USPS Price Increase Still Likely ... Just Later and (Hopefully) Less

In early October, the Postal Regulatory Commission (PRC) was applauded by the mailing industry when it denied the USPS its exigent price increase, which would have taken effect in January 2011 for an average increase of 5.6 percent, with specific products receiving higher or lower increases (catalogs were expected to see increases ranging from 4 percent to 10 percent).

In a landmark decision, the PRC ruled that while the unprecedented volume decline resulting from the recession would meet the tests of an exigent price increase request, the USPS failed to show that the requested revenue from higher postal rates would solve its financial problems.

Technically, the USPS has three options now that the PRC has denied its request:

• it could re-file the request with different/enhanced arguments;
• it could take the PRC to court and fight its decision; or
• it could file for a consumer price index (CPI)-based increase of around 2 percent to 3 percent. The exact amount for the CPI cap will not be known until the end of 2010 and the USPS also has a small percentage available in unused rate authority from previous price increases.

May 2011 Price Increase Likely
It's unlikely that the USPS will challenge the PRC’s decision in court or re-file its exigent request, which leaves it with the third option as the most viable to improve its financial condition. The USPS is expected to prepare a request to file to the PRC for a CPI-based increase that would take effect in May 2011.

Although the overall average increase proposed by the USPS would be 2 percent to 3 percent, as limited by the CPI, catalogers and other mailers need to remember that the average increase seldom applies to every product category. It's likely that catalogs would still see a higher than average increase.

Higher Increase Likely for Products Not Covering Their Costs
With its exigent price increase request, the USPS is certain to include in the next request adjustments in prices within each class to help rectify situations where specific products have been identified by the PRC as not covering their costs.

A 2 percent to 3 percent increase would mean only a one cent increase on a First Class mail stamp, but products not covering their costs likely would see higher percent increases. Those products include catalogs and other Standard Mail flats, Standard Mail parcels, some Package Services categories, Periodicals (magazines) and others. The exact percent increase proposed by the USPS for these products remains to be seen until it files its case.

What Else May be Included?
The USPS also is likely to retain its May 2011 price increase request for the incentive programs laid out in its exigent request, such as expansion of the saturation incentive program, First Class mail Reply Rides Free and other incentives designed to grow volume and revenue.

The USPS may separate out the changes it proposed for Standard Mail parcels, moving ahead with its attempt to re-classify these pieces as competitive services, as well as dividing the remaining Standard Mail parcels into fulfillment and marketing categories with different rules, price structure and eligibility requirements.

Catalogers should also expect rule changes contained in the exigent case to be included in a CPI-based case, such as tightening up of address quality requirements, changes in pricing structures for some products and other changes that could result in either price or cost increases for catalogers. As in all USPS price increase requests, the devil is always in the details.

PAEA Round Two?
In the background of the Postal Service’s price increase requests, even bigger changes may be percolating. Unlike last year, Congress opted not to step in at the last minute and relieve the USPS of its $5.5 billion payment to pre-fund retiree health obligations. The USPS has paid the amount due for fiscal year 2010 to the Treasury, leaving it with a $6 billion loss.

The irony of the USPS borrowing money from the Treasury in one account to pay a bill to the Treasury in another account isn't lost on those looking at the holistic picture of the USPS’ business model.

Legislators are again looking at the USPS’ business model. While a sweeping reform bill like the 2006 Postal Accountability and Enhancement Act (PAEA) is unlikely, Congress is expected to bring forward some legislation to address the USPS’ retiree health benefits pre-funding requirements. The USPS also is pushing to gain more legislative and regulatory freedoms in terms of the products it offers, frequency of delivery, rationalizing its retail network, among other changes.

Now is the time for the mailing community to get involved in these legislative discussions, as any such changes would have a significant impact on catalogers and others.