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Are we dreaming?

Postal reform works. The rate hike that takes effect May 12 is the lowest in memory: an average of 2.88%. And some mail classes are getting even less than that.

Welcome to the newly empowered U.S. Postal Service. Like any business, it raised rates in some areas and flattened them in others to reflect market conditions.

Get used to yearly hikes, though. There'll be another increase next May and one the year after that. But all will be in line with the rate of inflation.

“We're pleased,” says Jerry Cerasale, the Direct Marketing Association's senior vice president for government affairs. “We were used to 8%, 9% or 10% increases.”

“Any raise in rates is significant to mailers, and nobody is happy about it,” adds Bob McLean, executive director of the Mailers Council. “But it certainly is easier to plan for.”

He's right about that — you'll have fair warning. The hikes are pegged to the Consumer Price Index as it stands in January each year. And, Cerasale adds, “the expectation is that they'll keep the same timetable,” meaning January or February notification and May implementation.

Why May? Because the USPS apparently listened to its customers.

“We didn't want it to come in January or during the holiday mailing season — that would play havoc,” Cerasale continues. “Our hope was to have increases in time for the fall planning season. June or early July were ideal. But May's OK.”

The USPS doesn't deserve all the credit for the single-digit boosts — it's simply obeying the Postal Accountability and Enhancement Act, the reform bill passed in 2006. But it has done “a really good job of trying to fit everything within the law,” Cerasale says.

Some of the bones being thrown to mailers are permanent. Others are for this year alone.

For starters, the USPS has asked for an increase of .86% for standard mail flats. And flats mailers deserve the break. They were hit with boosts of up to 40% last time, which brought about a 13% decline in catalog mail volume during the first quarter of this fiscal year.

In contrast, the price for automated letters at the three-digit and five-digit levels is rising by as much as 4.19%.

What else?

“It looks like the USPS is favoring enhanced carrier route mail,” Cerasale observes. “Those mailers may get consistently lower rate increases.”

Meanwhile, the USPS has announced some changes that will make its shipping services more competitive (it does not have a monopoly in this area).

For example, Express Mail is moving to a zone structure similar to those of UPS and FedEx. And the USPS will start charging for Sunday delivery, a service not offered by the other two.

“[The USPS is] even giving discounts for getting the postage online, so there's some discounts to match the competition,” Cerasale says, adding that the new rates clearly favor mailers that drop-ship products and do not rely on postal transportation.

Currently, postal customers pay the same price per piece regardless of the number of packages sent or the method of payment. But next month they'll be offered commercial volume pricing, online price breaks and other incentives.

Specifically, mailers will receive a 3% price reduction by purchasing services online or through corporate accounts. An additional 7% discount is available for those that meet quarterly volume minimums. And Priority Mail, the USPS' expedited delivery service, will be available at an average 3.5% savings to customers that use electronic postage or meet other requirements.

Parcel Select will feature pricing and volume incentives for large and medium-size packages. Parcel Return Service will move entirely to a weight-based pricing system, resulting in significant price reductions for lighter packages.

So what's the final verdict?

Not everyone is thrilled with this gift from the USPS. Some catalog mailers feel it's too little too late given the recent hikes, the 20% higher paper and transportation costs and “the economic slowdown all retailers are facing,” Cerasale points out. And there's no guarantee they'll get tiny rate boosts every year.

Indeed, observers like Charley Howard, Harte-Hanks' vice president for postal affairs, believes the USPS should have lowered the standard flat rates.

Cerasale explains that the postal service had to balance flats and letters, and probably felt it couldn't lower catalog rates. “If they wanted the money, they needed the revenue source,” he says. “They're in the process of testing how good their elasticity models are.”

Then there's everyone's worst fear: That inflation will skyrocket.

But those aren't the only quibbles.

Parcel and non-flat machinable rates are rising by an average 9.66%. And if you dig deeper into the schedule, you may see some costs leaping by 12% to 15%, Cerasale warns.

Non-flat machinable pieces are often used by nonprofit groups to send premiums like tins and rosaries. These pieces must be processed manually, and the USPS is signaling that “it doesn't want to handle those,” Cerasale notes. “I don't see any help coming.”

And nobody is happy about the timing of the non-flat machinable increase. “With the flexibility given the USPS by the new reform bill, they could have at least phased these rates in,” he adds.

Oh, we forgot: The price of a first class stamp will go from 41 cents to 42 cents.

Yet whatever its imperfections, most industry advocates are happy with the first post-reform rate change.

One is Tony Conway, executive director of the Alliance of Nonprofit Mailers, and with good reason. Some nonprofit mailers' postage went up last year by 200%, he says.

He cautions that some mailers will still be hit harder from year to year.

“In each class the USPS has the flexibility to raise certain subclasses of products higher and some less than the Consumer Price Index,” he says.

Don Harle, vice president of postal affairs for Diamond Marketing Services and co-chair of the Mailers Technical Advisory Committee, praises the reform bill because it more or less guarantees small, predictable rate increases.

Finally, some laud the new ratemaking process for its convenience.

“The rate increase will go into effect without mailers having to spend tens of thousands of dollars to participate in a rate case,” McLean says.

Cerasale agrees. “I'm not sitting here with testimony interrogatories and briefs,” he laughs. “It's helping my eyesight.”

For the latest postal news, visit http://directmag.com/legal/postal/.