July 30, 2019

We expect the Postal Service to announce proposed rate increases before October 10, to go into effect on January 26, 2020.  We project the increases will average a little over 2 percent for each class of mail (First-Class, Marketing, Periodicals).  The CPI cap will be finalized with the September 12 release by the Bureau of Labor Statistics and subsequent adjustment by the Postal Regulatory Commission.  Between September 12 and October 10, postal pricing staff will allocate the increases to hundreds of rate cells within the mail classes.

The allocation of increases within classes is usually done with two primary things in mind.  First, USPS tries to predict which price distributions will give them the largest revenue increase in 2020.  For example, if they think a particular rate cell will grow in volume, they might give it a larger than average increase to maximize revenue.   A type of mail expected to decline in volume in the coming year would get a smaller than average price increase so as not to “waste” the increase authority on a shrinking category.

Second, those types of mail deemed by USPS to be “underwater,” meaning their price does not fully cover the costs USPS allocates to them, will normally get higher than average increases.  So, for example, within Marketing Mail, flats should get higher rate increases than letters.  Also, within MM, letters that involve more private sector work-sharing would get higher than average increases.   That’s because UISPS believes that it is currently passing through more than 100 percent of what it saves internally by having the private sector do part of the work for a discount.

A third factor that applies to First-Class is that last year USPS raised single piece letters by 10 percent (50 to 55 cents for the first ounce).  This was offset by a reduction in additional ounces (21 to 15 cents), no increase in flats, and below-average increases in commercial work-shared First-Class Mail.  We expect single piece letters to stay at 55 cents, and other categories to go up more than CPI in 2020.

We do not think there is enough time for the Postal Regulatory Commission to use its regulatory review process to allow the Postal Service to add surcharges onto the CPI cap for 2020.  They have indicated, however, that we should expect some new activity on this front soon.