USPS announces proposed rate hikes for Mailing services products

At a time when it is facing myriad financial headwinds, the United States Postal Service (USPS) announced yesterday that it has raised prices for various services and products, effective January 22, 2012.

The USPS said pricing for: Letters, a 1-cent increase to 45 cents; Postcards, a 3-cent increase to 32 cents; and Letters to Canada and Mexico (1 oz.), a 5-cent increase to 85 cents, among others, will increase. But of most importance to shippers are the planned price hikes for things like: Standard Mail, a 2.124 percent increase; Periodicals, a 2.133 percent increase; and Package Services, a 2.133 percent increase.

USPS officials said that while actual percentage price increases for various products and services varies, the overall average price increase across all mailing services is capped by law at 2.1 percent, the rate of inflation calculated based on the Consumer Price Index. 

“The overall average price increase is small and is needed to help address our current financial crisis,” said Postmaster General Patrick Donahoe in a statement. “We continue to take actions within our control to increase revenue in other ways and to aggressively cut costs. To return to sound financial footing we urgently need enactment of comprehensive, long-term legislation to provide the Postal Service with a more flexible business model.”

These price changes were filed with the Postal Regulatory Commission on October 18, and the PRC has 45 days to review the prices to verify that they comply with the overall 2.1 percent price cap for each class of new mail.

Doug Kahl, principal at Integrity Logistics Consulting Group, told LM that this announcement does not include either Express or Priority Mail products. 

“It will be interesting to see what those increases come out at and how they compare to FedEx and UPS increases for 2012,” he said. “These percentage increases on the Mailing products are very modest. Given the current financial state of the USPS, they appear to be banking on comprehensive legislative reforms as the path to a turn around.”

The financial plight of the USPS is well-documented. In mid-September, it announced proposed changes to its network that it said would deliver $3 billion in annual savings.

Among the network changes proposed by the USPS were to:
-consolidate or close 250 mail processing facilities;
-reduce mail processing equipment by up to 50 percent;
-dramatically decreasing its nationwide transportation network;
-adjusting its network size by as much as 35,000 positions from its current total of 151,000 mail processing employees; and
-changing its First Class Mail service standard from a 1-3 day window to a 2-3 day window, with customers no longer receiving mail the day after it was mailed.

If enacted, USPS officials said these changes would result in: fewer facilities, greater utilization, and efficiency; earlier mail availability driving more efficient local delivery; and more retail partners and kiosks, as well as fewer brick and mortar Post Offices.

The USPS will file these proposed changes with the Postal Regulatory Commission later this year—and an Advance Notice of Rulemaking which was sent to the Federal Register last month. The USPS is eyeing $20 billion in cost reductions by 2015, coming from $6.5 billion in network changes for sorting and transport, retail, and delivery, $5.0 billion in compensation and benefits; and $8.5 billion in legislative changes.

Among the chief legislative changes are going from a 6-day to 5-day delivery schedule, receiving $6.9 billion in overpayments to the Federal Employee Retirement System in the form of a refund, and resolving the mandate to pre-fund retiree health benefits by $5.5 billion annually and manage the legacy cost going forward and allow the USPS to restructure its healthcare system to make it independent of federal programs, among others.

The ongoing diversion of mail from paper to electronic communications has seen total mail volume decrease by more than 43 billion pieces in the last 5 years, with First Class Mail, single piece First-Class Mail down 25 and 36 percent, respectively. The USPS, which still delivers 563 million of pieces of mail per day, is expected to have a deficit of roughly $8 billion this year for the second straight year.

In an effort to reduce its debt and improve its financial condition, the USPS has cut costs by $12 billion over the last four fiscal years and reduced its career workforce by 110,000 employees.

As of the end of the third fiscal quarter, the USPS had reduced work hours by 9.2 million hours or 3.1 percent compared to the same period a year ago, and during the first nine months of 2011, 2.8 percent fewer work hours were used compared to 2010. The third quarter also saw the voluntary retirement of more than 1,850 administrative employees as part of the current restructuring initiative, according to the USPS.