Every February, people in Punxsutawney (PA) drag a poor hibernating woodchuck out of its burrow so it can be used to forecast how much winter weather remains. This annual rite has long outlived its practical value (or meteorological accuracy), but it remains an example of how people use the early weeks of a new year as an opportunity to consider what the remainder of the year might bring.
There is no postal groundhog but, if there were, what could the creature be expected to foresee? In the movie Groundhog Day, Bill Murray’s character was trapped in a daily loop that caused each day to be a replay of the previous one. In the postal version, if there were one, each year would be the same as the previous, with the challenges and issues never seeming to really change. The 2019 postal groundhog, therefore, might see some sadly repeating themes:
- Postal reform, or the lack thereof. Not too long after the 2006 Postal Accountability and Enhancement Act (PAEA) was implemented, and particularly after the impact of the recession on mail volume was clear, there’s been interest in legislation to update/replace/fix (depending on your perspective) what that act established. Typical ingredients for such legislation are revisions to the Postal Service’s charter or “business model,” modifications to the rate-setting process, recalculation and re-amortization of its future retirement and health care obligations, and allowing wider access to Medicare coverage for employees and retirees. While there have been legislative proposals, no bill has made any progress in years. In the just-concluded 115th Congress, bills in each house went nowhere – the Senate bill never even went to hearing. In the new 116th Congress, reform proposals will need to be introduced afresh, but its doubtful legislators will want to deal with the boring matter of keeping the nation’s postal system financially stable when there’s so much more headline-grabbing political blocking and tackling to be done.
- What to do about the rate-setting process. From December 2016 through December 2017, the Postal Regulatory Commission executed its responsibility (under PAEA) to review the rate-setting process established by that law to determine if it was working to meet statutory objectives and, if it wasn’t, to take corrective action. Looking at the Postal Service’s red-ink-saturated finances, the PRC could not avoid concluding that the rate-setting process was failing to enable the agency to be financially stable (at least not stable in the black). Therefore, the commission proposed changes to allow rates to rise faster than would otherwise be permitted under PAEA’s rate cap – which led to significant pushback from the mailing community. By the end of 2018, the PRC’s proposed changes were still on hold, perhaps as the commission hoped for Congress to do something legislatively. The odds of Congressional action, as noted, are slim to none, so the PRC’s rate-setting proposal may stay in limbo for another year.
- Prices will go up. USPS pricing authority is linked under the PAEA to the Consumer Price Index – even though the relevance of consumers’ cost experience to the cost circumstances of a government-owned delivery institution is a little suspect. Nonetheless, as the CPI rises, and as postal costs go up as well, so will postage costs. Looking at the trend, by the time the annual rate proposal is announced this fall, an increase of two to 2.5% can be expected. However, in 2019, assuming continued Congressional inaction and no movement on the PRC’s rate-setting proposals, there are other inside-the-Beltway things to watch that could impact postal costs and prices.
First, the contribution from competitive products toward USPS institutional costs and how costs are attributed to competitive products are both issues before the PRC and in which the Postal Service has been actively engaged. USPS’ interests are obvious, but for ratepayers, it’s a zero-sum game; total postal revenues pay total postal costs, and if competitive products’ contribution toward institutional costs slips (they’re paying well above the required amount now), the only other source of revenue is from market-dominant products, the ones subject to the CPI cap. Second, given how much air and ground transportation the Postal Service purchases, the price of fuel used by its contractors (and by its own fleet) can have a big impact, enabling budget compliance or forcing budget busting. Finally, it has gone to arbitration with the union representing its mail processing and retail clerks (and others). If the arbitrators feel as kindly as usual toward the union’s demands for raises, continued cost-of-living adjustments, and protection from layoffs, the cost consequences (and pressure on prices) would be obvious.
Of course, these are only three of the many issues that the USPS and the mailing community have been dealing with in 2018 and previously, and that will continue in 2019. Clearly, mail volume and revenue will continue to slide, achievement of service performance standards will still be a challenge, and the evolution of data-driven analytics will continue to be pursued by the USPS. Meanwhile, the driver shortage will persist, paper prices will rise, and competition among print and mail service companies to find and hold clients will tighten.
Maybe, like Bill Murray, we’ll find a way to break out of this postal Groundhog Day cycle, but don’t hold your breath.
Leo Raymond is the owner and managing director of Mailers Hub, which is dedicated to providing information, resources, training, and expert advice to support mailing service providers and help them succeed. He can be reached at lraymond@mailershub.com.
