The week that was: 18 February 2011
Obama budget promises reform, PRC approves USPS rate increase, and Royal Mail given the green light over bulk… The famous quote, “money talks”, is highly relevant in this week’s news round-up. I hope that doesn’t put you off. Happy reading!
This week’s budget announcement from the White House included a pledge to work with Congress to reform the US Postal Service’s retiree healthcare payments system. Payments as scheduled by the 2006 Postal Act (PAEA) would still “prudently” pre-fund the USPS retiree liabilities, the Budget stated, but based on accruing costs rather than fixed arbitrary amounts that have led to the overpayments. A restructuring of payments would also see some funds paid at a later date, after 2022, to provide immediate relief to USPS finances in 2011. “This restructuring and near-term deferral would provide USPS with $4bn in temporary financial relief in 2011,” President Obama’s Budget stated. “Over the 2011 to 2021 budget period this proposal has an estimated deficit effect of $5bn.” The new system would also adjust better for “dramatic shifts in demand or workforce”, the Budget stated – helpful for a Postal Service set to shed jobs as part of its cost-cutting. “These steps to provide USPS with the breathing room necessary to continue restructuring its operations without severe disruptions must be coupled with meaningful reforms to its business model to make USPS viable for the medium- and long-term.” The 2012 Budget document also pledges to return $6.9bn to the struggling USPS from amounts it has overpaid into the Federal Employee Retirement System. Funds will be returned over 30 years, starting with $550m in 2011. The Budget stated that the Administration recognised the “enormous value” of the Postal Service to the nation’s commerce and communications and the “urgent need for reform” to ensure its future viability. The USPS posted an $8.5bn loss last year, not helped by its pensions and healthcare overpayments, and expects a $6.3bn loss in 2011 and a $7.2bn loss in 2012.
Regulators have approved increases for US Postal Service rates, now set to come into force on April 17, but face an appeal next month on proposals for higher rate rises. The Postal Regulatory Commission (PRC) said on Wednesday that the price rises proposed by USPS last month, of just over 1.74% for most of its market-dominant products, complied with its legal price cap based on the Consumer Price Index. First Class Mail is set to go up by 1.738% on average, with one-ounce letters remaining at 44 cents, while Standard Mail is set to go up 1.739% on average. For periodicals, prices are set to rise 1.741% on average. Separately from the approved rate rise, an attempt by the USPS to raise its rates by as much as 5.62%, in order to counter its difficult financial situation, is set to reach the Federal Appeals Court next month. Under US postal regulations, the USPS can raise its rates by more than its CPI-based legal price cap if there are extenuating or “exigent” circumstances. The attempt by the USPS to do just that was rejected by the PRC last year, on the grounds that the PRC said Postal Service rates were not to blame for the organisation’s financial troubles. The rejection is being appealed by the USPS, with the case scheduled for a hearing at the US Court of Appeals for the DC Circuit on March 15.
Along similar lines, UK regulator Postcomm has given permission for Royal Mail to increase prices on bulk mail. The watchdog also said it would reduce a number of the regulatory restrictions that the operator currently adheres to. The extra funding and the loosening of regulatory confinements will help the operator carry out its modernisation programme. Postcomm said that the measures put in place for 2011-12 “should provide a secure basis for a final transitional year, until a new price control is implemented in April 2012, anticipated to be under a new regulatory and legislative framework”. Postcomm said that although it acknowledges that price rises could prompt mail volumes to fall even more sharply, the need for modernisation is far greater. Postcomm has said that there will be deregulation of packets and parcels weighing more than 2 kilograms, as anticipated. There will also be a removal of retail price controls from all packets and parcels weighing more than 1 kilogram and from second class pre-sorted bulk mail services. Furthermore the regulator confirmed there would be a reduction in access headroom for letters to 3p, but still working on a price point basis as currently; and a removal of headroom controls from all packets and parcels weighing more than 1kg. Finally, Postcomm confirmed that it will implement a move to a ‘wholesale-led’ form of price control for second class pre-sorted bulk products. A document detailing Postcomm’s final position on these measures will be published early next week.
And finally…
PosTech 2011 is fast approaching. The leading event is taking place in Dubai on 14-16 March. Click here for more details.
