Publishers could see an extreme rise in their mailing costs in the next five years because of recently proposed changes to the current price structure for Marketing Mail and Periodicals.
On December 1, 2017, the Postal Regulatory Commission (PRC) concluded a year-long review of the current system for regulating rates for market-dominant classes of mail, including Marketing Mail (Total Market Coverage products) and Periodicals (both In and Outside County). Most importantly, the PRC ruled that the current Consumer Price Index (CPI) price cap system has not (1) ensured the financial health of the Postal Service, (2) allowed rates to cover costs for some classes, or (3) fostered high-quality service standards.
To fix these failures, the PRC proposes major changes to the current price cap system, which has largely kept rates reasonable and predictable over the last 10 years. First, it would allow the Postal Service to raise rates by a “supplemental” 2 percent (above the CPI price cap) per mail class per year for five years. Second, it would allow an extra 1 percent “performance-based” increase per year indefinitely based on certain measures of operational efficiency and service quality standards. Third, for mail that does not cover its costs — which is the case for both In and Outside County Periodicals — an additional 2 percent would be allowed any time they are still “underwater” when rates are increased.
If adopted, the total cumulative increases could be imposing. Assuming CPI stays at 2 percent per year for the next five years, after five years the proposed 2 percent increase would result in a 21.67 percent increase after compounding (more than twice the increase allowable under today’s price cap). Add the separate 1 percent for efficiency and service, and the cumulative increase after five years could be 27.6 percent. Thus, in five years, newspapers that mail Total Market Coverage (TMC) products could see rates that are 27.6 percent higher than today. In contrast, under the current rate cap structure, rates for Total Market Coverage products (4.0 ounces; HD Plus; DDU entry) experienced a cumulative rate decrease of 12.5 percent over the last five years.
For “underwater” products, such as Periodicals, the PRC is proposing even higher rate increases. Again assuming 2 percent annual inflation, Periodicals rates — both for In and Outside County — could rise by more than 40 percent after five years.
If the U.S. Postal Service uses its new-found authority to raise rates in this way, the proposed rate-setting system would be very damaging for newspapers that mail TMCs and newspapers. The Alliance will be weighing in on this proposal in comments that are due on March 1