WASHINGTON A postage rate cut that promised to save banks $26 million, partially offsetting the Jan. 7 first-class letter rate increase, may be short-lived.
Though the U.S. Postal Service increased the cost for first-class letters weighing 1 ounce by a cent, to 34 cents, the industry took comfort in a simultaneous 1-cent decrease in the cost of each additional ounce, to 21 cents.
Industry officials are now worried, however, that the Postal Services rate-setting panel may reverse course and recommend a 1- or 2-cent increase for each additional ounce of first-class letters, said Irving D. Warden, associate general counsel of the American Bankers Association.
Such a hike would particularly hurt banks because account statements often weigh more than an ounce.
A conservative estimate based on our survey of banks shows that every extra penny on the additional-ounce rate costs banks an additional $26 million a year, Mr. Warden said.
Banks mailed 7.9 billion pieces in 1999 at a cost of $2.6 billion, according to an ABA study. Of these mailings, 69% were statements and 35% weighed more than 1 ounce.
Observers said persuading the rate-setting panel, the Postal Rate Commission, to refrain from raising prices will be a challenge because it is under pressure from senior officials.
The Postal Service Board of Governors in December asked the commission to reconsider the method it uses to calculate rate changes. Though a Dec. 20 Postal Service memo did not specifically ask for an increase in the additional-ounce rate, Mr. Warden said that adjustments to the formula would likely increase the additional-ounce rate.
The Postal Service said that it is facing a budget shortfall in fiscal 2001 if the cost of each additional ounce remains at current levels. Its December memo said that the rate changes as put into effect in January will result in $726 million of lost revenue. A Postal Service spokesman said losses of $480 million had been expected even before the rate adjustments earlier this month.
It is uncertain when the commission will make a recommendation.
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