Affordable Mail Alliance to PRC: Dismiss Rate Hike Request

The Affordable Mail Alliance today asked the Postal Regulatory Commission to dismiss the U.S. Postal Service’s exigent rate hike proposal filed on July 6. AMA’s motion argues that the rate hike–an average of 10 times the rate of inflation–violates the cost controls Congress put in place to protect consumers.

The Postal Accountability and Enhancement Act of 2006 (PAEA) limits the average postal rate hike to inflation as measured by the Consumer Price Index (CPI). There is an exception to the CPI cap for “exigent circumstances” when the USPS cannot continue operating without overall price increases above the CPI.

The estimated price cap is 0.6%, while the average exigent price increase is 5.6%. Standard Mail flats or catalog rates would go up 5.1% if the rate case is passed and increases are implemented Jan. 2, 2011.

According to AMA’s motion, the USPS has not met the “exigent” test for several reasons. For one, economic downturns are a part of life and not “extraordinary” or “exceptional” circumstances. What’s more, the trend toward Internet communications away from mail has been taking place over the past 15 years, giving the USPS years to prepare for the decline in volume.

And since the recession began in December 2007 and caused sharp decreases in volume and revenue, competitors such as FedEx and UPS have had comparable or even greater declines. Those companies made the necessary and painful cuts in operating costs and capacity to increase productivity. The USPS did not and its productivity has fallen.

Sen. Susan Collins (R-Maine), one of the authors of the PAEA, has said the proposed increases do not qualify for an exception under the standards established by Congress. Jerry Cerasale, senior vice president of government affairs for the Direct Marketing Association and member of the Affordable Mail Alliance, agrees, and says the case makes no economic sense.

“Reasons for breaking the cap are not viable,” Cerasale said during a conference call today. “We believe the escape clause is for acts of God, Katrina, 9/11, Anthrax or something that disrupts the service of the USPS.”

Cerasale, who noted the AMA has grown to 700 members in three weeks, said the AMA fears that if the PRC approves the exigent rate case, anytime during economic uncertainty the USPS could raise rates. This, he added “would be the beginning of the end for the Postal Service.”

“More and more volume will go away if rates go up,” Cerasale said. “Our members can’t continue mailing with rate increases 10 times the rate of inflation.”

FedEx and UPS both saw drops in revenue, some steeper than USPS, Cerasale noted, “yet they cut costs in 2009 three to four times more than the USPS cut costs, and they’ve turned the corner and become profitable. We expect the Postal Service to emulate its competitors.”