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The Berkshire Company Blog

Terrible Timing – The Absurdity of the August Rate Increase

Posted by Mark Fallon on Aug 1, 2021 11:03:09 AM


For over 6 months, mailing industry professionals – through their associations and as individuals – have expressed their concerns about a second postage rate increase in 2021. Through group calls with the US Postal Service (USPS) leadership, meetings with the postmaster general, and many articles and blog posts, the message has been clear – a second rate increase in 2021 will cause harm. Annual budgets have been set, printers and mailers are just beginning to recover from the pandemic, and USPS service levels will be lowered in September.

Their efforts were for naught.

On Monday, July 19th, the Postal Regulatory Commission (PRC) approved the higher postage rates that will go into effect on August 29, 2021, The bulk of the rate adjustment comes from the new PRC rules that allow for increases over the rate of inflation due to changes in mail density. From a 5% increase for First-Class Mail stamps, to over 10% for flats, the rates negatively impact every mailer of every size.

It’s important to note that this blog has included posts that supported the new rate rules enacted by the PRC. Also, we’ve consistently called for higher postage rates. However, those posts were before the pandemic and when USPS service levels have languished at abysmal levels in many areas of the country. And at no time have we supported a mid-year increase.

This rate increase calls into question whether the USPS understands their largest paying customers – the business mailers. For the first six months FY21, the breakdown of market-dominant volumes:

Service Category Revenue % of Market Dominant Mail
First-Class Mail:    
        Total Single-Piece  $    4,240,740,206 20%
        Total Presort  $    7,178,641,653 35%
        All other First Class Mail  $       983,779,908 5%
Total First-Class Mail  $  12,403,161,767 60%
Total USPS Marketing Mail  $    7,421,418,605 36%
Total Periodicals Mail  $       479,128,151 2%
All Other Mail Products  $       439,584,981 2%
Total Market Dominant Mail  $  20,743,293,504  
Total Commercial Mail Revenue  $  15,518,773,390 75%

This means that more than 75% of the revenue from the Market Dominant mail is being paid for by businesses. Invoices and statements. Direct mail pieces. Magazines. Newspapers. Small packages. Not broken out in the report are the number of single-piece letters that are metered mail. The vast majority of the stamped pieces are business customers mailing in their payments. Businesses generate and create the mail processed by the USPS.

In testimony to support lowering service levels, the USPS points to polls demonstrating that individual recipients aren’t concerned about the speed of mail. But it’s not the individual that is paying for the mail – it’s the sender. And businesses have a real concern about when pieces are delivered. Yet that is ignored.

Similarly, the USPS ignored the calls for the rate hike to be delayed until January. Almost all US companies have a fiscal year that aligns with the calendar year. Budgets are locked in for the remainder of 2021. Any rate increase will mean businesses will have to find other ways to reduce costs. Since the postage rates are going up, they will respond by mailing less.

The service providers that create direct mail have been struggling to recover from the pandemic. Despite the challenges of poor service levels at the USPS, these companies have been leading a rebound of USPS Marketing Mail volumes. These businesses, not the USPS, are the ones selling their customers on the power of direct mail and integrating digital and physical marketing campaigns.

While not at 2019 levels, USPS Marketing Mail volumes are rising. Some weeks have shown a 45% increase of the same period in 2020. Raising rates at this moment will stifle the growth in this category of mail. A category of mail that other businesses sell for the USPS.

The USPS has said that this rate increase is an essential element of the 10-year plan. Under that plan, and the Integrated Financial Plan for FY2021, the USPS projected a net loss of $9.7 billion. However for the first 6 months of FY2021, the USPS has loss less than $2 billion. Congress provided additional funds for pandemic expenses, and even more money is in the postal reform legislation.

The bottom line – delaying this increase by 4 months will have minimal impact on the USPS budget. However, enacting it now will result in lower mail volumes, and further erode the relationship between the USPS and their customers.

On Friday, August 6, 2021, the USPS Board of Governors is having their first meeting with a full board, including the three members appointed by President Biden. This is the last chance for the USPS to reverse the wrong decision to raise rates at the worst possible time.

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United States Postal Service / USPS / U.S. Postal Service / Postage Rates / Postal Regulatory Commission / Postmaster General / The Berkshire Company

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