August 9, 2018

White House postal reform plan should leave parcel pricing alone, group says

Parcel business already profitable at current rates, parcel shipper coalition says.

By Mark B. Solomon

A newly formed group of parcel shippers has asked the Trump administration to avoid suggesting any reforms to the U.S. Postal Service's (USPS) business that could result in an increase in its shipping and package rates, saying USPS' package operation is already profitable at current prices and only its private sector rivals would benefit from any upward rate adjustments.

The group, which calls itself "The Package Coalition," said it is concerned that a White House task force review of USPS' operations and pricing may "become an effort" to force it to raise prices well beyond what is required to cover its parcel costs and to effectively compete with private-sector rivals.

The coalition pointed to USPS' fiscal year 2017 data that showed it generating $20.7 billion in revenue from shipping and package services, while it spent about $13 billion to support those services. It also cited an April 2017 report from Citigroup, Inc., a bank, that raising USPS' parcel rates by 50 percent—a level the bank said would be required for USPS to break even on parcel services—would represent a $15 to $18 billion traffic diversion to rivals like UPS Inc. and FedEx Corp.

The group said that its mission is to promote fair and affordable parcel pricing from USPS, and that it opposes any legislative or regulatory changes to force USPS to "artificially" raise its parcel prices.

The group, which officially launched Aug. 1, consists of Inc., which is USPS' largest customer; apparel retailer Columbia Sportswear; pharmacy benefit organization Express Scripts; the National Retail Federation (NRF); shipping service provider OSM Worldwide; Pitney Bowes, Inc.; Publishers Clearing House, and TV and online retailer QVC. It is headed by John M. McHugh, a former Republican congressman from New York and the Secretary of the Army under President Barack Obama.

The letter, which was sent to Treasury Secretary Steven T. Mnuchin, came two days before the task force is expected to submit its postal reform proposal to President Trump. The recommendations are not expected to be immediately made public, however.

Trump appointed a task force in April after tweets over several months where he questioned USPS' financial sustainability, and said the quasi-governmental agency was losing about $1.50 on each package Amazon tenders to it. The latter claim, which most observers believe to be untrue, is seen by many as an effort to discredit Amazon Founder and CEO Jeff Bezos. Bezos personally owns The Washington Post, which Trump has repeatedly and harshly criticized for biased and false reporting.

In a related development, USPS today reported a $1.5 billion net loss in its fiscal third quarter on revenue of $17.1 billion. The deficit was a $651 million improvement over the prior fiscal year period. The revenue results represented a 2.4 percent year-over-year gain.

Revenue from its core first-class mail product fell by $134 million, or 2.2 percent. Total mail volume, which also includes "Marketing Mail," declined by 397 million pieces, or 1.2 percent, compared to the same quarter last year.

Revenue from shipping and package services increased by $475 million, or 10.2 percent, on volume growth of 102 million pieces, or 7.5 percent, USPS said.

USPS is severely hamstrung by legislative language in a 2006 postal reform act requiring it to pre-fund retiree health and pension benefit obligations 75 years out, effectively having to pay today for future workers who have not been born. No public agency or private company has a similar burden. USPS has estimated that the financial liability is around $5.5 billion a year.

About the Author

Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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