March and April have been eventful months for the mailing industry and marketers. The President has signed the Postal Service Reform Act of 2022 into law. The Postal Service also filed a proposal for a 2022 postage rate increase with the Postal Regulatory Commission (PRC), with rates set to increase in July.
Postal Service Reform Act Becomes Law
After more than 12 years of work by postal stakeholders, Congress passed the Postal Service Reform Act with strong bi-partisan majorities. While it doesn’t include everything stakeholders were hoping for, it is a good start and establishes the groundwork for a financially stable postal system. Issues addressed by the bill include:
- Incorporating Medicare into USPS retiree healthcare,
- Lifting the requirement to prepay retiree health benefits,
- Codifying six-day-per-week delivery,
- Allowing the USPS to support other government agencies, and
- Requiring the USPS to create a service performance dashboard.
The first two items are the most impactful elements of the bill. Taking advantage of the Medicare taxes paid by both postal employees and the agency, as well as allowing the Postal Service to take a “pay-as-you-go” approach to retiree health benefits, will help clean-up the agency’s balance sheet and save it about $2 billion each year. As you will see below, the passage of this law will not immediately result in lower postage rates, although the healthcare funding changes in this law did reduce some of the rate authority available to the USPS. However, the balance sheet improvements this law creates will make it harder for the USPS to justify large postage rate increases in the future.
2022 Postage Rate Increase Coming in July
The 2022 postage rate increase proposed by the Postal Service averages 6.5% for First-Class and Marketing Mail letters and 8.5% for Marketing Mail flats. If approved by the PRC, new rates will take effect on July 10. While similar in magnitude to the price increase that took effect last August, this summer’s increase has a different primary driver. Last year, the size of the increase was driven by the pandemic-induced decline in mail density (fewer mail pieces per delivery), while this year, mail density has largely remained stable, but inflation has risen significantly.
With First-Class Mail, the retail single-piece rate is only up 3.5%, so commercial automation and presort rates are increasing slightly more than average, around 6.9%.
For Marketing Mail, 5-digit letters drop shipped to a destination sectional center facility (SCF) match the 6.5% average, while high density enhanced carrier route letters will increase by about 12%. That said, it’s still worth pursuing high density qualification, as the per piece rate is still 2.6¢ less than 5-digit.
One piece of good news is discounts for entry of mail at both SCFs and network distribution centers (NDCs) are increasing, encouraging entry of mail deeper in the postal network, which supports faster, more accurate in-home delivery.
We were encouraged by comments made by Postmaster General Louis DeJoy in his remarks to the MTAC open session earlier this month that the Postal Service is considering forgoing a potential postage rate increase in January 2023. A final decision will likely depend on how the Postal Service’s financial situation develops over the balance of this calendar year, and whether inflation continues at its current pace.
IWCO Direct Can Help
IWCO Direct can help you cope with rising postage costs in a variety of ways:
- Our postal optimization and logistics program continues to drive the lowest possible postage rates;
- Our marketing strategists provide modeling and analysis to ensure your return on your marketing investment remains strong;
- Our operations team supports participation in all USPS Mailing Promotions, which can significantly reduce postage spend.
To better understand how you can manage the impact of the 2022 postage rate increase on your marketing programs, reach out to your IWCO Direct account team today.