Hike Rates from USPS
The US Postal System is likely to raise its rates as it seeks to implement a new system that ties price hikes to increases in costs. Regulators have issued a new proposal where the existing system is to be overhauled completely.
The Postal Regulatory Commission isn’t ready to relinquish the authority to fix the rates of the services offered by the US Postal System, something that the latter’s management has repeatedly requested.
This new proposal seeks to link the USPS’s price caps to 2 major cost drivers – mandatory payments that the USPS needs to make for providing adequate benefits to future retirees and the falling mail density. PRC has suggested an improved formula that also takes into account the higher expenses of sending mail in areas with less density. Another formula has also been suggested that takes into account the cost of total mandated payments meant for retirees. This calculation is to be slowly phased in during a period of 5 years.
Another proposal also seeks to combine performance-linked price adjustments. Instead of being able to unlock incremental adjustments by achieving service standards and operational efficiency benchmarks, USPS will now be able to only qualify for a single performance-linked adjustment set at 1%, even after meeting all its targets.
It provides USPS with decreased wiggle room for providing discounts to its large-scale customers, who lower the workload of the agency by presorting their mail. There are some products where the USPS’ costs are more than its revenue – the agency will be allowed to increase its prices by around 2%.
USPS announced that the proposal was still under review. Postmaster General Brennan, who had shown mixed feelings for the commission’s initial proposal, appreciated the fact that the regulators recognized inadequacies in the existing system. However, she wasn’t pleased with its refusal to allow more autonomy.
PRC stated that its latest updates to the proposal would only strengthen & improve its case. While some customers might be put off due to the price hikes, the USPS is responsible for ensuring that everything goes on as usual, announced the PRC.
Stephen Kearney of the ANM, which is an industry accounting for over 10% of all USPS mail, stated that these new price hikes would have the same effect as the previous one. He added that he opposed the move because an inflation-based price cap would not help the USPS in any way as drastic price hikes could force customers away from mail. He stated that this new approach would only result in increased uncertainty and that it was yet clear whether prices would be hiked even further.
Customers who send out hard-copy periodicals and other similar clients are already trying to move away from a mail-based system. This hike in prices could trigger them to make the move, he warned.
However, the PRC maintains that this new proposal would improve the financial condition of USPS and provide incentives for it to maintain its service standards and reduce expenses.
PRC stated that this rule would promote a streamlined, predictable, stable, and flexible system that boosts the financial health of the US and aid it in maintaining its high-quality performance and service standards.
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