail piece to accurately determine the correct postage required. Some systems can also process up to 120 mixed size items per minute.

5. Fold to save. Simply folding documents and mailing them as letters instead of flats can save you up to 49 percent on postage due to reducing the category and because a 6”x 9” is lighter than a flat. However, this can increase your labor costs dramatically unless you have a folder/inserter in place to eliminate this additional impact to your business. Folder/inserter systems not only speed the process of folding and inserting paper into letter size envelopes, but they also create crisper folds which can help keep your letters under the ¼” letter thickness requirement. Some of today’s automated folder/inserters can fold and insert up to 10 pages of paper into an envelope. Folding multi-page invoices and mailing them in an envelope, instead of inserting them unfolded into a large flat, can pay huge dividends in saved postage.

6. Address for success. An undeliverable address means lost money from wasted postage. When that undeliverable address is on an invoice, there is a direct impact to your cash flow. In addition, when the undelivered message is a marketing piece, the impact is a lost sales opportunity, which could translate into reduced sales and growth. By utilizing USPS-approved address validation tools, these business impacts can be eliminated. In many cases, these same tools have the additional benefit of qualifying your mail for discounted postal rates through presort automation discounts.

7. Combine and save. Look to see if your customers are receiving more than one mail piece from your company in the same day. If they are, group these documents together, fold, and insert them into one envelope. In addition, by changing from singlesided to double-sided (duplex) documents, you can put more information into one envelope. The USPS has actually reduced the cost of the extra ounce for envelopes, and as long as your item is less than 1/4" thick, this tip can save you postage, envelope costs, paper costs and more.

8. Shop around. With all major parcel-shipping companies (USPS, UPS and FedEx) increasing costs in 2007, it is more important than ever to ensure that you are not overspending on parcel shipping. With a multi-carrier shipping solution, you can rate-shop amongst the carriers, eliminate unnecessary overnight charges and avoid bad address charges, which can really add to your shipping costs.

9. Track and control postage. As postage and shipping costs continue to rise, you may really want to consider tracking postage costs by department. Most of today’s mailing systems have integrated accounting tools that will help you track the number of mail pieces sent and postage spent per department. Some of the latest systems even allow the user to view postage usage statistics online, as well as data exporting options and the ability to print color graphical reports by user-defined time periods. By taking advantage of even the simplest form of postage accounting, you can help better track and control your mailing costs.

10. Maximize each ounce. Finding ways to communicate your message is becoming increasingly expensive. However, if you have the room to spare in an envelope with its weight and thickness, why not add a tag-a-long marketing piece. With the new USPS rates in effect, it will actually cost less to mail a two oz. letter than it does today ($0.63 vs. $0.58). Therefore, why not take advantage of this change and add some additional marketing materials. It may not cost you any more, in fact, it may even cost a little less and your message is getting out to the customer through a different source.

The price increases and changes being introduced by the USPS will surely impact everyone, but they offer opportunities as well. It’s more important than ever that mail center operator’s work closely with their equipment suppliers in order to identify ways to better use their resources and organize their mailings to ensure increased productivity. IBI