D. Eadward Tree’s 2015 Postal & Paper Price Forecast
December 2014
If you are trying to budget key price changes for 2015, forget recent history and put away the economics textbook. The monopolistic U.S. Postal Service will forego its usual January rate increase and may have to reduce rates during 2015. But publishers will pay higher prices for paper in spite of—and perhaps because of—federal antitrust regulators’ efforts to maintain a competitive market.
You can usually project postage rate hikes based on changes in inflation, but 2015 could be a strange year for postal rates. In contrast, the pattern of paper prices defying inflation—with market prices hitting basically the same cyclical high and low prices over the course of several decades—may finally be coming to an end.
The uncertainty about next year’s postage rates began a year ago when the Postal Regulatory Commission allowed USPS to enact a temporary 4.3% “exigent” surcharge on top of the usual inflation-based increase. The surcharge is on pace to expire next summer, after it brings in an additional $3.2 billion. But the Postal Service has gone to court arguing that $3.2 billion isn’t enough to compensate it for losses from the recent recession.
If the surcharge does expire as scheduled, USPS is likely to enact a simultaneous rate increase. The agency had hoped that “the surcharge could simply be absorbed as part of the scheduled rate change.” But with inflation running so low, it seems likely that the net change in postal rates would be a decrease of 1% to 2%.
Don’t budget those savings just yet, however.
The three-judge panel hearing the appeal seemed to question whether the surcharge would fully compensate USPS for its recessionary losses, according to Stephen Kearney, executive director of the Alliance of Nonprofit Mailers. That may result in the judges remanding the case to the PRC for reconsideration.
“The big risk to mailers in the remand outcome would be a possible determination by the PRC that the exigent rates would need to raise more than the $3.2 billion in their original order,” Kearney wrote. That could mean an increase to the surcharge, most likely in early 2015, or a delay of the surcharge’s expiration.
Pricey Paper
As for magazine-quality paper, the big drama during most of 2014 has involved whether the Department of Justice would allow the two biggest North American manufacturers—NewPage and Verso—to merge. The outcome was uncertain at press time, but there’s no question that paper prices will be rising in 2015.