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PRC Rules on Postage Rate Hike, Exigent Ruling Due Next Month

The USPS can raise the price of a stamp from 46 to 47 cents in January, but whether the agency can raise it to 49 cents has yet to be decided. On Thursday, the Postal Regulatory Committee (PRC) approved the Postal Service’s September request to raise Market Dominant rates in accordance with the rate of inflation as measured by the Consumer Price Index, but with one caveat having to do with its requirements for improved mail tracking called Intelligent Mail barcode – more on that below.

But the USPS had also submitted a renewed exigent request in September asking to raise rates higher than the Consumer Price Index due to the 2007 – 2009 recession, and PRC Chairman Ruth Goldway told EcommerceBytes to expect that ruling in about a month, calling the exigent request “complicated.”

Note that the exigent request does not impact Competitive products such as Priority Mail, but does impact Market Dominant products, including First Class Mail. (See more on how Priority Mail rates will change in January.

As a basis of comparison:

Under the Market Dominant price adjustment, the cost of single-piece letters and cards would increase 1.141%, while the cost of parcels would increase 6.335%. (Note that the latter is higher than the overall increase for First-Class Mail because its cost coverage is 98.5 percent – in other words, the revenue generated doesn’t cover its cost.)

Under the exigent request, the cost of single-piece letters and cards would increase 4.276%, while the cost of parcels would increase 4.349%.

The Exigent Request: History
In March 2010, the USPS outlined a 10-year plan to address declining revenue and volume, including a call for a move to five-day delivery. It also filed a request for exigent rate increase, arguing a causal relationship between the recession of 2007 – 2009 and its dire financial predicament, and asking the PRC to approve the rate hike based on a sharp decline in mailing volumes “due to” the poor economy.

PRC Chairman Goldway acknowledged the recession was an exigent circumstance but denied the request, because the Postal Service failed to quantify the impact of the recession on its finances and to show how its rate request related to the resulting loss of mail volume.

The USPS took the matter to court, which sent the case back to the PRC in 2011, and in December of that year, the PRC issued Order No. 1059 in which it granted the Postal Service’s motion to supplement the record and stated that, if the Postal Service wished to continue pursuing its exigent request, it would have to complete the submission of an entire case.

The Exigent Request: Current Events
The USPS held off on responding to Order No. 1059 in the hopes that Congress would pass postal reform legislation, saying it had considered it prudent to delay responding in the hopes that comprehensive legislation would provide sufficient financial relief, but said last month it had reached a position where it had to move forward.

The USPS renewed its exigent request in September, characterizing it as reasonable. “While the Postal Service could have requested price increases equaling several billion dollars in contribution, it has limited itself to increases equaling $1.78 billion in annual contribution. It did so out of an abundance of caution. The Postal Service is mindful that mailers are also facing a slow recovery from the recession, and therefore it is being careful to avoid significant price increases.”

It also said that, “even if one were to focus only on the losses through 2009, the Postal Service’s request for $1.78 billion in contribution represents less than half of the contribution lost due to the recession through 2009.”

One of the authors of the Postal Accountability and Enhancement Act of 2006 (PAEA), Maine Senator Susan Collins R-ME, submitted a letter to the Postal Regulatory Commission in September outlining her opposition to the USPS exigent rate request, arguing that the revenue losses resulted from “the effects of electronic diversion” rather than the recession.

Goldway told EcommerceBytes last week that the concept of the PAEA was to provide for emergencies such as a hurricane that wiped out facilities in 3 states, or some emergency where the Postal Service couldn’t deliver mail and lost a lot of revenue and needed to get money back, “so it would be an isolated instance and you’d have a surcharge on the rate to just pay for that. But this is more structural in nature, so is it okay to build in a permanent rate increase or should it be still be structured as a kind of surcharge?”

The Exigent Request: Timing of the Decision
“We have 90 days in which to do it,” Goldway said, “and the 90 days end somewhere before Christmas, and then with the shutdown, we could take another 16, we’re trying not to. So that decision won’t come out until the earliest late next month. But the Postal Service has the permission to raise, for instance, First Class rates from 46 to 47 now, with the decision issued (last week).”

The Regular CPI Request
While normally the PRC would approve market dominant rate increases in line with the Consumer Price Index, this year it was complicated by something called the IMb.

Effective January 26, 2014, the USPS is requiring a Full Service Intelligent Mail barcode (IMb) on all First-Class Mail postcards, letters, and flats, Standard Mail letters and flats, Periodicals letters and flats and Bound Printed Matter flats in order to qualify for automation discounts. (In other words, it affects volume mailers such as those in the Direct Marketing industry.)

Parties filing comments about the request expressed concerns regarding the Postal Service’s failure to include the impact of the mandatory requirements of Full Service IMb in its price cap calculation. One asserted that “If the Postal Service can increase revenue through changes in mailing rules, the Postal Service will be able to contrive, without limit, mailing rules that can drive mailers to more costly rate categories or classes of mail so that revenues will increase significantly without regard to the price cap limitations.”

The PRC determined that Full Service IMb mail preparation requirements were a classification change and that its effects must be included in its calculation of the percentage change in rates. “Concurrent implementation of the proposed rate adjustments and the Full Service IMb requirements would result in increases in First-Class Mail, Standard Mail, and Periodicals that exceed the statutory Consumer Price Index price cap, currently at 1.696 percent.”

According to the ruling, “The Postal Service may implement the proposed rate adjustments, minus the Full Service IMb requirements, effective January 26, 2014. Alternatively, the Postal Service may adjust its proposed rates for First-Class Mail, Standard Mail, and Periodicals rates in a manner comparable to the implementation of Full Service IMb requirements in Package Services and file amended rates.”

Goldway told EcommerceBytes, “Our job is to make sure the Postal Service raises prices no higher than the CPI for every class of mail.” The Postal Service must notify the PRC of its intentions and provide necessary supporting documents by November 27, 2013.

The USPS released a statement in response to the PRC’s decision last week, calling it “ill-conceived” and stating it demonstrated why comprehensive postal reform legislation should include additional pricing authority for the Postal Service Board of Governors.

“The Postal Service strongly believes that the PRC’s decision hinders growth opportunities for the mailing industry and the Postal Service, and harms our efforts to ensure our financial stability. The Postal Service remains committed to 100 percent Full-Service IMb adoption and we will continue working to achieve this goal.”

In the meantime, mailers will have to wait until late next month when the PRC rules on the exigent request to learn if rates could rise even more dramatically.

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Ina Steiner
Ina Steiner
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). She is a member of the Online News Association (Sep 2005 - present) and Investigative Reporters and Editors (Mar 2006 - present). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com. See disclosure at EcommerceBytes.com/disclosure/.