October 5, 2022

US Postal Service Endangers Its Own Survival With Higher Postal Rates

United State Postal Service Goes Postal On Rate Increases

Well, here they go again – another 2 cent or 4.5% increase in the cost of a first class stamp.  The recent history of postal rate increases by the USPS has been on a sharp upward trajectory (courtesy: Wikipedia.org.)

History of United States domestic first class & postcard rates
Date Introduced Rate for first ounce (USD) Additional ounces Postcard rate
July 1, 2001 .34 .23 .21
June 30, 2002 .37 .23 .23
January 8, 2006 .39 .24 .24
May 14, 2007 .41 .17 .26
May 12, 2008 .42 .17 .27
May 11, 2009 .44 .17 .28

In nine years since 2001, including the newly proposed rate increase, the cost of a stamp will have risen by 35.3%.   Keep in mind that over the past nine years the inflation rate has remained subdued and personal income growth for those in the private sector has been virtually nonexistent.

In March of 2009, John Potter, head of the US Postal Service told Congress that the “Postal Service, which has served America for 234 years, is experiencing a very serious financial crisis because of the downturn in the economy.  We are facing losses of historic proportions…our situation is critical”.   Mr. Potter also noted that “the law constrains us from taking the businesslike actions necessary to fully and properly align our institutional cost base with reduced and evolving customer demand”.

Mr. Potter is correct that the Postal Service is not taking the proper “businesslike actions” but he is dead wrong in his assertion that the Postal Service financial crisis is due to the recession.  The Postal Service is floundering because of it monopolistic position, excessive price increases for mediocre service,  the relentless economics of the Internet and competition by well run private enterprises in the package delivery business.

Consider the following:

-Postal mail volume has seen a steep decline of 20% since 2000.  Continuously raising prices as demand slumps will only increase USPS losses.   Economics 101 Mr. Potter – demand falls as prices increase.  Mail can be sent and bills paid on the Internet at a fraction of the price charged by the USPS – higher stamp prices will merely serve to increase use of the lower cost option.

-USPS lost $3.8 billion last year and expects to lose $7 billion this year.  Additional rate increases to avoid losses will result in a vicious cycle of further reduction of volume for the Post Office, requiring additional rate increases.

-USPS Vice President Steve Kearney warned that the “The Postal Service faces a serious risk of financial insolvency”.  Translation – we will be needing a taxpayer bailout sooner rather than later.

-This from the Wall Street Journal:

Most employees have no-layoff clauses, the starting salaries are about 25% to 30% higher than for comparably skilled private workers, and the fringe benefits are so expensive that the Government Accountability Office says $500 million a year could be saved merely by bringing health benefits into line with those of other federal workers.

The most overdue reform is to strip away the Post Service’s monopoly on first-class mail and bulk mail. Competition is the key ingredient to innovation, low prices and good service.

No private business in America could continually raise prices, lose billions of dollars and then hope to win back customers by promising poorer service.

-As the Post Office continues to furiously raise prices, both volume and revenue continue to plunge, as can be seen by the following figures from the USPS.  The latest large proposed rate increase tells us that the Post Office has truly gone “Postal”  –  repeating the same act again and again and expecting a different result.

Mail Volume by Type (pieces in millions)

2009

2008

2007

First-Class Mail

83,770

91,697

96,297

Operating Revenue (dollars in millions)

2009

2008

2007

First-Class Mail

$35,873

$38,179

$38,405

The Postal Service has not changed with the times, plodding along like it was still the 1950’s. Attempted organizational changes and cost cutting measures have failed.  Raising rates further is the most self destructive action that the Post Office could possible take.  The Postal Service needs to be dramatically restructured and reduced in size to reflect the basic economic reality of its core business.  Congress should cut the Post Office loose from self defeating regulations of a by gone era, let them operate as a business and close the door on taxpayer bailouts and subsidies.

More on this topic:

Obama Says We Can Do With Health Care What We Did With The Post Office

Why The Post Office Needs To Charge Us More


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