On October 10, 2018, the Postal Service™ announced their intent to raise both Market Dominant and Competitive Products prices effective January 27, 2019.
The mailing industry had anticipated a mid-October filing but expected a rather plain-vanilla proposal since the recently confirmed Governors had little time to review the proposed rates. Unfortunately, some mailers will see much higher than the average 2.5% increases and others will have to deal with unexpected structural changes.
On the Market Dominant side, the average price change was approximately 2.5 percent which included the 2.419 CPI-U plus some limited banked authority. Following are a few highlights from the filing, along with some mailer impacts now and possibly in the future.
- The First-Class single piece stamp price increased 10% to 55 cents. Since the average for a class must equal the maximum cap space available, commercial First-Class mailers will experience a lower than average increase. Assuming we remain under a rate cap rate regime, it could work against the commercial mailers if the Postal Service decides not to increase the stamp price next year or in future years. Going forward, the Postal Service has committed to raising consumer facing products in nickel denomination increments.
- In Marketing Mail (MM), there are some significant outliers from the average price increase. Specifically, Saturation and High-Density letters will go up 3.8% while Saturation and High-Density flats and parcels will go up 3.6%. Along with reductions in SCF drop entry discounts, some saturation mailers will see rates more than 8%.
- Also, in Marketing Mail, the Postal Service is moving toward value-based pricing by recognizing the elasticity and the benefit of the multiplier effect of catalogs. Although mandated by the Postal Regulatory Commission to raise underwater MM flats by 1.05 times the cap amount, the Postal Service is raising Carrier Route flats by only .7%. Many catalogers will benefit from this change but the largest volume catalogers, however, will see larger than average increases due to the higher Saturation and High-Density rates.
On the Competitive Products side, mailers were caught off guard by the unexpected structural changes included in the filing. The Postal Service is expanding zone-based pricing in First-Class parcels and implementing dimensional (DIM) weight pricing for Parcel Select packages greater than one cubic foot. Although the Postal Service is emulating their competitors and believes these changes are standard practice in the industry, for many mailers it’s problematic. Obtaining IT resources to adapt their internal systems during a typical black out period is a significant challenge. Many will be asking for a postponement of these requirements to comply.
The Postal Service expects to get approval from the Postal Regulatory Commission (PRC) by mid-November. Unless the PRC finds that the rates are not in compliance with statute, the rates will take effect on Sunday, January 27, 2019.