USPS to propose 5.9 percent hike on monopoly products, far above CPI increase

The U.S. Postal Service (USPS) yesterday proposed pricing changes to its monopoly products, including first-class mail, that a well-placed industry source said would result in a 5.9-percent rate increase across its product line.

According to the source, USPS' Board of Governors tomorrow will ask the Postal Regulatory Commission, the body which rules on postal rate actions, for a 1.6-percent rate increase pegged to the increase in the Consumer Price Index (CPI). The CPI is used by government agencies and many corporations as a barometer of future inflation from which to base wage and price adjustments.

USPS will also ask for an extraordinary 4.3-percent increase based on "exigent" circumstances, or situations considered so urgent that they require an immediate remedy. Historically, postal rate increases have not exceeded the inflation rate as measured by the CPI.

The proposed changes, which would take effect on Jan. 26 unless deemed illegal by the Rate Commission, would raise the cost of a first-class stamp to 49 cents from 46 cents. Rates on letters above one ounce would increase one cent to 21 cents per additional ounce, USPS said. A range of parcel delivery services is also included in the "market dominant" category.

The proposed increases would generate $2 billion in additional annual revenue for USPS, it said. USPS has seen its grip on first-class mail, its most profitable product, eroded by the growth of digital-communication alternatives.

The rate actions would not apply to USPS' product lines that compete with private-sector firms like FedEx Corp. and UPS Inc. This includes its revamped "Priority Mail," a one-to three-day delivery product, and its "Express Mail," an overnight delivery product. It also covers USPS' Parcel Select delivery product, which is performed in conjunction with private parcel carriers and consolidators.

In late July, USPS rolled out an enhanced version of "Priority Mail" that offers day-definite deliveries in a one-to-three day time window, free insurance of up to $100 per piece, and free tracking of every shipment. Postal executives said at the time that these changes were the most sweeping to Priority Mail in 30 years and would positions USPS as the delivery carrier of choice for the rapidly growing e-commerce segment.

In a letter to customers made public today, Board of Governors Chairman Mickey Barnett said the price actions above the CPI increase are necessary to ensure USPS can "maintain and continue the development of postal services of the type and quality which America needs." Barnett said USPS' "precarious financial condition" and the lack of clarity into the progress of postal reform legislation were the main drivers of the proposed increase.

USPS posted a $15.9 billion net loss in its last fiscal year and expects to record a loss of roughly $6 billion in the current fiscal year, it said. USPS warned in a statement that it "has an intolerably low level of available liquidity" even after failing to make payments in the billions of dollars to prefund retiree health benefits.