As you may have heard, changes are coming to the process for setting postage rates. Media headlines suggest the changes are already a done deal, but that is far from accurate. Here’s what’s really going on in the world of postage rates.
A Little Background
Our current postal law, the Postal Accountability and Enhancement Act (PAEA), passed in December 2006. PAEA created the existing CPI-based rate-setting process for Market Dominant products (mostly First-Class Mail, Marketing Mail, and Periodicals). It also requires a review of the rate-setting process by the Postal Regulatory Commission (PRC) after the law had been in effect for 10 years. The review, which began in December 2016, was to determine if the system of ratemaking met the nine objectives articulated in the law. If not, a revised system that would better meet those objectives would need to be proposed.
The PRC’s Decisions
The PRC issued two decisions on December 1, 2017. In the first, they encapsulated the nine objectives in the law into three principal themes: (1) the structure of the ratemaking system; (2) the financial health of the Postal Service; and (3) service. While the PRC declared the law “largely successful” in achieving goals related to the structure of the ratemaking system, it said the system “has not maintained the financial health of the Postal Service” and has not allowed the Postal Service to maintain “high quality service standards” over the past 10 years.
In the second decision, the PRC proposes to allow the Postal Service to raise rates faster than the rate of inflation. For five years, their rate cap would be two percentage points above the rate of inflation as a catch-up aimed at providing financial stability. The Postal Service would be able to “earn” an additional percentage point above inflation based on efficiency gains and maintaining service standards. In addition, the Postal Service would be mandated to levy an additional 2% increase on any postal products not considered to be covering their costs. These products are primarily Periodicals and Marketing Mail Flats. The proposal also includes establishing upper and lower limits for how closely worksharing discounts need to reflect cost avoided by the Postal Service due to the worksharing.
Although the PRC refers to this proposal as a “complement” to the current rate cap system, what they have created is a de facto cost-of-service system—one in which the Postal Service calculates its projected costs and then sets the rates needed to meet those costs without any incentive to keep costs under control. One of the primary goals of PAEA was to replace the ineffective cost-of-service system in place prior to its passage.
Reaction to the Decisions
Both the Postal Service and the mailing industry have expressed dissatisfaction with the PRC proposal. A statement issued by Postmaster General Megan Brennan observed, “We continue to believe that any price cap is unnecessary in the rapidly evolving postal marketplace … We seek a regulatory system that gives the Postal Service the flexibility to adopt the pricing innovations that will be critical to our ability to compete in the marketplace.”
A statement issued by mailing industry group The Coalition for a 21st Century Postal Service declared, “The more-than-doubling over 5 years at current inflation rates proposed by the Commission would be harmful to postal customers and the Postal Service. While an increase in postage rates may bring some short-term relief to the Postal Service, it may create more harm than good by potentially forcing much more mail out of the system.” This is an opinion widely shared across the mailing industry, including by IWCO Direct.
What Comes Next?
The PRC has established a 90-day comment period during which postal stakeholders can offer feedback, constructive criticism, and alternatives to the PRC’s proposal. Comments must be received by the PRC no later than March 1, 2018. There will then be a 30-day period for reply comments (to the initial set of comments) that closes on March 30, 2018. At that point, the PRC will review all comments, perhaps modify their proposal, and issue a Notice of Final Rulemaking (NFR) that will be posted in the Federal Register. There is no specific timeline the PRC must meet in issuing the NFR, but we don’t expect to see the NFR any sooner than a month or two after comments close—and it could easily take the PRC even longer than that to issue a final ruling.
Given the strong opinions already in place on this proposal, once the final ruling has been issued, it is highly likely that it will be challenged in the Court of Appeals by members of the mailing industry, the Postal Service, or both (depending on the details of the final ruling). This could extend this process even further into the future.
What Can You Do?
If you share our concern about the effect this ruling could have on mail volume and the mailing industry, we encourage you to do two things:
- Contact your members of Congress and encourage them to support H.R. 756, the Postal Service Reform Act of 2017, which is a more comprehensive approach to postal reform. This comprehensive approach goes beyond trying to solve all the Postal Service’s financial challenges through price increases.
- Tell the PRC what you think—and submit your comments by the deadline of March 1, 2018. Work with your industry associations (or offer comments of your own) to the PRC to advise the commissioners how you believe their proposal will affect your business and to share alternative proposals that would better support the full postal ecosystem.
It’s time for the mailing industry and those who use the mail to create customers to get involved. Our future depends on it.
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