The good news first! the 4.3% demanded price increase (which imho the usps should never have been granted) will be reversed in early april as projected by the postal service based on the revenue they have already recovered.
This was announced by senior USPS executives last fall, and was reiterated just weeks ago by the Postmaster General at the Post Office Technical Advisory Committee (MTAC) meeting in Washington D.C.
so, after receiving about $4 billion in additional revenue due to the 2008 recession, the usps is all too happy to give their customers some breathing room by cutting prices…and i have a bridge to sell. in reality, they do so kicking and screaming about their potential financial pessimism. permanent demand is what they have always wanted, and to maintain it they continually appeal to the courts while at the same time lobbying Congress for legislation that grants their wishes. most think that neither effort has a snowball in hell chance of happening any time soon.
but what if the worst case scenario occurs and the usps succeeds legally or legislatively after the april rollback? unfortunately, the prices would go back up after being reduced. would the usps try to collect the revenue lost between the reversal and the reinstatement of demanding prices? when asked on mtac, deputy pmg had no answer. let’s just hope we don’t experience that scenario.
now for the rest of the good news! there will be no cpi price increase in 2016 as the latest cpi is basically zero. Although in response to requests from the postal industry, the USPS mentioned that they might try to do something to correct the FSS pricing/preparation issues later in the year. if they do, it would have to be “revenue neutral,” meaning you couldn’t generate new revenue for them. however, it could cause some prices to go up while others go down. if that were to happen (and it is becoming less and less likely), the price change up or down would be minimal.
what can we expect in 2017 and beyond?
there will probably be a rise in the cpi in 2017, depending on where the cpi calculation is at the end of this year. Given the state of the economy and the current CPI, I’d aim for not much more than an average increase of 1-2% per mail class. any increase would more than likely be implemented in January. we will have a better idea and projection in the middle of the year.
now the bad news. As required by the 2006 Postal Legislation (PAEA), 10 years after its enactment, the Postal Regulatory Commission (PRC) must review the CPI’s price cap and determine how future price changes should be formulated and implemented. that process will start in december this year and is expected to develop into a procedure in the prc during the first quarter of 2017. reviewing what has happened in the last 10 years is not a bad thing per se. The process and mechanism must be fair to the USPS and its customers.
We believe the CPI price cap has done what it was intended to do…provide certainty and predictability in the timing and amount of any price change, eliminate the time-consuming and costly litigation process that occurred every 3 years in the People’s Republic of China. , and force the postal service to focus on managing and containing costs. however, the usps has a different view. they feel the cap has limited their ability to implement more flexible, market-based pricing, has a negative impact on their ability to maintain service standards, and has hampered their ability to invest for the future. As a result, the USPS’s position going forward would be to remove the price cap and allow the postal service to price market-dominant products (First Class Mail, Standard Mail, Periodicals, Bound Printed Matter) based on consider it appropriate.
These positions, along with those of postal workers’ unions and other stakeholders, will be discussed at the prc. Lawyers and economists are already licking their chops! what could happen? In a perfect world: For those of us who think the price cap has succeeded, the PRC would decide to continue under the current provisions of the law. there could be adjustments to the top (ie cpi + 1 or 2%). the cpi limit could be changed to apply to all market dominant products instead of the current class-based application. The formula for calculating CPI could be changed to better reflect the business and business processes of the USPS. Or, as the USPS dreams, the RPC could remove the cap and allow the USPS freedom to set prices.
whatever the endgame, it is expected that on january 1st 2018 we will face a price increase which could be meant to fix all the bugs (in the eyes of usps and prc) that have accumulated the last few years … cost coverage, savings pass-through and tiering prior to implementing the new pricing mechanism. that should scare everyone.
We want usps to get back on its feet financially, but not at the expense of its customers and mail service providers. While all around you are mergers, acquisitions, downsizing, plant closings, layoffs, and job eliminations, the USPS proudly says that they have never and never intend to lay off anyone. And at the same time, mail volumes continue to decline with no end in sight: USPS work hours have increased, more than 150 direct transit centers are being activated, and the number of employees (full-time and casual) is older than 2 years ago. We believe the USPS can do more to manage costs before they hit the postal industry with higher prices. We’ve already received changes to mail preparation and pricing that were intended to help reduce and/or manage costs, so we have an in-game skin.
Although the review doesn’t start until later in the year, there’s no better time than the present for mail owners to make their voices heard at the PRC and USPS, unless you don’t mind another 2007. From you, who may not remember or were not present at the time, before the paea went into effect, the capping price increase imposed on many shippers amounted to 10-20%. That resulted in a significant drop in volume before the 2008 recession. Speak now or forever hold your peace.