Starting on December 20 of this year, the Postal Regulatory Commission will commence a review of the rate and classification setting system that will take about a year. This review was mandated by law (2006’s Postal Accountability and Enhancement Act), and is intended to do the following: 1) determine whether the current system meets the objectives set out for it in the law; and 2) if not, adjust or replace the system.
The consequences for mailers, mail service providers, and everyone in the postal supply chain could be staggering. Here’s why: PAEA sets out nine objectives, taking into account fourteen specified factors, that the rate setting system must meet. Prominent among them is this one: the system must “assure adequate revenues to maintain financial stability.” The current postal balance sheet is heavily in the red, notwithstanding that operations are breaking even, or may slightly be in the black. USPS projects a heavy negative cash balance by 2018, in the $billions. That would mean USPS is broke; it would not be able to meet its payrolls.
So, to avoid that consequence and conform to the above objective, the PRC will experience heavy pressure from USPS, and perhaps others, to raise rates, and very significantly. USPS senior sources indicate that in order to clean up their balance sheet and avoid actual insolvency, it may require several years in a row of double digit rate increases.
There are other statutory objectives, such as “predictability and stability” of rates that would provide some leeway for the Commission to cushion some of the rates blow. But with an overhang of multiple $ billiions annually to pay for liabilities imposed by Congress, not to mention replace a delivery fleet that has long outlived its useful life, there is only so far that the Commission can go in cushioning: PAEA does not make an exception to the need to generate enough revenues in order to pay for obligations directed by Congress.
So, what should you do? If you are a member of one or more postal trade associations, chances are you’re already contributing to gearing up a legal and economics effort to push back against higher rates. Perhaps you have also been supporting, directly or through a trade group, legislation on Capitol Hill (HR 5714) that would reduce these obligations substantially. At the same time, you should be planning for an early 2017 rate increase of the rate of inflation, which is currently running under 1%. It would be in 2018 that the rates ceiling will fall in, and the prospect of a double digit increase, without any forestalling action in Congress or at the Commission, will become real.
If you are not already engaged, or want to do more to try to head off a major rate increase and its effects on your business, no one is more involved in the dual processes at the Commission and on the Hill than Sackler Brinkmann & Hughes. We can provide very experienced advice and counsel, informed by being at the table for both venues.
The 2017 review is serious business. We urge you to plan and become involved. It’s that important.