USPS told to end cross-subsidy of monopoly mail services

US regulators have demanded that the US Postal Service correct its pricing imbalance, which currently sees 10 market dominant products failing to pay for themselves. Issuing its fourth annual review of USPS activities, the Postal Regulatory Commission said yesterday that the USPS should stop subsidising loss-making monopoly products with revenues from elsewhere.

For the first time ever, the Commission said one of the USPS products – Standard Mail Flats – was not in compliance with US law. It has ordered the USPS to rectify the situation “as soon as practicable”.

The report said the losses from the 10 market dominant products added up to a $1.7bn hit to USPS finances during 2010.

This included a $577m loss from flats deliveries and a $611m loss from periodicals, as well as losses from non-profit mail.

Commission chair Ruth Goldway said: “The Postal Service has repeatedly failed to use its pricing flexibility, allowing the subsidy to increase over time.”

Although a specific schedule has not been set by the Commission for the USPS to address the pricing imbalances, it called on the Postal Service to correct the issue “promptly”.

A spokesman for the Postal Service declined to comment on the problem or other issues raised by the Commission report, telling Post&Parcel today. Greg Frey said: “We have received the annual compliance determination from the Postal Regulatory Commission and we are reviewing it.”

Decline

Reviewing the USPS performance for 2010, the Commission said closing the pricing gap for its loss-making products would not be sufficient to stem the financial decline at the Postal Service.

Last year saw an overall mail volume decline of 3.5%, with the USPS delivering more than 6bn fewer pieces than the year before. Coupled with a 5.1% increase in total expenses, 2010 saw a 1.5% decline in USPS mail revenues.

The major decline came in the Postal Service’s lucrative First Class Mail stream, which saw a decline of 5.5bn pieces (a 6.6% drop) and a revenue decline of $1.8bn (5.5%) for the year. Although this was a “less precipitous” decline than in 2009, the Commission noted that the downward trend is projected to continue.

The US Postal Service has managed to cut its costs significantly, saving more than $3.6bn in 2010 thanks to a 2.2% improvement in the productivity of its workforce, reducing work hours by 75.1m for the year.

The Commission noted that the USPS is now using a similar amount of work hours as it did in 1977, while delivering 85% more volume to nearly 50% more delivery points.

The review of 2010 also noted the “substantial strain” on the immediate cash flow at the Postal Service from its “overly ambitious” payment schedule for future retiree healthcare benefits, as set by Congress in 2006.

The $21.9bn in payments made by the USPS over the last four years into the fund did surpass the $20bn cumulative losses incurred during that time, while the USPS faces another $5.5bn payment in September that it will default on unless changes are made.

Intelligent Mail

Elsewhere in the report, the Commission pointed to various concerns with the implementation of the Postal Service’s new Intelligent Mail barcoding system.

The system has been introduced to improve the USPS capabilities to track items, as required by the 2006 PAEA postal law, but the Commission said it has seen “persistent data errors”, with customers facing a lack of product-specific documentation. Resulting customer usage has been “insufficient”, the Commission said.

Goldway said that four years on from the PAEA law, the USPS was still only complying on its single-piece First Class Mail products in terms of its tracking system requirements.

“The Postal Service must vigorously address these problems to achieve full compliance with all service performance reporting requirements,” the PRC chair insisted.