Postage Rate Reduction? Too early to know.

USPSThere’s been talk in the industry about possible rate reductions in August, when the USPS is expected to reach its revenue cap on the current exigent rate hike. While some are saying we can expect a rollback, it’s too early to know what will happen next. There are a couple of possibilities:

  • The USPS could remove the current surcharge in August, allowing the PRC time to recalculate lost revenue and then roll-out a new surcharge; or
  • They could keep the current surcharge active while the PRC recalculates the new revenue loss and timeline.

It’s highly unlikely that the rates will rollback. Let’s take a closer look at the history of the exigent rate hikes to understand why.

The USPS first filed for an exigent rate hike in 2010, but it was denied because it failed to quantify the specific impact of the recession on postal finances. After a year of legal wrangling, the PRC ordered the Postal Service to exclude factors that were not part of the recession, like the electronic diversion of First Class bills and statements that was already occurring before the great recession started.

Two years later in September 2013, the Postal Service renewed its request for an open ended 4.3% rate increase. Before Christmas that year the PRC granted that increase, but only for as long as was necessary to yield $2.8 billion of additional profit to offset the losses from the recession – the revenue cap that is currently in question.

The Postal Service appealed this decision, and 2014 dragged on without a decision from the courts while the Postal Service continued to move closer to reaching its $2.8 billion cap. On May 19 of this year multiple letters were sent from the Postal Service, PRC, and industry leaders requesting a definitive ruling, and on June 5th, 2015 the court’s decision was finally published.

The PRC claimed that the Postal Service was only allowed to “count once” the volume of mail lost due to the recession. The courts noted that the emergency lasted for three years, and all volume lost due to the recession should be considered. Based on this reasoning, the courts nullified the PRC’s “count once” portion of the order and remanded it back to the PRC.

What does the ruling mean?   First, it means the 4.3% exigent surcharge will not be permanently baked into prices. However, it is also means that the current $2.8 billion cap on exigent profit will likely be increased to some new larger amount, to take into account the three years of exigency now that the “count once” policy is null. The PRC now needs to determine the additional volume loss that needs to be considered, which will likely raise the cap significantly.

A decision on any new cap needs to happen quickly, as the Postal Service could hit the current cap as soon as early August.  This does not mean the postage will be reduced; it just means they need to decide by August what the new cap amount will be. It is highly unlikely that they will roll back prices; as of July 6ththe USPS and the PRC were still billions apart in their calculations of where the cap should be.