Challenge
Current pricing constraints hamper our ability to price products and services appropriately and to raise needed revenue.
Solution
Obtaining greater pricing authority and flexibility would allow the Postal Service to adjust pricing to better reflect market dynamics and offset future volume and revenue declines.
One of the highest priorities of the Postal Service is to provide affordable products and services to the American people. Indeed, U.S. postage prices are among the least expensive in the world. At the same time, pricing is an important tool for ensuring that our products are competitively positioned in the marketplace and for generating revenue to maintain our long-term financial stability. We strive always to strike the right balance between ensuring affordability for customers and responsibly preserving our long-term financial health.
Current pricing constraints have severely hampered our ability to remain financially solvent. The Postal Act of 2006 caps prices for every class of Mailing Services mail at the Consumer Price Index for All Urban Consumers (CPI-U), ignoring the key drivers of postal inflation. This legal framework must be modified to allow the Postal Service the financial flexibility we need to remain viable into the future. Simply put, we require the authority to adjust pricing to better reflect market dynamics and to offset current and future volume and revenue declines.
In 2010, pursuant to the tenets of our March 2 Ensuring a Viable Postal Service for America: An Action Plan for the Future, we have actively pursued a number of initiatives to address our pricing constraints.
Perhaps most significantly, on July 6, we submitted a filing with the Postal Regulatory Commission (PRC) seeking an average 5-6 percent exigent price increase for Mailing Services products. Such price increases beyond the Consumer Price Index are allowed in extraordinary circumstances under the Postal Act of 2006. Given the significant volume declines we experienced during and after the recent recession, and the continued potential for increasing net losses, we believe — and the PRC concurred — that the current situation certainly qualifies as extraordinary and exigent.
Unfortunately, the Postal Regulatory Commission recently announced its denial of our request. Encouragingly, however, the PRC recognized recent volume losses and acknowledged the larger financial risk we face through the mandated pre-funding of retiree health benefits. We will continue to pursue moderate price increases as one part of a fair and balanced approach to ensuring mail service for all Americans well into the future.
We also are pursuing several legal modifications related to pricing.
First, we are seeking to apply a single inflation price cap to Mailing Services products as a whole, rather than specifically to each class of mail. Under this reformed structure, we would be able to adjust individual prices based upon market demand and unit costs, with prices for some classes rising above the rate of inflation and prices for other classes rising at a lower rate. This pricing flexibility is necessary in particular for products currently generating insufficient revenue to cover their costs.
As an organization that is funded through the sale of postage, and operates independently of taxpayer support, the Postal Service simply must have the authority to adjust its pricing to better reflect market dynamics and offset future downturns in both volume and revenue. We will continue to pursue long-term solutions that allow greater pricing authority and flexibility, enabling us to continue providing the very best service to the American people.
Innovative, competitive pricing is a vital tool for ensuring the financial strength of the Postal Service.
