Monday, September 19th, 2011...9:00 am
Postal Service Update
The Postal Service says the next price adjustment for all products will be January 22, 2012.
Although the infamous “exigency case” is still pending at the PRC after being returned by a Federal court for more consideration, the word from the Postal Service is that no matter how the PRC decides it, we understand the January 2012 price increase for market dominant products will be a normal “price cap” adjustment . The new prices for market dominant products will be announced around October 22 with an average increase in the 2.1-2.3 percent range (the expected change in the CPI).
Competitive product (Shipping Services) prices should be announced November 22. Remember, the Postal Service will introduce a new Shipping Service product, Commercial First-Class™ Package Service, that will replace the current First-Class Mail® commercial base and commercial plus parcel offerings in January. Except for Parcel Select Lightweight/Standard Mail Parcels, we expect price increases for Shipping Services products, including Parcel Select, to increase in the mid-single-digits (4-6 percent range) on average.
The Postal Service went public yesterday with more detail on its plans to close and consolidate plants and streamline its transportation network (Network Optimization). The proposal is intended to reduce network costs by as much as $3 billion annually. The proposal would affect First-Class Mail and Periodical service standards, eliminating overnight service standards and establishing more two-day service standards for these products.
The primary new information released yesterday is a list of nearly 250 plants that are under consideration for closing. This is early in a process that will extend at least through next March.
The recent press attention to the USPS financial situation and a more active push for solutions by the Postal Service, has spurred more interest both on Capitol Hill and within the Obama Administration which says it is working on a proposal to deal with the problems facing the Postal Service. At a recent Senate hearing, Postmaster General Donahoe described the financial situation and explained how he hoped to deal with it and put the Postal Service back in the black. He asked Congress to address the following core issues this year:
• Resolve the pre-funding of Retiree Health Benefits (RHB)
• Return the $6.9 billion overfunding of the USPS FERS pension obligation
• Grant the Postal Service the authority to determine delivery frequency (5-Day)
• Allow the Postal Service the flexibility to restructure its healthcare and pension systems
• Permit the streamlining of pricing and product development.
Without these requested changes the Postal Service projects that it will lose $16 billion in 2015. With the changes, the Postal Service says it would be able to reduce costs by $20 billion, allowing it to earn a profit in 2015. Any profit would be used to pay down debt and make necessary investments like new delivery vehicles.
Here’s a breakdown of the hoped for savings that would result from the changes:
• Sortation and Transportation – $3 billion
• Retail – $1.5 billion
• Delivery – $2 billion
• RHB Resolved – $5.5 billion
• Five-Day Delivery – $3 billion
• Benefits and Wages – $5 billion
These savings assume Congressional action, Network Optimization, and a huge reduction in head count.
There is a possibility that the House postal subcommittee could begin considering postal legislation next week, and the House and Senate leaders of the relevant postal committees are expected to meet next week to discuss possibilities. But, actual action on legislation is far from imminent.
Meanwhile, the House Oversight and Government Reform Committee has set up a postal reform section, replete with a countdown clock until default at the end of the month, on its website.