The U.S. Postal Service is expected to announce its first price hike in the coming days after receiving further approval to raise rates above inflation, which will cause some of its biggest customers to sound the alarm bells.
The USPS watchdog, the Postal Regulatory Commission, late last year gave the postal agency the ability to issue much larger rate increases. Price hikes were previously tied to inflation, leaving large-scale mail users fearful of the impact the changes will have on their businesses. While the postal leadership said it was convinced that a “wise” use of its new authority will lead to overall revenue growth for the agency that has failed for years to cover its costs, customers are warning USPS that ‘it will unintentionally accelerate the downward trend in mail volumes.
The new system ties price caps to what the PRC identified in November as the two main cost drivers for USPS: fewer mail items sent to more addresses and the mandatory payments the agency has to make. for the benefits of future retirees. The regulator has created a new formula that takes into account the higher costs of decreasing “mail density,” as well as a second formula based on the costs of mandatory payments for retirees. The calculation of retirees will be staggered over five years and all income generated must go to payments amortized into retiree funds.
Constrained by inflationary caps, USPS has issued modest price increases of around 2% in recent years. This year, observers expect the increase to be around 7% for first-class mail and more for other products. In a recently released 10-year business plan, the Postal Directorate said it expected to increase revenue from $ 35 billion to $ 52 billion over the next decade, directly from tariff increases.
Some of the bigger USPS customers, however, say it makes the picture look too rosy. Mike Plunkett, president of the Association of Postal Commerce, said there was unanimous agreement among its members that the steep price hike approach is “the wrong thing to do.” Art Sackler, executive director of the Coalition for a 21st Century Postal Service, a group of large-scale mail users like Amazon and the National Newspaper Association, predicted that a sharp increase on Friday would “seriously damage the mail” and industries. that depend on it.
“The price increases, coupled with a decline in service, will deter many US businesses from using USPS for their operations or, in some cases, from going out of business altogether,” Sackler said.
In its plan, USPS predicted that if nothing changed, it would lose 37% of non-parcel mail volume over the next decade. Critics of the price hikes, however, have suggested that the reforms proposed by Postmaster General Louis DeJoy – driven by the rate hikes – would lead to and exacerbate this outcome. The Postal Service declined to comment for this story.
“It will be a disaster for nonprofit organizations,” said Steve Kearney, former senior pricing executive at USPS and current executive director of the Alliance of Nonprofit Mailers. “Some will have to reduce mail immediately.” He added that this in turn would force some of its members to cut down on their missions as they rely heavily on mail for fundraising.
The PRC itself noted when releasing the new pricing system that some customers would feel the pain of price increases, but said it would be up to the postal service to strike the right balance each year.
“Individual customers and small businesses who use postal products and services may experience higher price increases than the previous one [inflation] Pricing authorization provided due to proposed categories of additional pricing authorities, ”PRC said. “However, as previously mentioned, the Superior Council of the Postal Service will continue to set the prices of all products and services offered by the Postal Service.”
The Senate recently confirmed two of President Biden’s candidates to serve on the board. The third, Anton Hajjar, a former American Postal Workers Union official who would occupy the last of the nine Senate-confirmed places of the panel, is expected to receive approval this week. During his confirmation hearing, Hajjar raised concerns about DeJoy’s plans to increase tariffs.
Kearney and Sackler both called on Congress to amend its bipartisan and bicameral postal reform bill to include checks on the USPS rate hike authority. Despite widespread crackdown on DeJoy’s ambitions among Congressional Democrats, the measure is silent on pricing issues and eases the way for other initiatives proposed by the Postmaster General.
Rep. Gerry Connolly, D-Va., A co-sponsor on the bill and chair of the House Oversight and Reform Committee with USPS Oversight, echoed some of the concerns raised by clients of the ‘agency.
“The USPS faces many challenges, and the drastic increase in tariffs on customers will only exacerbate its financial problems,” Connolly said. run, and nothing should be done that puts the USPS at a competitive disadvantage. “
The postal service briefly experienced above-inflation price increases in 2014, when the PRC allowed it to urgently increase its tariffs to recoup lost revenue from the Great Recession. USPS was forced to reverse these increases in 2016 after a lengthy legal battle. Kearney’s group is taking legal action against the most recent ruling by the PRC’s pricing system, arguing that the regulator exceeded its statutory authority by allowing USPS to raise rates more than inflation. The resolution of the case is not expected before 2022.