Alliance Report – December 20, 2022

All we want for Christmas is light at the end of the USPS tunnel

Dear USPS,

You have been urging us to write to Santa. We thought we mailers should write to you to tell you what we want, no need, from you, our exclusive provider of mail delivery.

Right now you have us in a very dark tunnel, with no sign of light at the end.

Why, you ask, are we in a dark tunnel?

This table prepared by our friends at Quad tells part of the answer. Two years of being hammered with unprecedented rate hikes are enough to raise great concern among mailers who rely heavily on your exclusive mail service and pay a LOT in postage. We also are absorbing double-digit increases in paper and freight charges.

We’re talking about nonprofits whose largest non-program expense is postage. We rely on mail as our main service to raise funds, build our membership, and attract subscribers. Some of us raise most of our money by mail.

It’s one terrible thing to try to absorb 20%-23% on our letters, 35%-40% on our flats, and 24% on our periodicals. What makes things even worse is that you are not giving us any specific guidance, or hope, that the carnage will end and when we will get back to normal rate increases.

Making matters much worse, you are raising rates twice a year for the first time in USPS history. You know that this causes significant disruption and wasted costs to mailers and the mailing industry. Apparently, the dollar signs you see in compounding like a loan shark outweigh the hurt you know you are putting on your mailer customers.

In your “Delivering for America” blueprint that you released with a flourish in March 2021, you promised that it would return USPS to breakeven by Fiscal Year 2023. At the November 10th board meeting, Postmaster General DeJoy said, “Unfortunately, with all that has been accomplished financially, our 2023 budget will not show the breakeven results we were striving for.”

You later posted a financial plan, two months into the fiscal year, budgeting a $4.5 billion loss. It is very disappointing to your customers that you broke your promise two years in. Even worse, you largely blamed “inflation” as the cause.

For over a decade we mailers have heard USPS leaders complain that inflation was too low, thereby limiting your rate hikes to unacceptably low levels. Now that inflation is the highest it’s been in 40 years, you are again blaming inflation. You are blaming the generous cost of living allowances that you negotiated with the postal unions.

Here’s what your plan says: “Controllable expenses in 2023 are planned to increase by $1.4 billion (1.8%). The biggest contributor to this increase is an expected increase in compensation and benefits expenses due to inflation, despite a planned decrease of 32 million work hours.” So, if you’re not successful in cutting 32 million work hours, the loss will be worse than the plan.

Worse than the dismal 2022 results and 2023 plan, is the fact that we mailers have no idea when the financial benefits of DFA will kick in, and how much relief, if any, we customers can expect. We have little visibility into how your plan to remake the USPS network will save money, improve service, and make USPS a better service provider.

On top of the murky status of the plan, you have been implicitly threatening “stakeholders” that we must support every aspect of the full DFA plan or face even worse consequences. At the November 10 board meeting, the PMG said: “As I have said before, this means change — a lot of it — and it takes time. With stakeholder cooperation, this will take five years to mostly accomplish. Without stakeholder cooperation, a lot longer.”

At this point, we mailers have little to no idea:

  • when USPS will get to breakeven,
  • when rate hikes will be normal and predictable, and
  • how the DFA plan will save USPS money and make it more efficient.

Faced with almost complete uncertainty, and no apparent USPS empathy for the needs of loyal customers, what do you think mailers are doing? Would it make sense for mailers to be reevaluating their future commitment to mail? Of course, it does. And neither USPS nor your regulator knows how much is going on and when it will hit mail volume.

Your apparent reliance on historical “price elasticity” models works well in the immediate regulatory environment. Your complete lack of visibility into what your customers are thinking, evaluating, and planning for the longer term, combined with mailers’ lack of transparency with your DFA plan is potentially a formula for disaster.

Understanding your long-time mailers, involving us in the revival of USPS, and attempting you retain us as customers will work much better than the current path.

Please create some bright light at the end of the current tunnel so that we can help you create a bright future for USPS. Happy Holidays, Your Mailers


Alliance files with PRC to stop another USPS accounting fast one

Your Alliance filed another petition to stop yet another accounting sleight of hand by the United States Postal Service. This time the Postal Service wants to stop counting the annual accrual of USPS retiree health benefits obligations as a normal cost in the regulatory framework. The initial reaction of the Postal Regulatory Commission was to agree with its sister agency.

Recall that we recently won at the PRC with our petition to stop USPS from ignoring the $57 billion in savings from the Postal Service Reform Act. We sent you an Alliance Alert on December 9. USPS filed a petition on December 12 to initiate a proceeding in another attempt to pull the wool over the savings. The Alliance will oppose.

It is important to understand that neither of these petitions will impact January 22, 2023, CPI-based rate increases. The benefits of the petitions will start accruing with the expected July 2023 semi-annual rate escalation.

The Postal Service’s proposed approach — not attributing retiree health benefits normal costs — would reduce work share cost avoidances and ultimately work share discounts. Many nonprofit mailers benefit from work-sharing discounts

Our petition would continue the established approach — attributing RHB normal costs using a composite labor key — used in prior years. It also would stop USPS from changing the costing rules without going through the required petition process, an important precedent.

Our petition describes the “real-world” impact of PRC acquiescence to the USPS scheme:

The Approach Authorized In Order No. 6363 Would Have Harmful Real-World Consequences

 Finally, failing to accrue the RHB normal costs in the year that they are earned would have real-world negative consequences. Most importantly, failing to do so would violate economic principles of cost causation embodied in the PAEA. Economic costs are the foundation of postal cost accounting, and the economic costs of postal workers include RHB normal costs.

Omitting an earned and accrued cost from postal accounting would mean that the costs do not accurately reflect economic costs. That in turn would lead to inefficient rates. This is particularly relevant for worksharing discounts, for which efficient costing and pricing requires the use of economic costs. Omitting a portion of the direct and indirect labor costs from the calculation of avoided costs would unavoidably result in underestimates of cost avoidances, which in turn would lead to inefficiently priced workshare discounts. It could also result in erroneous conclusions that some discounts exceed their avoided costs, triggering rate adjustments that would result in much less efficient rates.

The resulting harm would be lasting. It could not be mitigated even if the treatment of normal costs were to be corrected in a future year. Under the workshare rules, current discounts are used as inputs in establishing subsequent discounts. Distortions in current discounts, even if temporary, would thus result in future distortions, notwithstanding any correction of the treatment of normal costs in the future.

It’s time to stock up on Forever Stamps

Some savvy Alliance of Nonprofit Mailers members use First-Class Forever Stamps on outbound and/or return mail for their best donors. Their experience shows positive results.

But the cost of Forever Stamps keeps going up. One way to mitigate the escalation is to stock up on Forever stamps when you know the price is going up.

The price will go up 5% from 60 cents to 63 cents on January 22, 2023. It makes sense to stock up now, keeping in mind that the rate will likely go up to 65 cents in July 2023, barring unforeseen circumstances.

USPS now has 48 Forever Stamp designs that you can peruse here.