August 26, 2017
By Linda Thomas Brooks, President and CEO, MPA—The Association of Magazine Media
USPS is opting for unprecedented rate hikes rather than efficiency
The United States Postal Service is an aging, but still powerful, beast. Under federal law, America’s mailboxes are the sole domain of the USPS, and many types of mail can only legally be delivered by the Postal Service. Indeed, by most any definition, the USPS is a monopoly, and if nothing else, it certainly acts like one.
Intentionally or not, monopolists tend to operate outside the bounds of competitive businesses. They often attempt to charge higher prices than competitive businesses do, and monopolists tend to have trouble controlling costs or operating, well, like a normal business.
The independent Postal Regulatory Commission (PRC) to this point has served as a check on the excesses of the USPS, protecting the American public and the many businesses and charities that have no choice but to rely on the Postal Service. The PRC regulates postal rates to prevent abuses of monopoly power.
If the USPS gets its way, that could change next month when the Postal Regulatory Commission decides whether to give the Postal Service virtually unlimited power to raise rates on its own. Current law requires the PRC to limit the prices charged by the Postal Service for its “market dominant,” or captive, mail products. These include magazines, charitable solicitations and other such mail that only the USPS can handle.
By law, Congress in 2006 capped the average price increase for each captive class of mail at the rate of inflation as measured by the Consumer Price Index (CPI). The PRC oversees and enforces this system. The Postal Service, which has chafed under the CPI price cap since its inception, is now demanding that the cap be eliminated and that it be empowered to set its own prices without limit and without supervision. To do something so drastic, one must justify the change, and so the Postal Service — year after year — relies on hyperbole to say that the sky is falling. Remember the threats of 5-day delivery? That came during 2010’s “cash crunch”. For the 2017 “cash crunch” , the Postal Service has trotted out much of the same dire language. In fact, if you Google “cash crunch and USPS,” you’ll discover an evergreen urgency, yet somehow the mail keeps coming.
This is because the Postal Service is not about to run out of money. On the contrary, it presently holds about 10 billion dollars in cash. Despite the price cap, Postal Service revenue increased to $71.5 billion in 2016, up from $65.2 billion in 2012. USPS has earned a positive operating income and generated about $3 billion in cash from operations to fund investments in each of its last three full fiscal years.
The Postal Service’s pension and retiree health benefit funds are already funded to cover decades worth of benefits. Corresponding retiree benefit plans offered by the vast majority of government and private sector employers in the United States would love to have USPS’s “problem.” Why, then, does the Postal Service claim to be teetering on the brink of insolvency? Because raising prices on captive consumers is easier than controlling costs. It’s that simple.
During and soon after the Great Recession, the Postal Service worked diligently to control costs and to improve productivity. But Postal Service productivity has been stagnant in recent years. Last year, it actually declined. In spite of all of this, as the Government Accountability Office has noted, the Postal Service has no new major cost-saving initiatives planned. The plan, evidently, is to feverishly plead for higher rates with no limits.
Despite clear evidence that postal employees are paid almost twice what private sector employees receive for comparable work, and a legal mandate for pay comparable to the private sector, the Postal Service’s labor costs have spiraled out of control. In one more recent example, USPS this year signed a labor contract with its largest union that includes three pay raises on top of cost-of-living increases.
Groups such as ours, along with the Alliance of Nonprofit Mailers and the Association for Postal Commerce, have been fighting to keep the CPI cap in place. If the PRC removes it, there will be no check on the Postal Service’s monopoly power. The real hit, though, will be to those who must rely on the Postal Service monopoly. Without the cap, Americans will see devastating increases in postage rates that will do grave damage to magazines, subscribers, and the countless charities that rely on the mail to fulfill their missions.
We’ve seen how a regulated monopolist acts. We don’t need to see how an unregulated one behaves. The Postal Regulatory Commission should keep the CPI price cap in place.
Linda Thomas Brooks has served as president and chief executive officer of MPA—The Association of Magazine Media since 2016. She is a seasoned communications expert who has developed media and marketing strategies for many well-known brands and companies, including General Motors, GEICO, The American Cancer Society, Johnson & Johnson, Kaiser Permanente and Experian.