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USPS Considers Exigent Price Increase - 6/25/2013 -

There is a lot of chatter right now about the possibility of the Postal Service requesting an exigent price increase for 2014.

The Board of Governors (the organization at the head of the Federal Reserve) recently gave a directive to the Postal Service to increase revenue. In April, the BOG delayed the proposed cost-saving measure of moving to five-day delivery and instructed the Postal Service to instead look at ways to increase revenue — including evaluating a possible "exigent” (higher than inflation) increase for products across the board and/or those not currently covering their costs.

Last month, when the USPS reported a net loss of $1.9 billion for the first quarter of 2013, Postmaster General and CEO Patrick Donahoe again urged Congress to pass comprehensive postal legislation.

However, if no legislation passes and the USPS moves forward with an exigent increase, one possibility being discussed is an exigent increase in the 6-9 percent range. This worst-case scenario breaks down as such:

· Standard CPI-based annual increase: < 2 percent

· Across-the-board exigent increase: 4 percent. This would constitute the estimated savings of $2.6B the USPS was not able to realize due to delaying implementation of five-day delivery.

· Additional exigent increase for unprofitable classes: 2-3 percent. "Underwater,” or unprofitable, products are defined as market-dominant product categories that are not covering their attributable costs. This includes Periodicals and Standard flats, excluding Saturation, High Density Plus, High Density, or Enhanced Carrier Route.

In terms of brewing legislation, the House of Representatives’ Committee on Oversight and Government Reform has released a draft discussion document for a reform bill. In it, the CPI cap is kept in place, but all market dominant products are required to cover their costs. Prices would not rise above CPI for at least two years, during which a study would be conducted on the impact of excess capacity. If after two years, any market-dominant products are considered below 90 percent cost coverage, they will be raised 2 percent above CPI annually until they achieve total cost coverage. The Committee is currently soliciting stakeholder input.

Analysts believe that with this proposed exigent increase, the Postal Service is putting pressure on the BOG and Congress to take action on reform. It seems unlikely that all parties involved would approve a single increase nearing, in some cases, 10 percent.

This report was provided by Association Media & Publishing member Lane Press.


 

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