USPS is delivering rate shock to America’s mailers and a risky business strategy to all Americans

24-1-21 USPS Rate hikes 2021-2024 Impact of 6

Thanks to Alliance sponsor Quad, we can see the impact of the USPS pricing strategy to use all of its rate authority, double the frequency, and compound every six months.

Over the three years from January 2021 to January 2024, postage rates will have gone up an astounding amount. First-Class letters will be up 33% and flats 68%. Nonprofit Marketing Mail letters will have increased by 25% while flats will balloon by 57% per piece. In-county periodicals will be up 47% while Outside-County inflates 37%.

USPS has no pricing strategy other than to take mailers for all the Postal Regulatory Commission will let them. Repeated statements by Postmaster General Louis DeJoy that he would increase prices judiciously were disingenuous public relations.

Merriam-Webster defines “judicious” as “having, exercising, or characterized by sound judgment.” The dictionary goes on to say that judicious “stresses a capacity for reaching wise decisions or just conclusions.” We should know by now not to put too much weight on someone proclaiming that they are wise and just. Those accolades are better earned than self-claimed.

The agency has embarked on a transparent plan to extract as much cash from monopoly-controlled mail products as quickly as possible while investing heavily in a package business that it hopes will take significant market share and profit away from private sector providers such as UPS, FedEx, Amazon, and a myriad of startups.

If USPS were a business, investors and lenders might conclude that a strategy of disrupting (or slashing and burning) your core business while emphasizing a future focused on potentially better opportunities is a sound, if risky approach. They would decide whether that’s where they want to invest their risk capital. If they did, they would hold the CEO and board of directors accountable. Investors would insist on a timeline for when the strategy would start paying off. If the business missed its commitments, investors would flee and the share price would plummet.

USPS is not a business and no investors or lenders are holding it accountable as if it were a business. In place of shareholders, the United States Congress has oversight of USPS and a regulatory agency that was created just to regulate another agency is supposed to play a major role. Neither Congress nor the PRC is doing much to hold USPS accountable. They both are throwing money at the Postal Service and keeping their fingers crossed in hopes that a logistics businessman will succeed where few have before.

Neither Congress nor the PRC played an active role in determining or approving the new strategy to milk monopoly mail and invest heavily in the package business. It was developed privately by the PMG and his managers and unveiled with a PR flourish 2-1/2 years ago. Few details were provided about the core strategy. Attention was diverted to important but peripheral issues like electric vehicles, pre-funding retiree benefits, better workplaces, “modernization” of the network, and simplified product offerings.

The USPS of the 2020s has demonstrated that its most successful competency is public relations. But PR can carry you only so far.

Alliance blasts USPS pricing strategy in comments filed with PRC; urges PRC to be a more full-service regulator

In comments filed with the Postal Regulatory Commission today, the Alliance stated facts that we believe are quite obvious:

Pursuant to Order No. 6730, the Alliance of Nonprofit Mailers (the “Alliance”) comments on the Postal Service’s planned price adjustments that are intended to take effect on January 21, 2024.^[1]  The proposed rate hikes, viewed in combination with the Postal Service’s financial performance, lay bare several unfortunate truths:  (1) the Delivering For America pricing strategy – both its frequency and magnitude of market-dominant rate increases – is undermining the plan’s goal of achieving financial stability; (2) the Postal Service’s previous claims that it would exercise business judgment and prudence in its pricing decisions were empty rhetoric; and (3) unless the Commission reins it in, the Postal Service will continue to dig itself into a deeper financial hole.  The Alliance asks the Commission to reject the proposed rate adjustments.

The Commission Should Exert Regulatory Oversight of the DFA Plan 

             The Alliance’s members are nonprofit mailers who predominantly purchase First-Class Mail (“FCM”), Marketing Mail, and Periodicals, and who are getting crushed beneath the weight of twice-yearly large price increases.  But the Alliance’s request is not made solely as advocacy for its members.  We are also urging the Commission to embrace its role as regulator.  The Postal Service may chafe at being regulated, but that is the system Congress created.  In market-dominant rate cases, the PRC must do more than simply check the Postal Service’s math and technical conformance with the rules before rubber-stamping proposed rate adjustments.  Congress created the Commission to “oversee and administer a pricing regime for the Postal Service,”^[2] and one of the Commission’s statutory functions is “ensuring that rates meet the requirements of 39 U.S.C. 3622”^[3] such as predictability, stability, and a just and reasonable rate schedule.

            Under the revised market-dominant ratemaking system that the Commission promulgated in Order No. 5763 of Docket RM2017-3, this is the fifth consecutive rate case in which the Postal Service has elected to use “virtually all” of its rate authority.^[4]  This is also the fifth consecutive rate case in which the Postal Service has defended its pricing decisions by referencing the Delivering For America plan, which it claims “sets forth a balanced array of initiatives to achieve financial sustainability and service excellence,” and that “price cases are an integral component of that plan.”^[5]

            The Commission should gauge whether this pricing case and the four that preceded it are, in fact, helping the Postal Service achieve financial sustainability.  We believe that they are not.  In carrying out its oversight role, the Commission must evaluate whether the Postal Service’s pricing decisions under the current system are consistent with the PRC’s findings underlying the creation of the system in the first place.  When it created the new ratemaking system, the Commission found unpersuasive mailers’ (including the Alliance’s) concerns that the system would produce excessive rate hikes and volume declines.  It credited the Postal Service’s claim that “it is attentive to not allowing rates to increase too sharply, notwithstanding its market power,” cited the Postal Service’s “inherent incentives to exercise business judgment,” and committed “to monitoring for any evidence that pricing decisions are exacerbating volume declines and evaluating if such results would justify adjusting these final rules in the next system review in 5 years.”^[6]

            The Commission need not wait until the five-year review, however.  While it cannot in this docket adjust the final rules adopted in Nov. 2020, it can certainly evaluate right now, in this docket, whether the Postal Service’s pricing decisions are exacerbating volume declines, whether the Postal Service has been increasing rates too sharply, or whether the Postal Service is exercising business judgment.

We also urged the PRC to “formally limit the Postal Service to once-yearly rate adjustments.”

USPS to spin FY 23 financial and service results on Nov 14

The Postal Service PR machine will be in full spin mode on November 14, 8 days after comments were due on the USPS pricing proposal. The public segment of the USPS Board of Governors meeting will begin at noon ET and will be available on live audio webcasts at https://about.usps.com/who/leadership/board-governors/#sessions. A recording of the meeting will be posted 3 hours after its completion.

The agency will attempt to explain why a loss in the neighborhood of $7 billion is not a good reason to question the Delivering for America plan 2-1/2 years after it promised to break even by this year. The USPS PR contractors and staff will spin a story of factors completely outside the control or ability to anticipate of USPS leadership. They will cite “inflation” many times as an exogenous driver of USPS’s poor results. They will bring up again the cost of funding civil service retirement obligations as something the administration needs to fix.

The Postal Service will blame rapidly declining mail volume on outside factors other than its record rate increases. The weak “advertising market” will be mentioned as a main cause.

Despite the unprecedented rate increases, USPS spokespeople will either avoid explaining the little to no revenue growth or give contorted justifications that it would have been much worse without the DFA pricing strategy. Through August, revenue was 2.7% below plan and 0.3% below the same period last year, despite price increases of 9.5% (and more for some types of mail) in FY 2023. Such a dichotomy between rate increases and revenue growth has never happened before.

USPS will continue at the board meeting the misleading descriptions of service performance in its regular press releases, such as the latest: “Average Delivery Time Across Postal Service Network Remains Stable.”

Mail users know that the aggregate numbers the Postal Service cites for the cleanest, most professional mail do not accurately reflect what is happening.

SnailWorks provides mail tracking service to many direct mailers, including nonprofits, and shares a weekly summary of its findings. The latest, for the week ending October 30, continues a very troubling trend. SnailWorks should be a must-read for USPS Governors and PRC Commissioners.

US MAIL TRAFFIC REPORT OCTOBER 30, 2023

FIRST-CLASS MAIL HAS ITS WORST WEEK SINCE WE’VE BEEN MEASURING.

79.3% of First-Class letters delivered on time. 24.3% of First-Class flats delivered on time. Average delivery time for a First-Class letter: 3.60 days. For a flat: 5.67 days. I don’t think I need to add any words. And this is professionally prepared, presorted mail. Heaven help Aunt Trixie.

Marketing Mail held steady at over 95% on time. The difference? Marketing Mail largely avoids the Postal logistics network. The network is being reconfigured.

Most troubling is this is not a flukey one-off. First-Class letters’ on-time rate has been dropping for weeks.  Adjustment pains? Let’s hope so.

USPS PR will no doubt spin that service is much better than you think, and problem areas are very isolated and temporary.

A new “milk run” approach will be used at smaller, more isolated post offices

The Save the Post Office website has been a very good explainer of what’s going on inside the USPS Delivering for America plan. Recently, it revealed a part of the plan that will affect a very small percentage of all mail but a part that is important to nonprofits. The “milk run” approach will affect smaller post offices whose delivery units in the back are not being consolidated into large Sorting & Delivery Centers.

Whereas until recently, mail has been dropped at these offices in the early morning for local delivery and picked up in the evening for outbound mail, the milk run approach will have only one daily visit to pick up and drop off mail in the morning. The upshot for donors, members, and subscribers who enter mail to nonprofits at their local post office is that the mail will sit overnight in the office until pickup on the following morning’s milk run.

USPS calls this initiative “optimized collections” but for mailers and their recipients, it will add to the transport time of what is often very important mail. It also will mean mail with checks and personal information will sit overnight in many small, rural, less secure post offices.

It’s kind of a sneaky way to delay certain mail while publicly touting a commitment to six-day delivery and excellent service.

[1]  See United States Postal Service Notice of Market-Dominant Price Change (Oct. 6, 2023) (“USPS Notice”).

[2]  Alliance of Nonprofit Mailers v. PRC, 790 F.3d 186, 189 (D.C. Cir. 2015) (noting PAEA’s “central focus on tightly restricting Postal Service rate increases and increasing efficiency” at 193).

[3]  39 C.F.R. § 3000.102(a).

[4]  USPS Notice, at 1.

[5]  Id. 

[6]  Order No. 5763, Docket No. RM2017-3 (Nov. 30, 2020) at 314.