Postal rates returning to inflation cap on April 10–March 16, 2016

Our first Alliance Report of this year led with: Ten reasons to be optimistic about USPS in 2016. It was one of our most widely-read articles in some time. Reason #5 was: “This spring, USPS should get a first-ever volume boost from a general rate reduction.” We reported in an Alliance Alert on February 25 that the Postal Service has set April 10 as the date to return all market-dominant postage rates to the Consumer Price Index (CPI) cap that has been in place since 2006. And USPS is providing useful information to mailers for the transition back to the CPI cap.

All postage rates for First Class, Standard and Periodicals Mail will subtract the 4.3 percent extra charge that mailers have been paying since a surcharge was added to normal postage in late January 2014. On April 10, the USPS will have collected its due for enduring losses associated with the 2007-2009 recession: $4.6 billion. This contribution amount was set by the Postal Regulatory Commission (PRC) and affirmed by the D.C. Circuit of the U.S. Court of Appeals in the Alliance of Nonprofit Mailers case.

We have heard from many nonprofits that they plan to use the upcoming price rollback as an opportunity to raise more funds for their causes. While very few plan to delay mailings planned for before April 10, most that we hear from say that they either already have decided or are considering increasing their mailings after April 10. Mailing more due to lower rates fits well with the data showing nonprofit Standard Mail volumes dropping 4.7 percent after the imposition of the 4.3 percent surcharge.

The Postal Service has chosen to strongly oppose the across-the-board rollback of rates this spring, rather than embrace it as an opportunity to build volume. The USPS is a big believer in Negotiated Service Agreements (NSAs) that it reaches with individual customers, contracts that reward higher volume with lower prices. They prefer NSAs because they are set up to be risk-free for USPS: customers only receive rebates if they exceed agreed-upon volume thresholds. In the coming days and weeks, USPS has the opportunity to employ a widely successful business strategy of building the business with a general price reduction.