If USPS’s “financial challenges were alleviated by the timely enactment of laws that close a $20 billion budget gap, the Postal Service would reconsider its pricing strategy,” Deputy Postmaster General Ron Stroman wrote last week in a Post & Parcel letter to the editor. The request for “exigent” rate increases – on which a ruling is due Monday --was “a last resort,” according to USPS’s #2 man.
USPS has spent years trying to pass exigent rate increases to help it dig out of the red. So why would it even think about walking away from a legal victory that could be worth a couple of billion dollars a years?
My theory: Postal officials aren’t sure an extraordinary rate increase will help the agency. They’re worried that breaching the inflation-based cap that has kept most postal rates in check will undermine confidence in the mail system, pushing mailers to switch even more communications to digital delivery.
In the simplistic thinking of some Congress members – whom USPS is apparently trying to appease with its rate request – the answer to insufficient revenue is simple: Increase your rates.
But postal officials know that higher prices don’t mean more revenue if they lead to fewer mailings. They’ve seen this movie before in the pre-rate-cap days, and the ending wasn’t pretty, including a drastic decline in catalog mailings.
It helps to understand that, as I wrote in 2009, the U.S. Postal Service is like a money-losing airline that is flying a lot of half-full planes. Many of the airline’s costs are the same regardless how many passengers are on the planes.
You can’t fly with fewer pilots or reduce the jet’s depreciation just because most of the seats are empty. Nor can the Postal Service deliver to fewer addresses just because its mail bags are not as full as they used to be.
If the airline raises its prices, competitors will lure away passengers with lower fares. At the margin, even a bargain-rate passenger is profitable; the only cost of adding one to a plane is a few gallons of jet fuel, a bag of stale pretzels, and a tiny can of soda.
Jacking up postal rates merely causes marketers to prospect more with email instead of direct mail, publishers to convert more subscribers to digital editions, and corporations to offer more incentives for customers who switch to electronic billing.
What the Postal Service needs is mostly in the hands of Congress, which structured USPS in the pre-internet days to be a cash cow for the federal government. Times have changed, and the cash cow has been milked so dry it can’t replace 25-year-old delivery vehicles that are held together with duct tape and rubber bands.
But the laws and practices that drained the Postal Service of billions of dollars remain unchanged. And, more than ever, USPS needs less not-in-my district Congressional interference that stymies reasonable downsizing of its distribution network.
What the Postal Service doesn’t need are rate-cap-busting price increases that drive away customers.
- What's Weighing Down the Postal Service?
- Why the Exigent Postal Rate Increase Will Backfire
- UPS Praises Postal Service's Improvements, But Not Its Rate Hikes