Major rate increases likely to be filed early next week

As we told you on March 25, we expect USPS to file major rate increases for July implementation. They will be driven mostly by the adders that the Postal Regulatory Commission began allowing in 2021. The largest adder is the “mail density” formula that grants extra rate authority whenever mail volume declines as the number of addresses increases.

Alliance urges businesslike restraint

Despite the seeming inevitability of the USPS use of all its rate authority every six months, the Alliance of Nonprofit Mailers believes it is necessary to call for reasonable restraint as the recent record increases are leading to unprecedented losses of customer volumes for a non-crisis period.

The United States Postal Service should implement immediately a moratorium on Market Dominant mail rate increases until the agency meets its service standards nationally and it has a need for more cash in the following year. As a reminder, the Postal Service is sitting on over $18 billion in cash invested in Treasury securities and the Postal Regulatory Commission allows USPS to defer rate increases by “banking” its unused rate authority. And everyone knows USPS is failing well below its already reduced service standards.

The cost of the long-term, mostly permanent loss of the Postal Service’s customer base far outweighs the extra compounding of rate increases and the interest earned on the idle funds. It makes complete business sense to put a hold on rate increases for monopoly mail services. Further, no real business would impose these types of price hikes at a time when it is failing so badly to deliver the level of service it promises its customers, even after lowering its standards.

USPS lost 9% of its monopoly customer base last fiscal year, and it officially projected a further loss of 8% in the current FY 2024.

(Sources: USPS Cost and Revenue Analysis and USPS FY 2024 Integrated Financial Plan)

Aside from the Great Recession in FY 2009 and the pandemic in FY 2020, USPS had been averaging only a loss of 2.4% of its customer base in recent years. The new USPS pricing strategy is deeply flawed. Not only is it leading to more than three times the customer losses, but it is not yielding the financial stability that the PRC sought when it administratively changed the Congressional price cap based on the Consumer Price Index (CPI).

The PRC recently promised to reopen the reconsideration of the defective adders very soon, earlier than the five years it previously had planned. We await the regulator’s announcement of a new proceeding. But frankly, the USPS business and its customer base cannot wait until such a docket is completed. The damage that already has been done will be multiplied. With the price increases projected for July, the customer shrinkage could easily exceed the 8% USPS planned for.

The new report released recently by PostCom and the Greeting Card Association only adds to the evidence that something is terribly wrong with the knee-jerk USPS use of all of its regulatory rate authority every six months. It’s not a pricing strategy, it’s simply monopolist greed. The Postal Service is using a faulty, outdated price elasticity model to support its march to the sea with pricing. Even with real world results staring it in the face, the agency immediately dismissed the new analysis as “deeply flawed.”

USPS service is terrible

We hardly need to tell mailers this, but USPS service is terrible. This is especially true for First-Class mail that is so important to many nonprofits that receive most of their revenue through the mail. Much of the problem is being driven by the implementation of new Regional Processing and Distribution Centers (RP&DC). Major problems with mail and package delivery have been widely reported in Central Virginia, Houston, and Atlanta, among others.

The USPS Office of Inspector General released an audit report on the first of about 60 such facilities that are the backbone of the Delivering for America plan to both reduce costs and increase the efficiency and capacity for more package processing: Effectiveness of the New Regional Processing and Distribution Center in Richmond, VA. The audit provides at least a partial explanation for why mail service has deteriorated so much.

It is well worth a read; here are some of the highlights of what the OIG found.

Successes included: the USPS integrated services that were previously performed at different locations; it installed two new High Output Package Sorter for hoped-for future higher package volumes; and USPS “implemented a standardized workroom floor layout designed to provide an efficient mail flow throughout the facility.”

Among the failures were:

■The Postal Service did not complete several major activities in the implementation plan before launch, including:

• Finalizing machine sort plans
• Finalizing and validating transportation schedules, and
• Identifying all post offices that have relationships with smaller post offices to send mail from and to the Richmond RP&DC.

■ Local management didn’t take ownership of changes and were deficient in operational

execution.

■ Dock staging lanes were congested and hindered mail flow from processing machines.

■ Staffing was not fully aligned to the new operating plan.

■ Employee absenteeism increased after the launch.

■ Management did not train all employees on standard work instructions for new processes.

■ New processing equipment was not performing as expected in the first few weeks.

■ Transportation schedules developed by the implementation team did not account for all local needs and staffing levels of the Richmond Region and required adjustments after launch

The OIG made ten recommendations, and USPS agreed with nine of them. The one the mail agency rejected was: “Recommendation #10: We recommend that the Vice President, Processing and Maintenance Operations, communicate any impacts to customers when permanently moving processing operations of a three-digit ZIP Code to another processing facility.” Management also disagreed with the OIG’s finding of $8 million in questioned costs.

In any case, a smart business would not force unnecessary price increases on customers at a time when its own implementation of future improvements is degrading customer service. We hope that the changes ultimately deliver great efficiencies, cost savings, and handle much higher package volumes. The Alliance has long called for greater productivity, lower costs, and a growth strategy. But purposely degrading your existing customer base when you don’t need the money in the near-term, and you don’t lose the rate authority by waiting, makes no sense.