Postal Regulatory Commission’s Proposal Recommends USPS Raise Postage

Source: USPS

The Postal Regulatory Commission (PRC) released a report on Friday that gave a green light for further postage increases.

The PRC was formed by the Postal Reorganization Act of 1970, with expanded responsibilities under the Postal Accountability and Enhancement Act of 2006. Its main purpose is to provide policy and guidance to the United States Postal Service.

This statutorily mandated 10 year review of the system for regulating mail classes, rates was established in 2006 by the Postal Accountability and Enhancement Act (PAEA).

The law required PRC to review the past ten years considering 14 factors established by Congress. While USPS is considered an independent federal agency and not part of the regular federal budget, Congress still maintain full control over postal policies and operations.

PRC’s review of the past 10 years did find that USPS made some significant improvements on all levels. Of course, a reduction of 1st class mail and reduction of bulk mail advertising has led USPS to deal with some problematic fiscal challenges.

In addition, Congress required USPS to fully pre-fund pension plans, a scheme not used by most private enterprise or public sector agencies.

Source: USPS

USPS had a 10 year challenge of balancing increases in cash flow expenditures and losses in highly profitable revenue mail classes. There was even a plan to end Saturday delivery by USPS in 2013 to reduce the red ink.

In 2013, to attract more parcel deliveries which may become the future of many postal systems worldwide, USPS signed a special deal with Amazon to offer Sunday delivery.

This deal, often seen as a positive move by USPS to attract more parcel deliveries, also has come under fire for potentially providing government subsidized shipping to Amazon.

The PRC Report

What does the PRC report from Friday say and what does it suggest USPS implement to achieve further efficiencies.

  • The system was largely successful in achieving the goals related to the structure of the ratemaking system. However, the Commission concludes that the ratemaking system has not increased pricing efficiency.
  • The system has not maintained the financial health of the Postal Service as intended by
    the PAEA. While the Postal Service has generally achieved short-term financial stability,
    both medium-term and long-term financial stability measures have not been achieved.
  • High quality service standards have not been maintained during the past 10 years under
    the PAEA.

To fix these problems, the commission proposes USPS enact a two-pronged approach to further stabilize financials and efficiencies.

  1. Two percentage points of rate authority per class of mail per calendar year for each of the first 5 full calendar years following the effective date of these proposed rules.
  2. Up to 1 percentage point of rate authority per class of mail per calendar year, contingent on the Postal Service meeting or exceeding an operational efficiency based standard and adhering to service standard quality criteria.

The full press release can be found here, and it includes a few other findings and proposals. But the critical point for eCommerce sellers are the rate increases.

Industry Urged Against Rate Increases

It should not come as a surprise that industry groups urged against rate increases. Even if the proposed increases are less than UPS and FedEx proposed for 2018 and typically would be lower than other annual rate increases by those carriers.

“The more-than-doubling over 5 years at current inflation rates proposed by the commission would be harmful to postal customers and the Postal Service. Once mail leaves, it rarely comes back”

Art Sackler, manager of the Coalition for a 21st Century Postal Service, a broad trade group that includes mailers such as Amazon and the National Retail Federation. AP

A major point by Sackler is that price-sensitive consumers will move even further to online communications, thereby, decreasing postal revenue further.

ebay logoOther Groups, including eBay and Netflix, and the National Greeting Card Association had urged PRC to refrain from pricing changes.

They suggested other measures, such as asking Congress to remove the requirement to pre-fund pensions plans to reduce cash flow implications.

The PRC’s plan now will go through its public comments phases, only taking effect in spring if there is no substantial blowback from the public, businesses, and most important Congress.

As an independent federal agency that has lost money for 11 years straight, it is hard to believe revenue increases are not going to be part of a plan.

And while Postmaster General Megan Brennan isn’t even sure this is the right approach, it will be up to the commission and Congress to set the policy.

What do you think about this proposal by the PRC? Drop us a line in the comments section below.

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