POSTAL RATES
By: Donna Hanbery, Saturation Mailers Coalition (SMC)
On September 15, 2021, the Postal Service made an announcement and submitted a filing with the Postal Regulatory Commission (PRC) announcing its future schedule of “regular and predictable rate adjustments.”
The good news is that mailers will not see another postal increase until July, 2022. The Postal Service will wait until spring of next year to combine the rate authority it has to increase rates based on over the CPI, and will calculate the other authority it has under the Postal Regulatory Commission’s new ten-year order that gave the Service additional authority to increase rates over CPI, for one rate adjustment to take place during 2022.
The not so good news, is the Postal Service announced its intentions after 2022 to increase rates twice a year in January and July of each year, with the filings outlining the rates and the rate tables to occur in the preceding October and April, respectively.
In its filing the Postal Service wrote it “intends to be judicious in the use of available pricing authority depending on our financial condition, but anticipates the possibility that the price adjustment for each market dominant class may be required to apply most or all pricing authority available at the time of filing.”
So what does this mean for mailers trying to figure out this “regular and predictable” schedule of Postal rates for 2023 and thereafter?
In April of next year, the Postal Service will be able to calculate the amount of an increase it is entitled to receive under the CPI for increases inflation. It will also have numbers that the PRC determines based on whether or not the service has made any contributions to its pre-funding obligations under current law to pay for retiree benefits. The PRC order gives the USPS an additional amount of approximately 1% of rate of authority (over the cpi) to correspond to actual prefunding payments made. If Postal Reform is accomplished as proposed in a pending House bill, that additional 1% authority could “go away”. As currently drafted, the proposed postal reform bill in the House would eliminate or vastly change the retiree pre-funding requirements.
A separate increase, known as the “density adder” allows the USPS to charge higher rates to make up for volume it loses. To businesses like publishers, it may sound perverse to be rewarded with additional pricing authority when the service loses business. But the PRC reasoned that some loss of mail to electronic diversion was outside of the Postal Service’s power to control, and that the Service needed to cover its fixed costs and obligations that are no longer covered as it loses mail volume and should be able to charge mailers for that “lost business/density”. During this last year (2021) with Covid mail volume losses being significant, the additional “density adder” allowed the service to increase its rates and prices by an additional 4.2%. That is why many mailers saw some of the highest increases in years in August, 2021.
It is always hard to make predictions, but at the present time it would seem next year’s loss of volume, when compared year over date, will not be as severe as it was 2021 and, based on a current projection from a Postal Service Pricing and Costing Official, it could be under 1%.
The Service gets its numbers for what it is permitted or allowed to do at different times during the year. Historically, the Service has filed its rate increases based on the CPI rate cap in October, for a January implementation. When the Postal Service files its Annual Compliance Report (ACR) of performance and volumes for the year, the PRC is able to do the calculations needed for its additional pricing/rate authority. That appears to be the reason driving the Service’s announcement that it will do a filing in April, for a July increase every year. That timing allows the Service to get as much money as it can, as soon as it can, with the PRC’s release of its calculation of the lost density and prefunding payments additional rate of authority. Theoretically, there is nothing to stop the Service from switching to a once-a-year rate cycle, by postponing the filing of its CPI rate increase to coincide with the additional determination of additional rate authority after receipt of the PRC’s calculations. The potential confusion, and complexity, of different rate schedules and twice a year price increases for the mailing industry and advertising customers may lead some mailers, printers, publishers and customers to push back on the complexity and ‘bad pr’ of this proposed schedule. The additional costs it will add to the mail industry in changing forms, pricing schedules, software, etc. – to say nothing of having to talk to advertisers about an endless cycle of higher prices – will erode customer confidence and may further discourage businesses and advertisers with marketing choices from using the mail.
For free papers that use saturation mail or high-density mail to reach their advertisers, this type of mail is in the Marketing Mail class. This is one of the largest classes of mail within the market dominant postal products. There can be significant variations with individual product prices within this large class – where some categories of mail pay will pay higher prices, and others may see lower increases. Based on the competitive market conditions for saturation mail, and the unique operations and service characteristics of this mail (usually drop shipped to the DDU to go right to the carrier), SMC and our members will continue to urge for “better-than-average” pricing to retain this profitable mail volume for the Service. This type of product is more price sensitive than other postal products and is very susceptible to electronic diversion and diversion to other media.
For periodicals and papers that have been using periodical rates, (sending their papers as subscription – requester papers), the annual rate increases must include an additional 2% to reflect that this class has not been carrying its costs according to PRC findings for several years. Any class or product of mail that is “underwater”, is required by PRC regulation to be assessed an additional 2%, over any other rate increase allowed with different formulas, at least once a year if there is a rate adjustment for that class.
What if anything could save mailers from this twice a year endless cycle of price increases? The mailing industry has been challenging the PRC order as contrary to the 2006 PAEA law and that case is under consideration in the DC Circuit Court of Appeals. If the mailers prevail, that could change the additional pricing and authority described in this article.
But for the short term, it appears that publishers that are using the mail, and have been fighting to build back business during this challenging year, will have a few months of breathing room before the next Postal rate increase is filed and announcement.
Donna Hanbery, Executive Director
Saturation Mailers Coalition
33 South 6th Street
Minneapolis, MN. 55402
DD 612-340-9350
Fax 612-340-9446
