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US regulators reject 2013 Standard Mail Flats prices

Monday, November 19th, 2012

Regulators have demanded the US Postal Service go back and have another think about proposals for Standard Mail Flats prices next year.

But one member of the Postal Regulatory Commission broke ranks with his colleagues on Friday, saying all the USPS price proposals should have been approved.

Other than the Standard Mail Flats product, which covers flat-shaped items like catalogues, the Commission did approve USPS price proposals for its market-dominant (monopoly) products on Friday, with price changes to take affect from 27th January, 2013. The Commission decided separately on 8th November to approve proposed price changes for competitive products.

The market-dominant rates will average a 2.57% increase, as limited by the Postal Service’s inflation-linked annual price cap.

It includes a one-cent increase in single-piece First Class Mail rates up to 46 cents, a one-cent increase in postcard rates to 33c, and approval of some new products like a new flat-rate international letter rate of $1.10.

But controversially the regulators decided the Postal Service did not propose high enough prices for its loss-making Standard Mail Flats service.

USPS has now been given 10 days to make changes to the Standard Mail price proposals, although there is opportunity for the public to provide comments.

One of the five members of the Presidentially-appointed Commission objected to his colleagues’ demand to reject the Standard Mail Flats pricing proposal.

Robert Taub said the Commission was wrong to reject the USPS view that it could improve the economics of its Standard Mail Flats service by making its services more efficient and cutting costs rather than hiking prices.

Cost coverage

“The Commission may reject a given rate as unlawful, but it should no longer recommend rates”

Under US postal law, monopoly postal products are supposed to bring in enough money to cover their costs, so that some USPS customers are not subsidising other customers. However, the Standard Mail Flats service only raises enough income to fund 83% of its costs at present.

The Commission issued an order in late 2010 for USPS to move towards 100% cost coverage for the service.

But USPS has been reluctant to significantly raise the service’s prices for fear that it will further encourage catalogue publishers to final alternative distribution channels, and damage those customers sticking with the mail. With an increasing use of digital catalogues, Flats volumes have already been dropping by 7% a year over the past few years, a trend that “appears to be accelerating” according to USPS.

The struggling Postal Service said last month that above-average price increases would “have the inadvertent effect of sending the Flats product into a tailspin”.

On Friday a majority of the postal commissioners decided that by keeping Standard Mail Flats price rises to the average for all price rises, USPS was not moving toward full cost coverage. The Commission said its review had to take a “narrow scope” regarding the postal regulations.

However, Commissioner Taub said in a dissenting opinion that he believed the USPS plan to continue moving toward 100% cost coverage by cutting its costs, rather than significantly increasing prices, was complying with the 2010 order from the Commission.

“I find that the Postal Service has complied with the Commission’s most recent mandates in regard to Standard Mail Flats for the pending Notice of Market Dominant Price Adjustment, consistent with the current statute and associated regulations for establishing postal rates,” said the commissioner.

Taub, who was not yet on the Commission when it made its ruling back in 2010, warned that his fellow commissioners were trying to turn back the clock and take the kind of price-setting powers that had been the preserve of the old Postal Rate Commission.

He said commissioners should not pick postal rates from a range of lawful possibilities, the Commission should outline an approved range of prices and USPS should decide on the appropriate prices within the approved range.

“The Commission may reject a given rate or classification as unlawful, but it should no longer recommend rates and classifications except in the most extraordinary cases,” he said.

Last week the US Postal Service recorded a $15.9bn loss for its fiscal year ended 30th September, 2012, partly as the result of ongoing declines in mail volumes.

Source: Post&Parcel/PRC

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