On May 14, 2007, the U.S. Postal Service changed its pricing to take into account the shape of a letter in addition to its weight. The change reflected the fact that mail that is large, thick, rigid, square or unusually shaped in other ways is handled differently than regular, letter-size envelopes, which costs the post office more money.
[1]
[edit] What are the new regulations?
A) Envelopes that are oddly shaped, larger than 11.5 inches x 6.125 inches (even if they only exceed one of the dimensions) or more than .25 inches thick are considered 'large envelopes', or 'flats'. [2]These pieces now require approximately twice as much postage as regular-sized envelopes of the same weight - a piece weighing 1 ounce costs $0.83 instead of $0.42. [3]
B) Envelopes that are larger than 15 inches x 12 inches are classified as packages[4] and therefore pay even higher rates - a 1-ounce package costs $1.17.[5]
C) Any envelope that is square, rigid, or has certain non-machinable characteristics is subject to a $0.20 charge in addition to whatever postage is due from the weight and shape.[6] This charge originated because the USPS was having to manually handle 70% of the 1.6 million-per-day (as of December 2007) square-shaped DVD mailers used by Netflix (NFLX) although Netflix (NFLX) did respond by changing their envelopes so that they are no longer square and therefore not subject to the charge.[7]
[edit] Who benefits?
- PITNEY BOWES (PBI), Francotyp Postalia and Neopost are mail processing companies that will benefit from increased demand for hardware and services that either a) calculate the correct postage for given pieces of mail using the complex new rules or b) help create mail that is shaped or folded in a way that gives it a cheaper postage classification.
[edit] Who loses?
- Online retailers, like Amazon.com (AMZN), Overstock.com (OSTK) and others could face higher costs from the new regulations because their businesses rely heavily on shipping variously-shaped pieces through the mail. These costs could also be passed on to customers through increased shipping fees if the companies so choose.
- Direct-mail marketing firms will similarly face increased mailing costs. However, these companies could also take advantage of the fact that letter-size envelopes are much cheaper than the alternatives and could actually lower their total postage bills by modifying their practices - for example, by folding their pieces into a regular envelope shape or sending one monthly consolidated mailing to a given address instead of multiple individual pieces within a short time.
- Netflix (NFLX) was required to redesign its popular square DVD mailers in order to avoid paying the $0.20 square surcharge on each of the 1.6 million DVD's (as of December 2007) it sends every day. It is estimated that Netflix's mailers cost the USPS $41.9 million in labor costs over the 2 years prior to the change.[8]
- Any firm that is unable to change their mailings into more efficient shapes (or doesn't send enough mail to warrant the effort to do so) will be hit with higher mailing costs, but for firms that don't particularly send a lot of mail as part of the nature of their business, this increase in costs won't have a big impact on their overall bottom line.
- ↑ Business Wire - U.S. Postal Service's Shape-Based Pricing To Dramatically Alter Rate Structure, February 12, 2007
- ↑ USPS.com - A Customer's Guide to Mailing: What Are You Mailing?
- ↑ USPS.com - A Customer's Guide to Mailing: Prices
- ↑ USPS.com - A Customer's Guide to Mailing: What Are You Mailing?
- ↑ USPS.com - A Customer's Guide to Mailing: Prices
- ↑ USPS.com - A Customer's Guide to Mailing: Prices
- ↑ The Boston Globe - Post Office surcharge could slash Netflix profit, December 7, 2007
- ↑ MSN Money - Top Stocks: Post office seeing red over Netflix envelopes, December 6, 2007
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