It’s getting to be that time when companies start to think about budgets for the coming year. For mailers, this includes the annual look into the crystal ball to try to determine what postage rates they will need to build into their budgets. For 2018, this process is proving particularly challenging based on the number of moving parts.
Events that postal nerds have been following include changes in the inflation-based rate cap, the lack of presidentially-appointed governors on the USPS Board of Governors, efforts of the USPS pricing team to better align drop-shipment discounts with projected cost savings, chances of a postal reform bill making it through Congress this year, and progress by the Postal Regulatory Commission (PRC) on completing its 10-year rate and regulatory review.
Here’s what my crystal ball is showing for 2018 postage rates, rules, reform, and review.
The Consumer Price Index (CPI) has remained relatively stable since last September, when the Postal Service filed for its 2017 price adjustment. The rate cap currently is just below 2% and isn’t expected to rise significantly before the Postal Service files for its 2018 postage rates. So budgeting for an average increase of 2% is a good starting point; the question is how much individual rates will vary from that starting point.
The Postal Service is expected to file its 2018 postage rate adjustment request with the PRC in September or October. It is projected that new rates would take effect January 21, 2018.
The Board of Governors Situation
There has been some discussion in the mailing industry about whether the Postal Service will be able to legally file for a rate increase given that they currently lack any presidentially-appointed governors. The Board of Governors presently consists of just the Postmaster General (PMG) and the Deputy Postmaster General (DPMG). Governing postal law (the Postal Accountability and Enhancement Act [PAEA]) reserves certain activities, such as approving rate adjustment requests to be sent to the PRC, for the presidentially-appointed members of the board, excluding the PMG and DPMG.
However, in its recent PRC filing raising the penalty rate for non-compliance with Move Update requirements, the Postal Service revealed that its last non-management governor, James Bilbray, had approved that penalty rate increase before his term of office expired in December. It is now assumed that governor Bilbray also (pre)approved a potential CPI-capped rate increase for January 2018 as well. Since such a measure would have been approved nine or ten months ahead of the actual filing, it is also assumed that the measure would allow the Postal Service to file for an across-the-board increase in line with inflation without much, if any, change to the rate structure. We won’t know for sure until the actual filing this fall.
A further consideration is that the rate cap is an average that applies to an entire class of mail. The Postal Service can distribute that average any way it wants across the rate tiers in that class. In early 2016, the Postal Service discovered it had been miscalculating the costs avoided by the drop shipment of letter-sized Marketing Mail. The pricing team is gradually reducing the differential between Sectional Center Facility (SCF)– and Network Distribution Center (NDC)–entered mail and origin-entered mail. In January 2017, the price increase for SCF-entered letter-sized Marketing Mail was 2.5 – 3.0% compared to the class average of about 0.9%. If the Postal Service weights the 2018 postage rate increase more toward drop-shipped mail, as they did in 2017, mailers using SCF-entry for letter-sized Marketing Mail may see rate increases closer to 3.5 – 4.0%, rather than the 2% overall average.
Postal Reform Legislation
Another factor that could have an effect on postage rates in 2018 is whether a postal reform bill is passed into law. H.R. 756, which passed out of the House Oversight and Government Reform Committee in March, includes a provision allowing the Postal Service a one-time 2.15% rate increase. Although postal stakeholders were encouraged to see this bill pass out of committee in a bipartisan manner, it now appears the momentum toward much-needed postal reform has slowed, and Congress isn’t likely to address postal reform until larger issues such as health care and tax reform are off the table. I’m doubtful that the one-time increase included in this bill will be a feature of the 2018 rate environment.
The PRC continues to move ahead with its statutorily mandated review of rates and rate-setting regulations developed in response to passage of PAEA in 2006. The Commission is expected to release its first ruling as part of this review in September. If the PRC finds that the current rate-setting process does not provide “adequate revenues” for the Postal Service to maintain financial stability, it would likely call for stakeholder input on how to ensure adequate revenue before issuing another ruling mandating changes in the process.
It is unlikely that such a ruling would happen before December, so again I’m doubtful that the outcome of this process will immediately impact 2018 postage rates. The mailing industry needs to keep a close eye on the proceedings and provide feedback to the Commission if it should rule that changes are needed in the rate-setting process, but any impact the PRC review may have on rates isn’t likely to take effect until mid-2018 at the earliest.
For those readers who are trying to estimate the rates they’ll pay in 2018 for SCF-entered, letter-sized Marketing Mail, my best advice, based on what we know now, is to plan for an increase in the 3.5 – 4.0% range. IWCO Direct continues to track the events that will drive 2018 postage rates!
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