Price Changes. It's Not That Simple

People often ask about price changes – why they’re when and what they are, and why the USPS can’t simply reduce its costs. It’s really not that simple.

The USPS needs to raise rates to increase revenue because, like other businesses, its expenses increase over time, and just like them it needs more income to pay its bills. The Postal Service is also legally obligated to charge enough money to cover its costs. Ideally, the USPS (like any other business) could lower or moderate its prices to increase or retain business. But the USPS has public service obligations, service requirements, and financial mandates that make it infeasible to not raise prices to pay for the growing costs they represent.

So why not just cut costs? The short answer is that a lot of USPS costs are beyond its control. Employee compensation and benefits represent about 80% of USPS expenses, but that includes externally-established costs for health insurance under federal health insurance plans, mandated full prefunding of retirement and retiree health care costs, and the liability for workers’ compensation claims. Though the USPS could do a better job of trimming salary and benefit terms that it negotiates with its labor unions, history has shown that arbiters generally support the unions’ positions if contract negotiations fail.

Mail delivery is the Postal Service’s most costly operation, and every year delivery personnel have less mail, representing less postage revenue, to deliver to more addresses, yet Congress blocks the USPS from cutting Saturday delivery of letters and flats.

Retail and mail processing operations also are significant costs, but Congress won’t let the USPS shutter money-losing post offices, or trim the processing infrastructure to better match mail volume.

Then people ask why Congress doesn’t fix it all. In a way, Congress is the problem. Aside from how it meddles in delivery, retail, and processing operations, it lacks the political courage to rationally define the service obligations of the Postal Service and how those are to be funded.

As for this recent price change, the 1.9% is what’s allowed under the CPI-based cap on rate increases. That cap is applied at the class level, so different rate cells can be adjusted differently to influence mailer practices, like presorting, barcoding, or destination entry, or to ensure logical rate relationships. Some changes are made because they’re required. For example, if a worksharing discount is greater than the value of the work avoided for the USPS, that discount either has to be justified under specific criteria or reduced to no more than 100%. Similarly, if the price isn’t enough to cover the costs for the corresponding type of mail (such as for flat-size mail), more aggressive increases are applied to try to correct the problem – but such “over-CPI” increases need to be offset by little or no change in other rate cells so that that class-level cap is obeyed.

We are offering two FREE webinars that outline the proposed changes, please join us for on either Tuesday, October 15 or Tuesday, October 22 from 1-2pm (EST). You can register using the links below:

Tuesday, October 15

Tuesday, October 22

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