This week, the U.S. Postal Regulatory Commission (PRC) received a letter from me that began, “We are writing to express our strong opposition to the rate-making framework you have proposed as a result of your 10-year review of the CPI-based annual price cap established under the Postal Accountability and Enhancement Act (PAEA).” The language got a little stronger on page two: “For these reasons, we urge you to reconsider your decision to impose these draconian rate increases.”
My letter was written to add IWCO Direct’s voice while the PRC is accepting comments on its “Statutory Review of the System for Regulating Rates and Classes for Market Dominant Products” or Docket No. RM2017-3. Those who know our history know that IWCO Direct was a loud and constant voice when the PAEA was first enacted, and we have continued to try to educate and persuade our legislators that the financial challenges faced by the Postal Service are the result of the prefunding requirement for USPS retirees that was imposed more than ten years ago.
Remove the Prefund Requirement, Don’t Raise Postage Rates
The PRC is proposing a new rate-making framework that has our industry’s collective head spinning. In short, they are proposing massive (aka draconian) postage rate increases that are completely unnecessary. Here’s why the proposed rate increase is not needed. Of the Postal Service’s accumulated $59.113 billion loss, $54.8 billion was due solely to the requirement that it prefund its financially healthy retiree health plan. Congressional action to eliminate this harmful requirement is what is needed, not excessive postage rate increases that will cripple this industry.
In addition, the PRC rate proposal would give the Postal Service use-it-or-lose-it authority, which it most certainly would use in full, to raise rates by at least 2% above the CPI-based cap for each market-dominant rate class for five years. Furthermore, the rate proposal allows an additional 1% for adhering to service standards and productivity targets. The proposed increase based on service standards and productivity targets does not go far enough to encourage operational savings or achievement of service performance by the Postal Service. We believe the Postal Service must earn these postage rate increases by attaining efficiency and service performance improvements defined and overseen by the PRC.
Postage Rate Increases Will Destabilize the Mailing Industry
It’s more important now than ever before for the PRC to understand the transformation the mail supply chain has undergone and the way its pricing proposal will undermine the mail supply chain. Rate increases by the Postal Service have been moderated with strategic investments made by the mail services industry to support increasingly complex mail preparation to qualify for the most preferred postage rates through incentive programs such as commingling, co-palletization, co-mailing, and palletization, to name a few.
Like IWCO Direct, most mail and print service providers and logistics and transportation companies have made prudent capital investments to reduce costs and improve workflow and throughput efficiencies. Rather than ask the Postal Service to achieve similar productivity improvements, the PRC’s proposal provides the Postal Service excessively broad pricing flexibility at a time when tight margins and pricing uncertainty could easily destabilize the mail supply chain and encourage users of the mail to seek alternative channels for distribution.
The proposal put forward by the PRC is not in the best interests of the Postal Service or the mail supply chain as a whole. By damaging the mail supply chain, it also threatens the Postal Service’s main source of revenue.
Furthermore, the current CPI-based rate cap system incents the Postal Service to reduce costs and increase efficiency—the first objective of the rate cap established by Congress. As economists expect inflation to start to increase, now is not the time to reduce the incentives for the Postal Service to become leaner and more efficient.
Tomorrow is the Deadline to Speak Your Mind
My letter concluded by suggesting the PRC’s approach should follow the Hippocratic Oath: “First, do no harm.” Their current proposal would do fundamental and long-lasting harm to the mail supply chain and the viability of mail as a central channel for communication and commerce. We need to find a win/win solution to stabilizing Postal Service finances—one that retains and grows mail volume and allows the mail channel to successfully compete with digital options.
The PRC comment period closes tomorrow. If you share our concerns, we hope you’ll let the PRC know. To add your voice, go to the PRC website, create a temporary account, and upload your comments today.
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