May 11, 2017

For those nonprofit mailers working on next year’s budgets, the outlook for postage rates is unclear at best.

Here are three main factors you need to take into account.

One: The regular CPI-capped annual increase

We expect next year’s CPI cap to be about 2 percent, double last year’s. But you cannot count on any specific type of mail being at or even near the cap.

The rate announcement will probably come just before mid-October for a late January implementation.

Drop-shipped Marketing Mail, the mainstay of nonprofit fundraising, will most likely see outsized postage increases. Like last year, fundraising letters will probably be hit with CPI+2-3 percent, or 4-5 percent postage increases.

USPS says it’s not that they don’t want mail volume or work-sharing with the private sector. These objectives are subordinate to fixing their internal measure of how much they pass on to the private sector based on their estimated operational savings. USPS calculates little to no incremental cost to bring this volume in-house, so it does not want to reward customers too much for doing the work.

Two percent CPI means that the single-piece First Class stamp rate should go to the nice round number of 50 cents. But even here we need to be wary of a potential October surprise.

Periodicals also will average a 2 percent increase. Hopefully, there will not be surprises related to lighter weight, lower editorial publications, or to Flats Sequencing System (FSS) pricing.

Two: Congressional pile-on possibility

The House Oversight Committee re-introduced a bill this year that would permanently add 2.15 percent to all postage rates. That’s a $30 billion net present value cost to mailers. It would be the first Congressional setting of postal rates since 1968.

If Congress passes the bill this year, and the president signs it, USPS would most likely impose the increases immediately. So, the average increase would go to about 4.15 percent. And fundraising letters would increase in the range of 6-7 percent.

The Senate still needs to write its own bill and reconcile it with the House version. While this legislation seems like a long-shot this year, nonprofit mailers cannot afford to ignore the possibility.

Three: Postal Regulatory Commission rate review

The PRC ten-year review of the pricing regulatory system set up in 2006 is a huge wildcard for 2018 and beyond. The PRC says it will issue a proposed rule-making this fall and might complete it in the spring of 2018.

The USPS is advocating complete demolition of the external price cap on rates. They want to have maximum freedom to set rates, with only light, after-the-fact regulation.

Mailers, led by the coalition of the Alliance of Nonprofit Mailers, MPA, and Postcom, advocate the retention of the CPI price cap system. We and many others summarize our proposal to avoid the easy way out of rate increases that could permanently damage the future of the USPS:

• Retain the discipline and predictability of the CPI cap on each class of mail.
• Bring the largest cost category—labor—into line with private sector positions.
• Immediately remove excess, wasteful infrastructure costs, beginning with FSS.
• Pre-fund retiree liabilities deliberately through Medicare integration, prudent investments, and accurate estimation of future costs.
• Innovate to increase the relevance of USPS.

But if the USPS gets anything close to what it is going after, postage rates in 2018 and beyond could be a disaster for all customers. The Postal Service has demonstrated in recent rate cases with the cap that it does not fully anticipate the impact of its pricing decisions. Who knows what we will face without external discipline comparable to the rest of the economy.