In a December 29 filing at the Postal Regulatory Commission, the United States Postal Service expressed its intention to continue using its full rate authority to increase prices for Market Dominant mail every six months:
Schedule for Regular and Predictable Rate Adjustments – Effective through Calendar Year 2026
Subject to the approval of the Governors, the Postal Service next expects to implement price changes for all Market Dominant classes on July 14, 2024, with the filing occurring in April 2024. The Postal Service intends to be judicious in the use of available pricing authority, but anticipates the prospect that the price change for each Market Dominant class may be required to apply most or all pricing authority available on the date of filing, given our legal obligation to be financially self-sufficient and our current progress under the Delivering for America Plan to improve customer service and to achieve significant cost savings through operational precision and efficiency, consistent with the fundamental goals of the Plan to provide service excellence while also achieving financial sustainability.
Likewise subject to the approval of the Governors, the Postal Service expects that, in each subsequent year, it will implement price changes for all Market Dominant classes in January and July of such year, with the filings occurring the preceding October and April, respectively. The Postal Service intends to be judicious in the use of available pricing authority in these subsequent years depending on the success of the initiatives we are pursuing to grow revenue through improved product offerings and service, to improve efficiency and to reduce costs, but anticipates the possibility that the price adjustment for each Market Dominant class may be required, and that we may be compelled to apply most or all pricing authority available at the time of filing if the above-described initiatives do not result in sufficient improvement in our financial condition.
The early April filing for July 14 rate increases will be driven by five factors:
The first 3 months of CPI have been published by the PRC at 0.829%. We can assume 6 months will be about twice that amount or 1.6%. The unused rate authority in the “bank” is a meaningless 0.001%. The density add-on is based on the decline in mail volume the fiscal year before times approximately 45%, which USPS calculated at 4.312%. The retirement add-on was set by the PRC at 1.812%. The non-compensatory add-on was also set by the regulator at an arbitrary 2%.
The compensatory classes of Mail, First-Class, Marketing, Package Services, and Special Services will be allowed to increase in July 2024 by approximately 1.6% + 0.001% + 4.312% + 1.812% = 7.725%.
The non-compensatory class of Periodicals will be allowed an increase of 2% more or about 9.725%. And non-compensatory products within a compensatory class, primarily Marketing Mail Flats, will be going up 9.725% or more.
Keep in mind that these are all hard numbers except for half of the 1.6% CPI. The actual CPI component will be revealed with the January 11, February 13, and March 12 releases by the Bureau of Labor Statistics. If the Federal Reserve continues to succeed in reducing inflation, the CPI should be lower.
An astonishing 55% of the July 2024 rate increase will be driven by one factor: the density add-on which is determined by how much mail volume drops in the prior fiscal year. The Alliance and other mailer groups have warned that this reward for declining business is the wrong incentive for a supposedly business-like self-funding agency.
The fact that USPS is getting no increase in total operating revenue from record rate increases confirms the validity of that warning. We are witnessing a classic death spiral.
Fortunately, the PRC announced when it approved the January hikes that it will soon be reopening the consideration of the rate add-ons that it instituted in November 2020. This is in response to requests by the Alliance and other mailing associations and will happen not a moment too soon.
The Postal Service set itself up with an easy-to-beat financial plan for FY 2024: to lose $6.3 billion after losing $6.5 billion the prior year. Postal managers did this because they grew tired of constant criticism for missing last year’s plan: originally breakeven in the Delivering for America plan and then a loss of $4.5 billion in the Integrated Financial Plan. Last year the agency missed the plan by either $6.5 billion or $2 billion.
Already, two months into this fiscal year, the agency is losing over $1 billion, missing plan by $581 million, and under the same period last year by $681 million.
The agency is on track to replicate or do worse than last year’s loss of $6.5 billion: it is losing $125 million a month or $18 million a day.
Three years into the ten-year plan the losses are staggering. Punitive rate increases every six months are sending mail volume spiraling downward.
Market Dominant mail volume in the first two months is down 12.3% while Competitive package volume is up 6.5%, leaving total volume down 11.5%.
Operating revenue is up only 0.4%, and short of plan by 0.4%. Work hours are down 1.8%, a fraction of the decline in volume, and total operating expenses are up 2.5%.
Of course, it is early in the year and things could turn around. Package volume is growing. While Market Dominant mail revenue is down 1.7%, Competitive package revenue is up 4.0%.
For several years, the Alliance of Nonprofit Mailers has pointed out that the “self-funding” agency goal set for USPS when President Nixon signed the 1970 Postal Reorganization Act cannot work in today’s environment. Annual public service appropriations to cover all the non-businesslike functions required of the essential public Postal Service were phased out by 1980.
USPS enjoyed prosperity in the 1980s and 1990s as mail volume doubled from 100 billion to 200 billion in an unprecedented and never-to-be-repeated boom cycle for postal mail. This led many to believe that the self-funded model was a success. Indeed, Congress doubled down on the model in 2006 with the Postal Accountability and Enhancement Act, increasing incentives to make and retain profits while requiring reporting based on the Securities and Exchange Commission model for private sector businesses.
Now USPS volume is set to drop below 100 billion by FY 2025, 45 years after it first reached that milestone. The self-funding model is no longer working for USPS.
The current Delivering for America manifesto is a last-ditch attempt to make self-funding work by enabling the USPS agency to out-compete UPS, FedEx, Amazon, and a host of other package delivery services. The vision hopes to make so much money from package delivery that the agency is solvent despite rapidly declining mail volume.
Supporters of the private sector capitalist model for government have been slow to change their advocacy for the self-funded USPS. That changed with Kevin Kosar’s opinion piece in The Atlantic two weeks ago. Titled “The Postal Service Wasn’t Built for Boxes,” the article champions businesslike efficiency and competitiveness, but also recognizes that packages won’t close the gap.
Kosar is a Senior Fellow at the American Enterprise Institute who closely follows postal policy. AEI describes itself as follows:
The American Enterprise Institute is a public policy think tank dedicated to defending human dignity, expanding human potential, and building a freer and safer world. The work of our scholars and staff advances ideas rooted in our belief in democracy, free enterprise, American strength and global leadership, solidarity with those at the periphery of our society, and a pluralistic, entrepreneurial culture.
Kosar concludes his piece very clearly agreeing with our support for a return to USPS annual appropriations for public service:
The U.S. Postal Service is, as the saying goes, too big and too important to fail. Americans and our legislators in Congress need to think hard about what we want from the Post Office in the 21st century, and then enact policies to pay for it.
On the cost side of the ledger, Congress could start by adjusting the USPS collective-bargaining process to curb the long-term growth in employee-compensation costs. It also could permit the agency to invest a portion of its retiree health benefits and pension costs in index funds rather than U.S. Treasury bonds, which earn a paltry return. The agency’s inspector general has shown that this change would do a lot to shrink unfunded employee-benefit costs.
As for revenues, Congress should give the agency an annual appropriation. Hauling mail to and from Alaska, for example, is not cheap, nor is staffing post offices in remote communities. But the Postal Service can’t opt out of its universal mail program, and that bleeds the agency of perhaps a few billion dollars a year. Congress should annually reimburse the agency for this expense. A few billion dollars is a rounding error for the federal government, which spends more than $6 trillion a year. (And it is less than the $7.5 billion NASA spent on space exploration last year.) With this kind of support, the Postal Service has a real chance at not only covering its operating costs but clearing a modest profit, which in turn could be put toward further investments in modernization.
If we as Americans want post offices to continue to exist, shouldn’t our tax dollars cover some of their cost? Shouldn’t the USPS be compensated for maintaining the infrastructure to deliver medicines during a national emergency, bring mail to rural areas, help us apply for our passports, and carry our ballots? Packages could well be the future of the Postal Service, but they won’t be enough to save it.
We expect that public support will grow for public funding of the essential public service role of USPS. It will grow in proportion to the extent to which the package-first strategy of DFA, combined with punitive rate increases on Market Dominant mail, proves to fall short of financial stability for the agency. Congress will need to make a major public policy change to postal law. The sooner the better to avoid an all-out crisis.
Many nonprofit mailers have experienced deteriorating USPS service, especially for First-Class Mail. The agency has continued to pump out press releases putting the best possible spin on a bad situation. This is small consolation for nonprofit fundraisers that experience much lower response rates to their year-end campaigns because of much slower First-Class Mail service, for example.
The agency kind of acknowledged its poor service in a December 29 press release. It’s difficult to spin data such as:
FY24 first quarter service performance scores covering Oct. 1 through Dec. 22, included:
But of course, the agency had causes outside its control to point to:
Operational disruptions within our network, including insourcing of several Surface Transfer Centers after a supplier bankruptcy, and the extended shutdown of a critical St. Louis, MO processing facility due to a mercury leak from an illegally shipped package resulting in a lengthy decontamination period, have and will continue to negatively impact our service performance scores through the end of this month.
Additionally, as anticipated, we have seen a significant growth in package volume throughout the nation during this peak season time period.
The Postal Service also reminded us that they only promised better service when the DFA plan is fully implemented, and not sooner:
One of the goals of Delivering for America, the Postal Service’s 10-year plan for achieving financial sustainability and service excellence, is to meet or exceed 95 percent on-time service performance for all mail and shipping products once all elements of the plan are implemented. (Emphasis added.)