The US Postal Service is calling for a year-old revenue-boosting ‘emergency surcharge’ to be extended to avoid price cuts that would have a $2 billion impact on its already “precarious” financial situation.
The postal agency warned yesterday it would be legally required to reduce certain prices on April 10, 2016, unless there was action from the US Congress or courts to extend or make permanent an existing ‘exigent surcharge’ for mailing products and services. This mandatory action would worsen its financial condition by reducing revenue and increasing its net losses by approximately $2 billion per year.
“The exigent surcharge granted to the Postal Service last year only partially alleviated our extreme multi-year revenue declines resulting from the Great Recession,” said Postmaster General and CEO Megan J. Brennan. “Removing the surcharge and reducing our prices is an irrational outcome considering the Postal Service’s precarious financial condition.”
USPS explained that an order from the Postal Regulatory Commission (PRC) requires the 4.3% exigent surcharge to be reversed after the Postal Service has collected surcharges totalling $4.6 billion. As outlined in a notice filed with the PRC, that amount is expected to be reached by April 10th.
Postal Service prices for Mailing Services are capped by law at the rate of inflation as measured by the Consumer Price Index for all urban consumers (CPI-U). However, the law does allow for exigent pricing (price increases beyond the CPI-U cap) due to extraordinary or exceptional circumstances. That was the case when the Postal Service sought and ultimately received approval for the current exigent pricing, citing the severe effects of the Great Recession on Postal Service mail volume.
However, the PRC did not accept the views of the Postal Service concerning the extent of the harm resulting from the Great Recession, and the PRC strictly limited the period of time that the Postal Service could continue to collect the exigent surcharge. While the Postal Service has experienced rapid growth in package volume over the past few years, it is not nearly enough to offset the decline in revenues from Market-Dominant products, especially First-Class Mail.
Brennan added that the Postal Service’s current pricing system, where products that generate roughly 76% of its revenues fall under the statutory price cap, is fundamentally unsuited to the Postal Service’s current business environment in which First-Class Mail volume continues to decline and the network costs required to provide universal service continue to rise.
According to Brennan, “our current pricing regime is unworkable and should be replaced with a system that provides greater pricing flexibility and better reflects the economic challenges facing the Postal Service.”
