Mailing Companies Rally Against Increases to Postal Rates

By | July 6, 2010

The Postal Service (USPS) as we know it is in a tough spot with mail volume dropping. This drop is especially apparent in 1st Class Mail as people change the way they communicate. More are switching to electronic billing, for instance. And think about it: when was the last time you wrote a letter to a friend and mailed it? If you look at a graph of 1st Class Mail, the decline sharply falls off the page in just two years!

Guess what class of mail supports more than its fair share of the volume? You got it: 1st Class.

So as the cash cow becomes hamburger, the postal service is stuck with a lot of people, facilities, and equipment that are not necessary. By law, the USPS is mandated to break even financially; however, these additional costs prevent that. Prices can only be raised based on the Consumer Price Index (CPI) and by approval from the Postal Rate Commission via a rate case (what classes of mail carry what burden of the cost). And because the CPI was basically flat over the last year, it doesn’t give them any room for an increase.

But–and there’s always a but–like any good law, there was a loop hole put in. The PMG (Postmaster General) can ask for an Exigency Rate Case. This was created post-9/11 to ensure that if the USPS had to change the way they process due to extreme situations (such as anthrax security), they could go to the table for more money which in turn allows them to break-even.

In recent times, the PMG is stretching the meaning of the word “exigency” by saying that because his volume is down, he needs to do call upon this loop hole for more money. I don’t think this was the intention of the law. We’ll get to the meaning of “exigency” in a moment, but what is the PMG thinking? That by raising the price of mail that he will solve his volume problem? I’m sure that during this down economy, many thought that raising their prices would make up for the lack of volume, too. 

So really, what needs to happen is a better understanding of the word “exigency” as it pertains to a rate case. As defined, it is “a situation requiring an extreme effort or attention.” There is a coalition that is supported by many of the large mailing companies–and of course, MFSA (Mailing & Fulfillment Service Association)–to bring this to the courts. The reason? If the PMG can claim low volume as a reason for an Exigency Rate, then every time mail volume drops, there is cause to raise postal rates.

The case is urgent because the USPS could run out of cash. Congress could have avoided this by giving the USPS back the $75 Billion they paid to the government retirement plan, or by pushing through no Saturday delivery, or allowing them to close small post offices, or any of the other items they have offered up. However, a lack of focus on the part of our government means that we the people will be supporting the effort in other ways. We’ll see Congress provide emergency funds (tax money) to allow the USPS to meet its obligations; we’ll see a rate case of 5-8% at a time when prices should be going down to increase volume; and we’ll see Congress mask the amount of money in the federal chuffers by keeping the $75 Billion of USPS money.

So what would I do? I’d fight in support that volume is not a reason to raise rates. In fact, I’d be looking to dramatically lower standard mail pricing, especially for automated letters and flats. Why? This Class will be the major product line of the USPS in the future. There isn’t a better prospecting tool (even with today’s technology), and it typically leverages a completely renewable product: paper. 1st Class Mail will continue to drop. The cost of mailing a magazine needs to be stable or that business will also drop, further adding to the problem. I know the Postal Service would love to think they can be a better package shipper than UPS and Fedex, but I don’t see that happening in the near future–especially because they would have to retool.

What we need everyone to do is to ensure their Senators and Congressmen/Congresswomen know these issues are important, and we vote based on how they vote. Also, support the coalition so that we don’t just add to the problem we already have.

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Ted Kulpinski is theVP Operations withW.A. Wilde and a member of the  MFSA Executive Board

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One thought on “Mailing Companies Rally Against Increases to Postal Rates

  1. Elizabeth Gooding

    On a related note, ABC News posted a story yesterday on the proposed 2 cent postal increase http://tinyurl.com/2ufttf4 bringing a first class letter to 46 cents. They have also proposed a 7% increase in the price of package mailings. The article talks about some of the more innovative ideas that have been put forward to help raise revenue for the post office – but the biggest challenge is that the USPS is not run like a private business.

    Congress has to approve headcount issues and Congressional Reps are not going to be voting to lay off workers in a recession – even if it makes total economic sense. Mailing costs rise, mailing volumes fall and people outside of the post office lose their jobs as a result – but Congress doesn’t have to take action or any political risk.

    I don’t agree that this is the PMG’s fault – the USPS understands the price/volume equation better than anyone. But I do agree that our Senators and Congressional Reps need to hear from the industry on why their failure to take action has a ripple effect similar in scope to the automotive industry if not on the full international scale of the financial crisis. Let’s make some noise people!

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