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The following article is written by John Vavra, President and CEO of Hasler, Inc. and came to us as a memo from him.

On December 20, 2006, the Postal Accountability and Enhancement Act (PAEA) was signed into law by the President of the United States (http://www.usps.com/postallaw/). This act represents the first major legislative change to the United States Postal Service (USPS) since 1971.

What is it?

One of the most significant provisions of the PAEA was the requirement that the newly formed Postal Regulatory Commission (PRC) establish a modern system of rate making within 18 months. Late last month the PRC released the new rules for setting rates some eight months ahead of schedule. This means that the USPS will be required to use this rate change process after December of this year.

This new system provides the USPS with the pricing flexibility necessary to maintain its viability in the marketplace. This means that the USPS now has the ability to change its rates with as little as 15 days notice!

The Act also established two categories of postal products, each with its own set of rate change timeframe rules:

• Market Dominant Products – includes products that the USPS holds a monopoly position. These include First Class, Periodicals, Standard Mail and special services. Market Dominant product rate increases are limited/capped at the annual unadjusted All Urban Consumer Price Index average for the past 12 month period. For example if this CPI averaged 3% over the last 12 months, the USPS could raise the price for any or all of the Market Dominant products by providing PRC and public notification of its intentions 45 days prior to their planned effective date.

• Competitive Products – includes products where the USPS faced direct competition. Express Mail, Priority Mail, Parcel Select and Intra and Inter BMC rated parcels fall under Competitive Products. In the Competitive area they can change prices with 30 day notification and are not bound by the CPI price cap. Additionally, they also have the option of offering regional pricing for these products with 15 days advance notice.

From talks we have had with senior postal managers at the USPS about their pricing plans, it is clear that they intend to use this new pricing flexibility as part of their market strategy. They will move to annual increases for Market Dominant Products similar to UPS and FedEx (although they could change prices in this category more than once a year provided the total increase is less than the Urban CPI cap). They also indicated they plan to move aggressively in the Competitive Product category in order to recapture lost market share.

Furthermore, they made it very clear that incentives/volume discounts/postage rebates are all possibilities provided the customer could electronically provide transactional level details to support the price reduction.

What does this mean?

Now that the USPS has the ability to change their rates quicker and with reduced notification time to vendors, it is important that customers have the ability to receive their updated rates faster than in the past. Another factor to consider is that we need to prepare our customers for more frequent price changes by the USPS beginning in early to mid 2008 and we need to be certain that they understand both the potential for flexible pricing options as well as the electronic data requirements.

With these new developments introduced by the PAEA, it is very important that our mailing systems have the ability to update rates electronically and transmit mailing information to the USPS in order to qualify for any new pricing options. This is where Online Services can provide the end-user with the most efficient and flexible solution in light of these new USPS changes and requirements.

As more developments come out of the Postal Accountability and Enhancement Act, Hasler, Inc. will be sure to keep you updated.

Contact your San Diego Postal & Shipping Equipment Representative to learn how your mailing system can be set up to receive these updates electronically… sales@sdpostal.com or call 800 545-0437