March 11, 2022

New Rate Authority

With yesterday’s release of new CPI data, we updated the rate authority USPS will be granted by the PRC for an early April announcement of July mailing rate hikes. The authority has escalated since USPS released a projection in January. We provided you with a projection last month and now have the authority that will govern the next rate hikes—6.789% to 8.789%. These are average caps for each class of mail; your actual increases will vary according to how USPS distributes the increases across rate cells, and your mail mix.

If USPS uses all the authority, it will lead to a second record set of increases in less than a year.

The Case for Moderation

We are communicating with the Postal Service that they must use the option to defer at least some of the authorized rate increases. The agency is sitting on a record $24 billion in cash, last year received a $10 billion grant for Covid relief, and will benefit from $107 billion in relief from Congress with the Postal Reform Act of 2022.

In short, the Postal Service does not need the money.

At the same time, mailers are facing many other cost increases that are driven mainly by supply and demand problems—paper, fuel, supply chain, trucking, and more. In contrast, whatever rate increases USPS announces are purely discretionary. The PRC rules allow the Postal Service to “bank” rate authority for future use.

We mailers need to keep making these points. USPS might decide on some moderation in the use of the authority, if for no other reason that the agency will receive Congressional blowback if it doesn’t. We probably will not know the answer until USPS files with the PRC in early April, no later than the April 12 CPI release by the Bureau of Labor Statistics. And don’t forget—USPS plans to use six months of CPI authority to raise rates again in January. With the current inflation trend, that could be another 3.5%.

Some Congressional Help with Rates

With the Omnibus bill being passed this week, the accompanying explanatory statement reaffirms the language that accompanied the House’s initial bill.

On page 49, it states:

“In preparing the report on market-dominant products included in House Report 117-79, the PRC is expected to consult with stakeholders.”

And the language in House Report 117-79 is:

“Rate Increases for Market-Dominant Products.–The Postal Accountability and Enhancement Act of 2006 (PAEA) required the PRC to review the existing Market Dominant rate and classification system 10 years after the enactment of the PAEA. Based on this review, the PRC adopted rules in November 2020 providing greater pricing flexibility to the United States Postal Service (USPS). USPS has used this expanded authority to propose increasing certain postal rates effective August 20, 2021, by approximately 7 percent. The Committee is concerned with the size and timing of the rate increase and that the PAEA process did not account for the impact of the pandemic, including factors such as higher package revenues and emergency funding provided to the USPS. The PRC is directed to study these factors and report to the Committee within 270 days on how these factors should impact the rate increases proposed by the USPS and the PRC rules adopted in November.”