February 13, 2020

Proponents of the new PRC proposal take some solace in the belief that price increases of this size will not cause a massive downward spiral in mail volume.  They say this without documented evidence.  There is no historical data with which to develop accurate price elasticity models for rate increases of the magnitude contemplated.  So, the PRC, USPS, and its unions simply assume the problem away.

Using existing elasticity models based on an extended history of rate increases tracking inflation simply is not relevant, accurate, or predictive.  It’s like trying to predict the impact of earthquakes in a region that never has had one.

Proponents of the PRC proposal sometimes cite the 4.3 percent temporary exigent surcharge in effect from December 2014 to April 2016.  They claim that large declines in mail volume did not happen, and use that as evidence that the new proposal will not do major harm.

In some categories of mail, such as Nonprofit Marketing Mail, volume did drop following the surcharge.  And as NPMM drops, so does single-piece First Class Mail, although USPS does not measure the large amount of FCM generated or mailed directly by by nonprofits.  Subscriptions to NP Periodicals would also suffer as a result of the MM decline, but again that impact is not measured by USPS.

The table below shows that after the recession knocked over a billion pieces of Nonprofit Marketing Mail out of the system, the exigent surcharge took a further toll of more than another billion.  Volume leveled off at 13.3 billion for the five years after the recession, but dropped to an average of 12.3 billion in the four years since the end of the exigent surcharge.

This graph illustrates a direct trade-off between helping USPS by “giving it money” through a standalone above-inflation rate surcharge and nonprofit mailers making unwanted but necessary reductions in mailings.

An equally important point is that the above-inflation to mailers, and therefore the volume impact of the proposal, is not at all comparable to the temporary exigent surcharge.  The cost to mailers of the exigent surcharge was $4.6 billion over about 15 months.  In our comments to the PRC, we calculate the net present cost to mailers of their proposal as $220.6 billion.  Net present value is what you would have to set aside today to cover a perpetual annual cost in the future of about $8 billion per annum.  $220.6 billion is in a different neighborhood from $4.6 billion.

In our comments, we also show graphically how different the two surcharges would be.  The exigent surcharge looks like a molehill in comparison to the mountainous two surcharges for compensatory (letters) and non-compensatory (flats) postal services.