On Friday May 28, 2021 the USPS filed with the Postal Rate Commission a very large postage rate increase. The request is for the rates to go into effect on August 29, 2021. The overall average price increase is 6.8%.
New pricing authority was granted to the Postal Service under three provisions of a PRC order issued last November. First, due to density loss, basically the number of pieces per mail box which was calculated at 4.5%. Then retirement since the USPS has an unpaid balance which was calculated at 1.062%. Finally non-compensatory which is a fixed 2% to be applied to cover postage rates that are not covering their costs.
The USPS is trying to close the gap on losses they have incurred over several years. They are increasing the first class stamp price from 55 cents to 58 cents. The price for first class meter is increasing to 53 cents. The non-machinable surcharge for letters will increase to 30 cents.
The additional ounce rate will remain at 20 cents. The average price increases for marketing mail are: 6.5% for letters and 8.8% for flats. Some of the steepest postage price increases are on flats and periodicals at a whopping 8.8%. For shippers using parcels the increase is 9.3%.
There are some savings to be had with the postal service announcement of the promotions for 2022, they are:
- earned value reply mail with a 2 cent discount
- emerging and advanced technology with a 2% or 3%discount
- informed delivery with a 4% discount
- mobile shopping with a 2% discount
- personalized color transpromo with a 3% discount
- tactile sensory and interactive engagement with a 4% discount.
These increases equal about the past five years of increases combined. This is truly unprecedented since postal reform in 2006. The main issue other than the price rates is the fact that the increase is happening before the end of the year. The marketing budgets have already been set for 2021, so realistically this will mean businesses will mail less pieces to offset the postage increase until new budgets can be set.
Many businesses that use the mail have questions about this price increase. First of all, why are the prices increasing so much? In 2016 the PRC started a mandated review of the 2006 postal reform rate setting. In November of 2020 the PRC found that the 2006 rate setting requirements were not meeting the USPS needs. So, they approved an over the CPI cap rate increase.
Next, they ask why can’t the postal service reduce costs? Unfortunately, about 80% of their expenses are beyond their control. The largest expense chunk falls into insurance, employee compensation and retirement which goes to arbitration with the unions for contracts where arbiters have been siding with the unions. Then they have mail delivery costs which they are mandated by congress to deliver 6 days a week and maintain all retail post offices even if they are losing money at them.
So basically, the USPS is raising rates in order to stem the financial losses that have been occurring for several years. This puts the onus on rate payors which can backfire with a loss in overall mail volume. We will have to see what happens. We are awaiting approval by the PRC for these rates, but realistically we expect them to be approved. How will these new rates affect your planned mail campaigns?