The ‘First Do No Harm’ Rate Increase for 2020

October 22, 2019 – USPS rate cases should conform to the concept attributed to the Hippocratic Oath: “First do no harm.”  Or as the AD 245 version said:  “I will abstain from all intentional wrong-doing and harm.”  In other words, the primary goal of every postal rate case should be to do the least harm to its existing mail volume as possible. 

The Postal Service and the Postal Regulatory Commission should save the aggressive pricing driven by cost coverage, discount passthroughs, and the urge to maximize annual revenue for after the USPS financial model is fixed.  Revenue and volume retention should be paramount.  To focus elsewhere is tantamount to polishing the doorknobs on the Titanic.  There is still time to avoid the iceberg. 

The Postal Service’s main problem has been that its costs are growing faster than its revenues. Under the current funding model mandated by Congress in 1970, all USPS revenue comes from mailers, 90 percent of whom are businesses and organizations.  The Postal Service needs to keep as much of its existing customer base as possible, to hold onto the $70 billion it provides, until progress can be made in better controlling its costs and/or providing other funding sources. 

We have written before about the irrationality of relying solely on mailer revenue when a growing portion of USPS costs are driven by public services it provides in its role as a government agency.  In a competitive marketplace with many alternatives, saddling paying customers with ever growing amounts of unfunded mandates for public services will not work.  That dog won’t hunt. 

In the recently announced proposed rate increases for 2020, USPS comes closest to first do no harm to nonprofit mailers in quite a while.  There are four reasons: 

  1. The overall increases average only 1.9 percent.  This is thanks to low inflation reflected in the CPI (Consumer Price Index) cap that USPS must follow by law.  Now, many nonprofits often must operate in a below-CPI mode.  They cannot raise their fees for membership or subscriptions, nor count on contribution growth as fast as CPI.  And most, if not all, of the vendors serving nonprofits are not able to continually raise their prices by CPI.  Even so, 1.9 percent is historically low inflation.

2. There is no proposed increase for single-piece First-Class letters.  They are very important to nonprofits for donations, subscriptions, memberships, invitations, thank you letters, and even quite a few solicitations for contributions.  (USPS does not measure nonprofit-driven First-Class volume and revenue, but we urge them to and would welcome a cooperative effort.)  Nonprofits are big users of First-Class Business Reply Mail, stamps, custom postage, and meters.  So, the absence of an increase in this category is good and stands in stark contrast to last year’s 10 percent fleecing which was judged unlawful by a U.S. Court of Appeals ruling that is likely to be appealed by USPS and its regulator.

3. The workhorse for nonprofit fundraising, drop-shipped Marketing Mail letters, are being raising slightly less than CPI, after three years of twiceinflation increases.  The USPS had been hitting work-shared MM letters under orders from its regulator because the two agencies believed the discounts were too generous compared to the measured internal cost savings from avoiding the work.  Now the shaved discounts combined with large USPS transportation cost increases have combined to halt the price hammering of the most efficient mode of delivering Marketing Mail.

4. Periodicals mail, so important to nonprofit mailers, appears to be close to the average increase for most publications, except those using inefficient sacks.  Since the 2015 Periodicals pricing debacle, in which low or no advertising publications with lighter weight were hit with increases many times higher than inflation, USPS has done a great job at checking the pricing impact on individual publications.  We understand that the agency checked as many as 17,000 publications before finalizing its 2020 pricing proposal.  (The irony is not lost that distribution of more editorial, lighter-weight publications is one of the main reasons our Post Office was created to “bind the nation together.”)  The 2015 Periodicals mix-up is a great example of why USPS needs to stay with plain vanilla price changes until the volume crisis subsides.