In the latest example of how Postmaster General Louis DeJoy defines “prudent and judicious,” he won Board of Governors support to seek the second price increase on market-dominant products in less than a year. As in the prior rate hike, effective last August 29, DeJoy opted to use nearly all available rate authority. If approved by the Postal Regulatory Commission, the new prices would mean ratepayers would have experienced price hikes of over 13% in less than a year.
In its April 6 filing, the Postal Service detailed the factors contributing to the proposed increase:
- Annual CPI Based Cap Space: 5.135%
- Unused Cap Space from Previous Years:
- Density Rate Authority: 0.583%
- Retirement-Based Rate Authority: 0.785%
- Rate Authority for Non-Compensatory Classes: 2%; in FY 2021, the classes for which attributable cost exceeded revenue were Periodicals and Package Services
In turn, these factors established the total rate authority available to the USPS:
Of that total, the Postal Service chose to use all but a tiny percentage, which it will “bank”:
Adding it to last August’s increase, the total price increase that DeJoy will have imposed on ratepayers in less than a year is far from encouraging the increased use of mail:
Details by class
The Postal Service’s filing offered details of how the class level increases were being distributed among component rate categories and the reasons for some pricing decisions.
· First-Class Mail. “… the Stamp and Meter price differential will narrow from five cents to three cents. … The non-machinable surcharge for Letters will increase from 30 cents to 39 cents, while the additional ounce rate will increase from 20 to 24 cents.
“… The 5-Digit Automation Letters price will increase 6.8%, matching the increase of the Automation Letters category as a whole.
“As reported in the FY 2021 Annual Compliance Determination, cost coverage for First-Class Mail Flats fell below 100%, requiring the Postal Service to increase the price for this product at least 2 percentage points above the class average. The overall increase for Flats is 9.2%, with an overall increase for Single-Piece Flats of 9.1%. … The rate increases proposed in this price notice for Single-Piece and Presorted Flats, combined with an above-average increase of 10.3% for the class in Docket No. R2021-2 (implemented on August 29, 2021), is expected to allow Flats product revenue to exceed its cost, turning Flats into a compensatory product. …
“All First-Class Mail passthroughs comply with the Commission’s new rules … . Out of 16 passthroughs in First-Class Mail, eight passthroughs are exactly 100%, six passthroughs are between 85 and 100%, and two passthroughs are below 85% (Automation Mixed AADC Letters and Nonautomation Machinable Mixed AADC Letters). …
“[Automation Mixed AADC letters] As part of this price case, the Postal Service will increase the discount of 4.5 cents by 22% (to 5.5 cents), resulting in a passthrough of 74.3%. …
“[Nonautomation Machinable Mixed AADC letters] As part of this price case, the Postal Service will increase the discount of 3.6 cents by 22% (to 4.4 cents), resulting in a passthrough of 68.%. … This approach allows the Postal Service to adopt a balanced approach in the pricing of First-Class Mail and avoid potential rate anomalies, including the possibility that Nonautomation Machinable AADC Letters would feature a lower price than Automation Machinable Letters.”
· Marketing Mail. “… In the FY 2021 Annual Compliance Determination, the Commission found that Marketing Mail Flats, Parcels, and Carrier Route did not cover their costs. Accordingly … the Postal Service must raise prices for these three products by a minimum of 2 percentage points above the class average. The Postal Service is, therefore, raising prices 8.543%, 9.785%, and 8.657%, respectively. The Letters product, which provides 61% of Marketing Mail revenue, is receiving a slightly below-average increase.
“High Density Letters are receiving an above-average increase. Over the last few years, comingling has changed the market for Marketing Mail and has effectively made High Density Letters a finer presort level beyond 5-Digit and Carrier Route. This increase aligns the High Density Letter prices more closely with other presort levels and represents an appropriate application of price cap authority to a mail product with stable or increasing volume, which Marketing Mail High Density Letters has exhibited for years prior to the pandemic. …
“The Postal Service is creating two new discounts for High Density Plus and Saturation (including EDDM) flat-shaped pieces in 5-Digit (direct) containers (i.e., pallets, sacks, and tubs). In addition, the Postal Service is extending the discounts for Carrier Route and High Density flat-shaped pieces on 5-Digit (direct) pallets to all 5-Digit (direct) sacks and tubs.
“The reason for establishing these discounts … is that 5-Digit (direct) containers can be taken directly to the carrier and bypass bundle operations in both mail processing facilities and delivery units. …
“These new discounts will not adversely affect either the rates or the service levels of users of postal services who do not take advantage of them. The discounts are generally available, and for those mailers that do not take advantage of them, the rate for High Density Flats not on 5-Digit Pallets (direct) still exists.
“Of 51 passthroughs in Marketing Mail, 30 passthroughs are equal to 100%, 14 are between 85 and 100%, and seven are below 85%. [Non-automation AADC Machinable Letters, DNDC Carrier Route Flats, DSCF Carrier Route Flats, High Density Letters, High Density Flats on 5-Digit (Direct) Container, High Density Plus Flats on 5-Digit (Direct) Containers, Saturation Flats on 5-Digit (Direct) Containers].”
“In the FY 2021 Annual Compliance Determination, the Commission concluded that Periodicals is a non-compensatory class covering only 53.2% of its costs. Accordingly, the Postal Service has an additional 2% rate authority for Periodicals under [statute]. The total price authority for Periodicals is 8.540%, and the Postal Service intends to use all 8.540%, banking 0.000%. The price changes for Periodicals approved by the Governors incorporate the following strategies aimed at improving cost coverage:
- Increasing editorial pound prices to recapture revenue as the makeup of pounds has shifted from advertising to editorial.
- Continuing to lower prices for tubs versus sacks to encourage more efficient mail handling.
- Increasing the price differential between basic Carrier Route and Machinable Automation 5-Digit Flats to encourage the preparation of Carrier Route pieces and reduce costs for the Postal Service.
“In addition, the Governors have approved lowering the Science of Agriculture pound prices for Zones 3-9 to create a uniform price for all zones.
“No Periodicals workshare discount exceeds avoided costs. While many Periodicals workshare discounts have passthrough ratios below 100%, the Postal Service is bringing all of them into compliance with [statute], either by ensuring that the passthrough ratio is at least 85% or by raising the discount by at least 20%.”
· Package Services. “In the FY 2021 Annual Compliance Determination, the Commission concluded that the attributable costs for the Package Services class exceeds its revenue. Accordingly, the Postal Service has an additional 2 percentage points of pricing authority to improve cost coverage for the class. The Postal Service is using nearly all available cap space currently to improve cost coverage, in accordance with the pricing strategy described below.
“First, in response to the Commission’s directive in the FY 2021 ACD to increase BPM Parcels’ prices by at least 2 percentage points above the class average, the Postal Service is applying an above-average rate increase of 10.5% to BPM Parcels.
“Next, … Media Mail/Library Mail prices will increase by 8.9%, which is above the class-average price increase. In FY 2021, Media/Library Mail had a cost coverage of 84.3%. …
“Third, BPM Flats will receive a rate increase of 4.2%. This rate increase will balance out the Postal Service’s use of pricing authority on BPM Parcels and Media/Library Mail….
“In FY 2021, no Package Services passthroughs exceeded 100%. Twenty-five Package Services passthroughs were between 85 and 100%, while three passthroughs [BPM Flats DDU presort, BPM Parcels DDU presort, and Library Mail 5-digit presort] were below 85%. … All passthroughs will be between 85 and 100% following this rate change and therefore in compliance with the Commission’s rules.”
Special Services. “… In the FY 2021 ACD, the Commission found Special Services as a class covered its attributable cost in FY 2021 and had an overall cost coverage of 141.0%. Money Orders was the only Special Services product for which the Commission found FY 2021 revenue was insufficient to cover its attributable cost. As directed by the Commission in the FY 2021 ACD, … the Postal Service must increase Money Orders’ prices by at least 2 percentage points above the class average in each market-dominant rate adjustment affecting the Special Services class through the issuance of the FY 2022 ACD. …”
Promotions. “The Promotions offered by the Postal Service in 2022 are not being changed as part of this price case.”
The PRC will review the filing to ensure that USPS calculations are accurate and the proposed prices comply with statute. Public comments are due by May 6. Barring any delays, the new rates will take effect at 12:01am ET on Sunday, July 10.
The PRC’s authority does not include judging the wisdom of the Postal Service’s request or limiting the amount or distribution of the increase for other than statutory reasons. Those who could alter the Postal Service’s request are the USPS Governors, the majority of whom remain in the thrall of the PMG and sympathetic to his arguments. Like DeJoy, most of his allies on the Board have no practical understanding of ratepayers or the mailing industry. To them, higher prices simply are a means of generating revenue, indifferent to their impact on mail volume and, ironically, the long-term business of the enterprise they lead.
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