USPS announced that it will lose about $2 billion in annual revenues resulting from a compulsory price reduction mandated by the Postal Regulatory Commission (PRC) — which will go into effect on Sunday, April 10.
The US postal operator acknowledged the “exigent surcharge” that PRC granted on mailing products and services in January 2014 totaling $4.6 billion to “recover from the massive volume and revenue losses resulting from the Great Recession”. However, it stressed that this amount only partially offsets USPS’ revenue losses which the company estimates at over $7 billion in 2009 alone.
The surcharge removal now means that the First-Class Mail prices will be reduced in the following way from 10 April onwards: letters 1 oz. will cost 47 cents instead of the current 49 cents while the cost of letters additional ounces will drop from 22 cents to 21 cents. Letters to all international destinations will cost $1.15 instead of $1.20 previously. Postcards will also become cheaper at 34 cents, down from 35 cents.
“Given our precarious financial condition and ongoing business needs, the price reduction required by the PRC exacerbates our losses,” Megan J. Brennan, Postmaster General and CEO, said. “This unfortunate decision heightens the importance of the review of our ratemaking system which our regulator is required to conduct later this year.”
The PRC is required to review the market-dominant regulatory system to determine whether it is achieving the statutory objectives mandated by US Congress. The Commission is empowered to modify the system or create a new system as necessary to achieve the objectives. The obligation to conduct the review arises 10 years after enactment of the Postal Accountability and Enhancement Act, which occurs in December of this year, USPS explained.
“To provide clear guidance to all interested parties concerning the review process, we filed a petition today with our regulator to clarify the scope of the review and which provisions of the current regulatory structure are subject to potential modification or replacement,” Brennan stressed. “By addressing preliminary issues now, the PRC can ensure an expeditious and efficient review.”
USPS added that it continues to “aggressively improve efficiency” and has reduced its annual cost base by $15 billion since 2008 to offset long-term declines in the use of First-Class Mail in particular. Despite strong multi-year growth in parcel deliveries, however, it continues to record unsustainable financial losses “due to changing market conditions and legislative and regulatory mandates which prevent the Postal Service from fully adjusting to the new market realities”.
“To properly compete for customers and continue to meet America’s evolving mailing and shipping needs, the Postal Service needs the financial capability to invest in the future. We continue to seek legislative reforms to put the Postal Service back on a sustainable financial path, and pricing is an important component,” Brennan concluded.
Among other proposals, USPS continues to seek congressional action to reinstate and make the exigent surcharge permanent.
