Industry News Postal

Process
The current rate adjustment timeline allows for a mandatory 45 days for notice of rate adjustment (although USPS has kept their verbal commitment to the industry to provide 90 days), 20 days for initial comments, 7 days for comments on any revisions, and 14 days for commission decision.

Following that schedule to meet a 3rd or 4th week January implementation date we should expect to see the USPS proposal to the Postal Regulatory Commission (PRC) no later than mid-October.

Historically at this time of the year the USPS has already provided the industry pricing signals of any expected structural changes, that, along with following the CPI have provided predictability for forecasting changes to their upcoming year’s postage spend.

At the recent July MTAC meetings, the USPS confirmed that they are asking for the same promotions as offered in 2020, with a few technical caveats, but advised they were not in a position to discuss pricing for another 4-6 weeks. That could bring us to mid-September without the benefit of an assured number to budget with.

Most businesses look to forecast their 2021 mailings by the FY2021 (Oct 1,2020) time frame. Without a clear indicator of what percentage to use for their mail mix, they will be at a disadvantage to accurately budget spend using benchmarked volumes, I fear this will force them to reduce volume projections in anticipation of unforeseen costs.

The Postal Accountability Enhancement Act of 2006 (PAEA) divided postal products into two categories; market-dominant and competitive. The law established rate-setting policies for each category, but the USPS has much greater flexibility in setting competitive products and services rates, they need only to cover their attributable costs and show they are not subsidized by market-dominant products, and make an appropriate contribution to institutional costs. The USPS must still present these rate proposals to the PRC for review.

Temporary Price Increase for Commercial Parcels

USPS proposes a temporary package pricing surcharge of approximately 8% depending on the product, to take effect on October 18, 2020, with a rollback to current levels on December 27, 2020. The PRC invites comments until Aug 31 st. The proposal does NOT increase retail package prices, only commercial ones.

What factors could impact Market Dominant Postage 2021 rates?

CPI-U – Under PAEA, the USPS may raise the rates (prices) of products in the
market-dominant class by no more than the Consumer Price Index for All Urban Consumers (CPI-U) plus any additional unused rate authority. July CPI-U is 1.495%, and the allowable unused rate authority for Marketing Mail is 0.04%, to total 1.535%. Variables include; live CPI-U numbers at the time of filing, and how the USPS decides to disperse that amount across the categories and cells. In recent years the USPS has used August CPI-U to establish CPI for Price Cap, 2020 trends project that number to be 1.35% – 1.5%.

Exigent Rate Provision – The PAEA contains an exigency provision, allowing for rate increases above the CPI-U. The exigency standard can only be met “due to either extraordinary or exceptional circumstances.” While the pandemic is truly an exceptional circumstance and the USPS can directly attribute mail volume declines to COVID the increased package volume has offset any revenue declines, so we struggle to see any support for an exigency argument.

Legislation – There has been a dramatic increase in the media and Congressional oversight interest into USPS operations, but sadly this hasn’t seemed to increase the probability of any meaningful legislation being passed in 2020 that could alleviate costly pre-funding burdens. The house did pass the USPS Fairness act H.R.2382 in February 2020 that would repeal the requirement that the U.S. Postal Service annually prepay future retiree health benefits, but as of yet no movement in the Senate. Other more comprehensive measures such as HR.2553, H.R.597, S.2629, have not received the support they need in order to move through the house and senate. Unlikely any legislation would be passed that would impact 2021 postage rates.

PRC 10-year rate review – The 2006 PAEA mandated that the PRC review the system 10 years later to determine if it is achieving the objectives established by Congress. The PRC began that process in December 2016, their 2017 released findings resulted in a burst of comments and hints of litigation. In December of 2019, they revised their proposal, yet it still allows for a 2% additional authority for underwater products, and a 1% performance incentive. The initial comment period expired Feb. 3 rd with reply comments due by March 4th, 2020. With those dates now in the past, and a final rule not released, the likely hood of further action to be taken before any implementation date can be set makes one unsure of how these numbers can be factored into the expected 2021 rates.

What can you do to prepare?

As we wait for numbers from the USPS we revisit the historical signals from past rate changes to use as indicators for future expectations. In the Marketing Mail Flat category High-Density rate continues to be the safe haven from postal rate increases with a modest 0.8% price increase over the three-year period 2018-2020. Carrier route bundle/pallet and presort rates each have increased no more than 2.5% in that same period, while other presort levels such as 3Digit to Mixed ADC have experienced increases from 8.6% to 11.4% in total over the past three years. These signals indicate there are ways to minimize the impact of rate adjustments by doing all things possible to achieve the finest presort levels available. When solo mailing density doesn’t lend itself to these categories, Co-Mailing can be used to achieve sort levels

As new information becomes available that may impact your 2021 postage spend, we will provide updates.

For any questions or for more details, please contact the LSC Postal Affairs Group at postaloperations@lsccom.com

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