On Friday, February 5, The United States Postal Service (“USPS”) released the draft postage rates for the rollback of the Exigent Rate Increase in April. While there remains some uncertainty around the implementation date, this is good news for mailers.
Most commercial mailers will see rates drop around 4.1%, depending upon class of mail and level of sortation. For First-Class Mail, the new rates for one-ounce letters are:
There will be similar reductions for First-Class Flats:
Standard Mail contains many more categories, and the overall percentage reductions are also around 4.1%. The entire draft rate table can be downloaded from the USPS Postal Explorer website.
When Will The New Rates Go Into Effect?
If approved by the Postal Regulatory Commission (“PRC”), the new rates will go into effect in early April 2016. Unlike past rate changes, the USPS doesn’t yet know the exact date of the proposed changes. This uncertainty is due to the uniqueness of the Exigent Rate Increase when approved by the PRC.
In their December 24, 2013 ruling, the PRC found that the USPS experienced financial harm as a result of the Great Recession of 2008 – 2009, and was legally entitled to implement temporary price increases in excess of the CPI cap. The losses were originally calculated to be $2.8 billion.
The USPS appealed the PRC’s decision, and last June the United States Court of Appeals for the District of Columbia Circuit (“the Court”) issued their decision. The Court ruled that the PRC’s standard of a “new normal” was valid, but that they could have used the “new normal” rule to better determine how long they should have counted lost mail. In response to the ruling, the PRC recalculated the number of lost pieces, and added $1.2 billion to the amount the USPS could recover.
How quickly the USPS recovers the $4 billion dollars depends on the volume of mail received. Past performance and current models lead to the early April date. On February 16, the USPS will be submitting their next exigency surcharge report to the PRC. The date the new rates take effect will probably be formally announced after that report.
The USPS must give mailers a 45-day notice for any rate change. The primary purpose is to allow for changes to software and postage meters. Using February 16 as a start-the-clock date, rates would change on Friday, April 1, and not on the typical Sunday schedule. The PRC will probably take the day of the week into account, and move the implementation to a weekend.
What Else Could Impact the Rates?
There are two outside factors that could impact the Exigent Rates rollback – an Appeals Court ruling or Congressional action.
In September, 2015, the USPS submitted another appeal to the Court on the PRC’s calculation of losses during the Great Recession. In their new appeal, the USPS calls into question the PRC’s methodology for calculating the date of the “new normal” and the amount of money the USPS lost. Depending upon the argument, the PRC underestimated the loss by $3 billion to $8 billion.
Although filed in December, the Court set a date of February 10, 2016 to allow major mailers to respond. That means it is unlikely for a decision to be issued before April. Also, the Court may be reluctant to introduce turmoil into an ongoing rate setting process. However, the timing of the last decision didn’t match any industry expectations, so we will need to keep a close watch on the Court.
Congressional reform could make the exigent rate increase permanent. However, the one reform measure in the Senate is stuck in committee, and there’s no corresponding bill in the House. And we’re in the middle of the Presidential primary season. It’s highly unlikely that anything will happen on that front.
There’s no need for any immediate action, however you may get questions from senior management. The Berkshire Company will continue to monitor the statements and actions of the USPS and the PRC on postage rates, and provide timely through this blog.