October 24, 2018

The Postal Service is growing the revenue and profitability of its competitive package business enough to make a very large, increasingly positive impact.

In its filing of 2019 price changes, the Postal Service shows that a full-year implementation of the competitive product price increase, even after accounting for volume impacts, would increase USPS revenue by $868 million.

Because price increase-induced volume declines would decrease competitive product attributable costs, the impact of the competitive product price increase on contribution would be higher, definitely more than $1 billion per year.

The March 1, 2018 Alliance comments in the ten-year rate review, we highlighted that competitive product contribution has historically been growing by about $1 billion per year and that was likely to continue.  (See pages 71-75).  We argued that “[t]he Commission may not ignore the projected growth in contribution from competitive products on the theory that the growth may slow eventually.”  Further, we stated that “[t]he only sensible approach, as with any projections of this kind, is to rely on the best evidence of record available today.  The best current evidence shows that the revenue and contribution from competitive products will continue to grow for the foreseeable future.”

The Postal Service’s recent competitive product price increase filing (CP2019-3) confirms our position.  Specifically, FY 2019 competitive product contribution is estimated by the Postal Service to be $8.6 billion (with January 2019 rate implementation) and $9.0 billion (with full-year implementation), about $2 billion higher than the actual $6.8 billion FY 2017 actual competitive product contribution.

While competitive product volume growth has slowed somewhat, the Postal Service has increased competitive product contribution substantially through well-above-inflation price increases.  The increasing contribution from competitive packages at $1 billion per year must be included in any assessment of the future financial stability of the Postal Service.