News from the Postal Regulatory Commission (PRC):
The PAEA (Postal Accountability Enhancement Act) required the PRC to review the existing Market Dominant rate and classification system 10 years after the enactment of the 2006 PAEA to determine if the new rate adjustment system achieved the PAEA’s nine objectives, considering the 14 factors established by Congress. In the final rule, the PRC has determined the current rate-making rules are NOT meeting the objectives.
The process included PRC review, published proposed rule changes, comments from all stakeholders; both industry and USPS, followed by revisions, review and comments again until a final rule was released on November 30th 2020, nearly 4 years after the process began. With the rule being published in the Federal Register on December 15th, 2020, it will now become law on January 15th, 2021.
The New Final Rule will keep the CPI process in place, plus gives the USPS additional rate authority.
The unpredictability both in final content and timing of when the 10-Year rate review would be completed made accurate forecasting impractical.
What is the additional Rate authority?
Future rate increases will be allowed at CPI + Density + Retirement + 2% for Non compensatory. (underwater products).
- CPI: a measure of the average change over time in the prices paid by consumers for a market basket of consumer goods and services.
- Density: rate authority equal to the uncontrollable density-driver portion of increases in the average cost-per-piece using factors of mail decline, and increases to delivery points.
- Retirement payments: additional rate authority, if used, for the Postal Service to meet its required retirement obligation payment.
- Non-compensatory classes and products: the revenue they bring in does not cover their attributable costs (these include Marketing Mail Flats, Marketing Mail Parcels, Carrier Route mail, In County and Out of County Periodicals).
What it means for USPS customers?
From the 2020 Annual Compliance Report (ACR) the USPS estimates the density factor to be 4.5% and the retirement authority to be 1.062%, if the PRC agrees with these figures when they publish the ACD (Annual Compliance Determination report) in March or April the USPS may announce a rate increase with 90 days’ notice.
This means the postage payer may see a postage increase in summer 2021 of up to 5.56% (4.5% density + 1.062% for retirement). For underwater products such as Marketing Mail flats and Periodicals, the possible rate increase may be up to 7.56% due to the 2% allowed for non-compensatory.
This increase would be on top of the 1/24/2021 rate increase of approximately 1.45% on Periodicals, 1% on letters, and 3.5% on Marketing Mail flats & CR.
What can be done?
The order is final and cannot be repealed except by a Court of Law or Act of Congress.
- ACMA and other associations have filed with the PRC to request for a stay order until the court hears the cases. (no one is expecting the PRC to grant a stay, but denial will be appealed in the court)
- Several associations have filed in the DC Circuit Court under the grounds that they believe the Commission has exceeded its statutory authority under PAEA It could take up to (or more than) a year, meaning a second postage increase may go through this summer.
- The Postal Regulatory Commission advised the USPS to use discretion based on business needs.
- The latest COVID relief bill provides $10 billion to the USPS.
- The USPS saw revenue increases from the growth of Packages
- The USPS does NOT have to use the additional rate authority
- We hope the above factors will enter into USPS decision making on how much of the new rate authority they choose to use, they are not required to use all available.
LSC remains committed to keeping you up to date and informed. As a significant mailing industry partner, we are in a unique position to provide clear and accurate information regarding the state of the USPS and suggest best practices to help you navigate through these uncertain times.
We encourage you to become involved with an industry association to help turn this decision around. Efforts need to be focused on Litigation, Government Relations, Public Relations and Grass Roots efforts to educate the general public and mailing consumer about the immense impact that this may have on a vital industry that makes up over 7% of the GDP.
Associations included in the filed suites; The Alliance of Nonprofit Mailers, The Association for Postal Commerce (PostCom), The Association of Magazine Media (MPA), National Postal Policy council, Major Mailers Association, and The American Catalog Mailers Association (ACMA)