October 19, 2017

Recently announced rate changes have lots of variation around the average 1.9%.

The monopoly mailing rate changes announced recently for January 21, 2018 implementation average an increase of about 1.9 percent, but mailers need to check their type of mail to find out the real impact. There is much variation from the average, which has been the norm in recent postal price changes.

Our rate comparison charts for nonprofit Marketing Mail ® are here. And our price change tables for Periodicals are here.

A look at the variations within MM:

Between NP MM letters and flats

A prime example is the range of piece-rate changes within Marketing Mail (formerly known as Standard Mail) which is the main postal service nonprofits use for fundraising. Two big categories within nonprofit MM, letters and flats, have widely-different proposed changes. The 9.5 billion MM letters that nonprofits mail will experience an average 4.4 percent rate increase, while the 1.1 billion nonprofit MM flats will go down an average of 3.7 percent in price.

Within NP MM letters

Within NP MM letters, there is more variation. For example, automation letters entered at origin and sorted to mixed AADC will go up 0.6 percent, and those prepared for 5-digit will rise 1.5 percent. But their more work-shared counterparts drop-shipped to the DSCF and sorted to the AADC will receive a 6.7 percent increase, and those sorted to 5-digit will go up 5 percent.

The Postal Service says it must offer lower pricing incentives for the private sector to work-share because the current ones exceed their internal savings from sharing the work. This is known as the “pass-through” issue that the Postal Regulatory Commission has been admonishing USPS to fix.

Many believe that, with the decline in volumes experienced in recent years, USPS has excess plant capacity and employees. This would tend to diminish the calculated value of work-sharing unless or until operations are right-sized.

Within NP MM flats

The variations within flats are also large, but the directions are mostly reversed from those in letters. MM flats mailed at origin and sorted to mixed AADC get a 6.1 percent increase. But those mailed at origin and sorted to 5-digit get a 7 percent price cut. If a flat is dropped at a DNDC and sorted to mixed AADC it gets a 6.5 percent hike, but if it sorted to 5-digit, the price drops 8.8 percent. Likewise, those drop-shipped to the DSCF and sorted to the ADC will go up 3 percent, but if sorted to 5-digit, a 9.4 percent price reduction.

Between NP and commercial

The law requires that the revenue per piece of NP MM must equal as closely as practicable 60 percent of that of commercial MM. In this rates proposal, USPS has documented that it expects to hit 60 percent on the nose. We provide the chart documenting the compliance here.

USPS is reaching this goal in an unorthodox way with big differences between NP and commercial MM, keeping in mind that commercial volume outnumbers NP by four to one. Here we show the NP and commercial MM changes together:

MM Letters

Commercial  + 1.7 %

NP                   + 4.4 %

MM Flats

Commercial  + 3.4 %

NP                   – 3.7 %

USPS explanation of the variations

We appreciate that USPS answered our questions about these variations within MM:

“As you know when pricing Marketing Mail we must balance a number of constraints. These include nonprofit average revenue per piece equal or are as close as practicable to 60% of average revenue per piece for corresponding commercial prices, and workshare passthroughs equal or are less than costs avoided. In order to address a PRC mandate from the FY2016 Annual Compliance Determination, the DSCF and DNDC dropship passthroughs needed to improve by at least 10 percentage points.  Cumulatively, these constraints resulted in nonprofit letter prices increasing greater than commercial letters, and nonprofit letters increasing greater than the nonprofit flats increases.”  

While we understand that balancing the 60 percent law and the goal to reduce work-sharing passthroughs is a complicated process akin to three-dimensional chess, we do not fully understand why it would necessarily have led to the interesting disparities within NP and between NP and commercial. But the USPS certainly is within its rights to do its pricing this way.