After the U.S. Postal Service (USPS) released its 10-year strategic plan, Delivering for America, I shared my thoughts on the strengths and weaknesses of the plan. Two of my largest concerns were the limited focus on growing mail volume and the plan’s reliance on price increases to drive financial stability. Since the plan was released, the USPS has proposed the largest postage rate increase in 15 years. This significant increase reduces the predictability of prices for USPS customers, deters use of USPS services, and will drive further volume declines. The primary justification for such a significant postage rate increase to be implemented after marketing budgets were already set for the year was pessimistic financial forecasts, created at the height of the pandemic, projecting the USPS would lose $160 billion over the next ten years.
Achieving Financial Stability Without Excessive Postage Rate Increases
A new analysis sponsored by the Envelope Manufacturers Association (EMA) and the Greeting Card Association (GCA), updates these forecasts to reflect new data, demonstrating that the above CPI rate increases scheduled for implementation on August 29 are unnecessary. (Full disclosure, I’m honored to be the Chairman of EMA’s board of directors.) This study, conducted by NDP Analytics, shows year-to-date USPS and economic performance have outpaced expectations, making the projections used in the plan no longer accurate.
The study offers three alternative scenarios that show the USPS can become financially stable without raising rates above CPI. The three scenarios created by NDP keep most of the assumptions in the USPS strategic plan in place, but update FY2021 base year data and volume assumptions based on current data. In all scenarios, USPS would generate more revenue over time and become financially stable without raising rates for market dominant products above CPI. In total, these more accurate scenarios would generate surpluses ranging from $1.8 billion to $22.1 billion over 10 years.
As the study states, “This action [above CPI postage increases] ultimately hurts, not helps, USPS customers and the USPS bottom line.” The study goes on to recommend, “In order to reach financial stability in the long term, USPS should focus on maximizing revenue not by excessive rate increases, but by taking actions to minimize volume declines, such as maintaining consistent rates and striving for high service standards.” For more background on the study findings, check out the summary in this infographic.
Mailing Industry Opposes August 29 Postage Rate Increase
Mailing industry associations have appealed the order by the Postal Regulatory Commission (PRC) that grants the USPS above CPI rate authority to the Circuit Court for the District of Columbia. That case is unlikely to be resolved before the end of the year, so the associations are also asking the court to stay implementation of the postage rate increase until the case is resolved. We’ll know in a couple weeks whether the request for stay was successful.
Our clients have shared with us the meaningful impact this postage rate increase, which wasn’t included in their 2021 budgets, will have on their marketing programs and mail volumes for the balance of the calendar year. IWCO Direct urges the USPS management and board of governors to choose a path to financial stability that drives growth in mail volume, not decline.