PMG’s Comments to MTAC Raise Concerns Over Price Increase

On January 26, speaking to the virtual meeting of the Mailers Technical Advisory Committee, Postmaster General Louis DeJoy gave a broad overview of his developing plans to get the Postal Service back on track after months of worsening service that culminated in a historically bad holiday season.  As transcribed from his recorded remarks:

“... Calendar Year 2020 has been a tough year for the nation and a tough year for the United States Postal Service.  The causal circumstances continue to plague us in early 2021.  As a result, the consequences to many Postal Service customers have been significant, and we acknowledge the impacts our service decline has had on your businesses and our responsibility to restore.

“We are working hard to recover and expect normalization within the next two weeks.  Isaac Cronkhite and his team have been working to reduce inventories and prioritize delayed mail in the system.  You will hear more from him and Kristin Seaver later in the program.

“I appreciate the industry’s commitment to mail and shipping business and understand your desire for information and communication.  We know we can enhance our business interactions by promptly sharing different operational situations faced internally, and the need for mailers to make changes to their operations.  Our operations and marketing groups are reviewing these ideas to improve communications with industry leaders in their frequent and scheduled calls to enable a two-way dialogue.  The MTAC program office is sharing new organization charts so that you know who our points of contact are.

“I am very confident in our new leadership team and proud of the work they have done to plan for the future under these difficult circumstances.  I consider expanding our communication with industry and in more forums a necessary ingredient to our future success.

I appreciate the concerns of industry regarding future price increases.  I have received both staff feedback regarding industry concerns in this regard as well as direct customer feedback on the consequence of more volume leaving the system with future price increases.  So noted.  I am balancing the needs of stability and financial sustainability of the Postal Service as well as market and consumer customer trends.

“As you know, the Board of Governors will determine the timing of future pricing increases and no decisions have been made at this time.

“However, as I have previously stated, last year we charged $70 billion for services that cost us $80 billion to provide.  We cannot continue down this path and think that we will remain a viable service to the American people.  Our losses need to be addressed 

“And while not the only action required, we must consider our new pricing authority as an important part of the solution we will be proposing.  That is why our regulator granted it to us.

“Over the next six months, we have been [sic] working very hard to develop a long term plan that encompasses improvement in every aspect of our organization.  In the coming weeks more details will be forthcoming, but let me be very clear.  My entire leadership team and I have fully committed to strengthening the US Postal Service as a self sustaining public entity; maintaining affordable universal service; protecting six-to-seven day delivery; and ensuring predictable and reliable services that meet the customers expectations.

We have very bold initiatives in the following seven areas of focus: retail, delivery, transportation and networks, commerce, employee engagement, communications, and financial sustainability.  We believe the combination of all these initiatives will create a reliable and viable Postal Service of the future, ready to address the new economy, and one that delivers relevant services to the American people.

“We are committed to delivering to every address every day with the tools that create a vibrant connection to each resident.  We are committed to creating operational efficiency that provides achievable and reliable service while improving our cost of performance.  And we are committed to growing our revenue by enhancing access to an improved operating network that touches almost every American family each day.

“All of this will make us a better partner for those of you who choose to use the Postal Service to achieve your business objectives.  I look forward to working with all of you to achieve this objective.  Thank you.”

Taking questions after his prepared remarks, he was asked an attendee’s question:

“The question is: when do you plan to inform industry of the next rate increase or the timing of the next rate increase?

“Well, in general, I think it’s imminent, but I don’t have a firm date yet.  We’re working through... it’s part of our long term plan and it’s part of our immediate need for liquidity and... but we’re not, you know... we recognize where we are in the economy, that we’re still in the pandemic that we still, you know... certain parts of industry have been impacted more than other parts of industry and we’re sensitive to that and we’re analyzing that as we, as we proceed.

But we also recognize that, you know, we have, you know, a $10 billion loss last year and it’s trending, you know, very significantly in the same direction.  And so we need to get moving on, all –many, many items – and prices, one of them – and we will be.

Reaction

Industry anxiety over a midyear price increase, particularly one in which the USPS flexes its new authority to seek increases over CPI, was already widespread.  A prime example would be that the Postal Regulatory Commission’s decision to grant the added authority already has been appealed to federal court, and a stay in implementing the authority, denied by the PRC, is also pending before the court.

Needless to say, therefore, DeJoy’s prepared comments, and his somewhat disjointed answer to a follow-up question, left attendees both more anxious about the agency’s plans and less informed about when those plans might be implemented.  The additional authority granted by the PRC has already been quantified, and many industry outlets have translated this into the magnitude of the resulting rate increase that the Postal Service could seek.

These concerns were manifest over the remainder of the meetings as industry representatives repeatedly reminded USPS participants that increasing prices on the heels of months of bad service would be unwise enough, but doing so while customers remain skeptical about future USPS service quality would resolve any questions in ratepayers’ minds about future use of the mail to the agency’s disfavor.

The unfortunate delegates sent by postal management to deal with scores of dissatisfied MTAC representatives doubtless got industry’s message – and assured participants that it would be conveyed to senior executives.  However, many in attendance doubted that those executives would be receptive to industry’s warnings about lost volumes.

Given that “elasticity” has always been a principle of USPS thinking, i.e., that price has less effect on mail volume than industry claims would suggest, many MTAC attendees feared that such customary thinking would be applied again even under the unusual circumstances now in place.

The PRC’s final rule about changes to the rate-making process, issued last November 30, included a requirement that the USPS “shall file a current Schedule for Regular and Predictable Rate Adjustments annually with the Commission at the time of filing” its Annual Compliance Report.  However, the USPS filed its FY 2020 ACR on December 29, while the PRC’s final rule wasn’t effective until January 15, meaning the required schedule won’t be produced until the FY 2021 ACR is filed next December.

In the interim, whether or when the USPS would seek another rate change remains known only to senior USPS executives, and they’re not likely to be revealing anything soon.

The upshot was that many MTAC attendees seeking insights about USPS plans for a price increase were left to intuit answers from DeJoy’s remarks.  Though he said he “noted” industry concerns, he stressed the agency’s losses and “the needs of stability and financial sustainability,” and fanned industry anxieties by saying that a filing was “imminent.”

As a result, industry representatives concluded that, while the USPS executives present at MTAC who heard their concerns may carry them forward, other senior executives not at MTAC were influencing DeJoy more strongly to ignore industry warnings and use the new rate authority to seek additional revenue as soon as a filing could be assembled.

Share this post:

Comments on "PMG’s Comments to MTAC Raise Concerns Over Price Increase"

Comments 0-5 of 0

Please login to comment