Exigent Rate Increase of 2013 to Be Rolled Back
by Joe Freeman
June 24, 2015
The United States Postal Service received permission to increase postage rates by three cents in January of 2014 under the Exigent Rate Case request. In a bit of a surprise move to consumers, less than a year later the courts have ruled that the USPS can’t keep this increase in place forever. The purpose of the “exigent rate increase” was to offset any specific emergency spend on behalf of the agency, and to see it through a time of temporary hardship due to extreme conditions creating added cost burdens.
The rate increase helped to reduce the USPS losses from $8 billion to $2 billion, but still much is needed to ease revenue losses that continue to bite into volume and postage costs. With the return of the exigent rates, the USPS will be “on the spot” to deliver a better financial report than prior to the rate increase.
Portions of the cost reduction measures already taken include:
– Continued staff reduction by not replacing retiring employees or early retirement staff
– Divestiture of certain retail properties and smaller post offices by consolidating operations
– Closure of half of the Central Business Distribution facilities
– Removal of the associated vehicles and drivers from all of the aforementioned steps
It is good to see that a decrease in rates is still possible in this day and age. That is good news for the consumer and mailers in the USA. However, as the USPS continues to report massive losses every quarter, its reliance on the three cents per piece will cut into any recovery for the short term. We look for strong leadership and more creative steps to produce increases in revenue, whether through partnerships similar to the Amazon project recently conducted for seven-day holiday delivery or other revenue streams currently not in the Postal Service playbook.
The fragile condition of the Postal Service calls for similar measures that the Department of Defense faced following massive fort and military property closures in the past decade. There is still value in the real estate left behind from closed facilities, but there appears to be a lack of a sense of urgency in brokering some immediate properties that could create revenue relief. It would also benefit the communities who were hard hit by sudden job losses, which affects local merchants who also lose revenue due to the reduction in people who spend at their stores and restaurants.
We will keep a watch on the cost reduction programs and ideas that are developed as the USPS faces challenges on the long road back to financial solvency. My belief is that the three cents being rolled back will have to be approved as a permanent increase if the Postal Service is to survive. My professional opinion is that there will be plenty of pain in the upcoming months as Congress and the Postal Rate Commission wrestle with final decisions on this matter. There is a lot of collateral impact at stake.
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