The United States Postal Service (USPS) filed notice with the Postal Regulatory Commission (PRC) under the cover of a holiday weekend on Friday, requesting rate increases of 6.9% on average, with different categories ranging from 5.7% to as much 14.6%. New rates would take effect on Aug. 29.
First-Class Mail prices would jump by 6.8% to offset declining revenue. Mail volume in the past decade has decreased 28%, or about 46 billion pieces, and continues to decline, including a 32% decline in First-Class Mail volume and 47% drop in single-piece First-Class mail volume.
Postal rates rose by an average of almost 2% in January. This latest rate hike is part of “Delivering for America,” the USPS’ 10-year plan to achieve financial sustainability and service excellence released in March.
“For the past 14 years, the Postal Service has had limited pricing authority to respond to changing market realities,” Postmaster General & CEO Louis DeJoy said via a statement. “As part of our 10-year plan to achieve financial sustainability and service excellence, the Postal Service and the Board of Governors are committed to judiciously implementing a rational pricing approach that helps enable us to remain viable and competitive and offer reliable postal services that are among the most affordable in the world,” he said.
The Postal Accountability and Enhancement Act (PAEA) of 2006 capped price increases for mailing services at the Consumer Price Index (CPI), the rate of inflation. The PAEA also required the PRC to evaluate the price cap system 10 years after the date of enactment and to modify or replace the system if it was not meeting objectives of the law, which resulted in the “Delivering for America” report.
In November, the PRC announced new rules of market-dominant prices, allowing inflation price increases on the basis of certain factors and allowing the USPS more flexibility in establishing prices for mailing services. The ruling allowed the Postal Service higher rate authority in establishing prices for mailing services, above the rate of inflation. “Aligning our prices for market-dominant products will allow us to grow revenue and help achieve financial sustainability to fulfill our universal service mission,” USPS Chief Financial Officer and Executive Vice President Joseph Corbett said.
USPS estimates it would have generated $55 billion in cumulative gross revenue since 2006 based on the density rate authority of the recent PRC ruling. The PRC allows for above-inflation rate authority based on density (4.6%), non-compensatory mail (2%) and retirement costs (1%).
According to the USPS, the 10-year plan is designed to reverse a projected $160 billion in operating losses over the next decade, including proposed pricing changes, together with necessary legislation, that would allow $40 billion over the next 10 years to modernize and improve infrastructure.
Almost two-thirds of the $160 billion identified in Delivering for America will require approval from Congress and the PRC. Postal increases above the rate of inflation would account for $44 billion of the $160 billion, according to ANM, and likely accelerate the exit by mailers from the postal system.