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Postage Rates May Soar 5-10% Next 12 Months

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Postal Regulatory Commission Chairman Robert Taub at MAILCOM ’17 in April.

Exigent Ghost Haunts Mailers As USPS Presses Congress; PRC Ruling Soon

WASHINGTON, DC – Business mailers celebrated the historic rate cut last year as emergency postage hikes expired. But that celebration will be short lived if the Postal Service has its way with Congress and the Postal Regulatory Commission.

And it is increasingly looking like the USPS will prevail on both fronts and that means postage rates will jump 5-10%.

A bill making its way through Congress will instantly increase postage rates by 2.15%.

Meanwhile, the PRC will rule by early Fall on the current rate setting system. Its options include an “inflation plus system” — for example, inflation +1% or +2% — for annual price hikes.

Post Presses Its Case

The USPS released its second quarter financial results on May 10 and used the opportunity to show how the exigent rollback cost it $474 million in revenue.

“America deserves a financially stable Postal Service that can continue to play a vital role in our economy and society,” U.S. Postmaster General Megan Brennan said on release of the second quarter data.

“The path forward depends on continued innovation and aggressive management actions, the passage of H.R. 756 into law, combined with a favorable outcome of the PRC’s 10-year pricing system review,” the PMG said.

“With these actions, the Postal Service will have the financial stability to invest in our future and continue to be an engine of growth, to be a strong business partner, and to meet the expectations of the American public,” she said.

Operating revenue was $17.3 billion, a decrease of $474 million from the same period last year. Revenue from First-Class Mail and Marketing Mail decreased $606 million and $331 million respectively over the prior year quarter, due largely to the exigent surcharge expiration and lower volumes.

These declines in operating revenue were somewhat offset by continued growth in the Shipping and Packages business, with a second quarter revenue increase of $486 million, or 11.5 percent, over the same period in the prior year.

The net loss for the quarter declined to $562 million from a $2 billion net loss a year ago, as the Postal Service benefitted from declines in operating expenses outside of management’s control. Expenses for mandatory retiree benefit programs fell by a net $1.2 billion due to changes in funding requirements that took effect in 2017 according to law, while workers’ compensation expenses fell by $1.1 billion due largely to fluctuations in interest rates.

PRC Holds The Key

PRC Chairman Robert Taub was careful not to tip his hand on the rate issue in his address at MAILCOM ’17 in April. The PRC is deciding whether or not to eliminate or modify the inflation-based price cap which limits postage rate hikes to the rate of inflation.

Chairman Taub did say the issue will be decided by early Fall.

Of note, Chairman Taub did spend time lamenting the poor state of postal finances. He cited the Post’s long-term deficiencies in assets vs. liabilities. He mentioned the tight state of capitial improvements, such as replacing the postal vehicle fleet.

What he didn’t say is just as revealing as what he did. He did not lament the struggling mailer paying higher postage bills. Chairman Taub did not talk of Auntie paying more to mail her greeting cards. Nor did he did mention that higher rates drive mail out of the system.

In short, he sounded like he agreed with the core of the Postal Service argument that it needs more money. Does that mean eliminating the price cap and giving the USPS the freedom to set rates? Perhaps not. One mailer at the luncheon suggested the PRC will adopt an inflation plus system.

That same mailer noted that inflation is picking up, so the puny 1% rate hikes of recent years could become 2, 3, or 4% very quickly with no change in the system. Add in a plus system, and mailers could see annual rate hikes pushing 5+%.

Coupled with the rate hike mandated in the new postal reform law, mailers could see rates go up easily over 7% in the coming months.

Possible Legal Challenge

Were the PRC to adopt a plus system or eliminate the rate cap altogether, mailing groups would likely take their case to court, arguing that the PRC does not have the authority to change the inflation rate cap established in the postal reform act of 2006.

RELATED: Good-Bye Rate Cap? Reading the PRC Tea Leaves