Live from Government Affairs Conference: The Shape of the Next Postal Rate Case

Apr 22, 2004 9:30 PM  By

(Direct Newsline) Washington–While a number of factors are yet unresolved, the next postal rate case could see increases of around 10%-12%, according to Larry Buc.

Furthermore, the government’s likely failure to address postal reform this year adds both to uncertainty and – if pending fiscal issues aren’t resolved – to the ultimate increases. And Buc is in a position to know: He is president of SLS Consulting, a Washington firm specializing in economic, operational, and environmental analysis within the mailing industry. He had served as a witness in the 1977 and 2000 postal rate cases.

Currently the U.S. Postal Service is saddled with around $29 billion a year in retirement costs for veterans of the various armed services. (The USPS is the only branch of the government that pays the military-related costs for its employees.) This, along with the fate of overpayments into postal employee pensions funds of around $3 billion a year, are issues that might have been addressed in postal reform legislation, but according to the chiefs of staff for both the majority and minority House Whips, postal reform is unlikely to be addressed in 2004.

Both of these factors will contribute to the next rate increase – an increase that Buc is fairly confident will occur early in 2006. Under current conditions, Buc sees the USPS as breaking even in 2005 and losing $2.5 billion-$4 billion in 2006. If the Postal Service is allowed to use the overpayments into the pension funds according to its own discretion, its poor fortunes will be somewhat mitigated. If not, the service could lose an additional $3 billion on top of the already anticipated losses.

If, under the worse-case scenario, the overall postal rate increases average 10%-12%, what will the likely impacts be for the various service classifications? According to Buc, rates are adjusted based on which classifications are covering their costs and which are in a hole.

According to his best guesses, standard regular, which is covering its costs, will receive an average rate increase, as will parcel post and first class letters. Both bound printed matter and periodicals should see slightly higher-than-average increases, and priority mail, which is not doing well at covering its costs, being granted a very big increase. Nonprofit rates, which are based on standard mail expenditures, will be dependent on how much presorting work mailers using standard do.

The strongest of the postal classifications, enhanced carrier route mail, is “doing great,” according to Buc. “I would bet on a below-average rate increase,” he said.