How Postal Rates Are Set

Think about your favorite newspaper or magazine. The price you pay at the corner newsstand does not cover the total cost of production, distribution and printing. Additional money has to come from somewhere and that "somewhere" is from advertisers. In effect there is a trade. You pay less for your publication in exchange for the advertiser's right to buy space and showcase a product or service.

It works much the same way with the postal system, but with one major difference: There are strict rules which protect individual postal users from rate gouging.

The U.S. Postal Service charges different rates for different classes of mail, but only because there are different costs associated with the collection, sorting and distribution of each one.

For example, when a first class letter to Seattle is dropped off at a corner mail box in Sarasota, the letter is collected, sorted at a local post office, sent to a regional distribution center, delivered to a second regional distribution center, shipped to another post office, sorted for individual carriers and sorted by each carrier for his or her route.

With advertising mail the situation is different. Rather than dropping a letter into a corner mail box, advertising mailers commonly deliver their letters and catalogs to special Postal Service facilities. And instead of having the post office collect and sort the mail, advertisers do much of the work themselves. They deliver their mail directly to the post office and the mail they deliver is specially arranged, sorted, packaged and bagged.

In other words, advertising mailers only qualify for lower rates when they handle many of the tasks normally performed by the Post Office. There is no free ride for advertising mail and no discount that is unearned.

Advertising rates also are less expensive than first class mail because the post office provides fewer services. For instance, first class mail must be dispatched by the Postal Service in less than 24 hours. With advertising mail, the Postal Service can defer handling until its work load permits. In addition, advertising mail, unlike first class, is not forwarded or returned to the sender (if undeliverable) without more fees. As to privacy, first class mail can be opened only by the addressee or by court order. This protection is not available to advertising mail.

Setting postal rates is a complex process, but in each case two basic rules must be followed:

* All rates must be low as possible.

* Each class of mail to must pay its own way.

This means no class pays more -- and no class of mail pays less -- than it should. The law prohibits one class of mail from subsidizing another.

Over the years, advertising mail has become crucially important to the Postal Service. Today advertising mail represents roughly 40 percent of all the mail that's delivered -- a huge volume of activity that actually lowers the cost of mail for everyone.

How? Imagine that a letter carrier normally has 10 pieces of mail to deliver each day to homes on his or her route. If advertising mail were suddenly eliminated, the carrier would have only six items to deliver and the Postal Service would have a big problem.

The Postal Service not only delivers a lot of advertising mail, it also collects billions of dollars from advertising mailers. Even without advertising mail, the Postal Service still must operate the routes, distribution centers and other facilities needed to serve 128 million possible delivery sites.

In short, many of our mail system's operating costs are fixed. If the volume of mail falls, the cost of operating our nation's postal system must be paid by fewer users. Postal rates, as a consequence, would have to rise.

Not only would postal rates increase if advertising mail were eliminated, but retailers and merchants who depend on advertising mail would also see sales fall because less advertising means reduced revenues. Retailers would buy less from wholesalers, and wholesalers would order less from factories. At every level, there would be fewer orders. And when orders decline, employment levels will tumble.

A drop in advertising mail would hurt not only business, it would also harm the many causes and concerns we value. Environmental groups, retirement organizations, colleges and schools, medical research organizations, religious congregations and other nonprofit groups would have to pay much more to communicate with those they serve. Every dollar spent on rising postal rates would mean one less dollar available for vital educational, scientific and charitable services.

The truth is that advertising mail, like other forms of advertising, is crucially important in a free-market economy. Eliminate advertising mail and postal rates would soar, tax subsidies would be required, unemployment would rise and the economy would be less efficient.

Peter G. Miller is an image, marketing, and public relations consultant whose clients include selected national corporations, associations, and web sites. Mr. Miller can be reached at peter@boardroomarts.com