December 24, 2013
The Postal Regulatory Commission has approved the Postal Service’s request for an exigent rate increase of 4.3 percent, but only for about 18 months to two years, however long it takes to recoup $2.8 billion in lost profits. In the short term, the increase will help deal with the low liquidity problem, but it will not fully address the long-term effects of the Great Recession. (The ruling is here; the press release is here.)
The decision will come as something of mixed bag for both sides. The Postal Service will be happy that it got the full 4.3 percent increase, and the mailers will be happy that it’s for less than two years. Whether dissatisfaction with the results will lead either side to go to the U.S. Court of Appeals remains to be seen, but here's a New Year's prediction. The mailers will take the decision as a victory, and the Postal Service will take it to court.
The ruling was not unanimous. There are currently only three Commissioners (the other two positions are awaiting Senate confirmation), and the vote went two-to-one, with Commissioner Robert Taub dissenting. His opinion argues that the Commission has itself “failed to reasonably measure both the volume loss due to the Great Recession and the continuing financial harm to the Postal Service caused by that volume loss.” Commissioner Taub thus disagrees with his colleagues’ decision to make the increase just temporary. He would have made it permanent.
The Commission found several flaws with the Postal Service’s econometric analysis about how much volume and revenue were lost due to the recession as opposed to other causes like electronic diversion, so it came up with its own analysis. The Commission estimates that 25.3 billion pieces were lost between 2008 and 2011 as a result of the Great Recession, which equates to $2.8 billion in 2014 contribution (profit).
The Postal Service, on the other hand, had estimated a total volume loss of 190 pieces for the five-year period, with a total contribution loss of $22 billion. It sought a permanent rate increase that would have brought in $1.8 billion in annual contribution. Looking ahead, say, ten years then, the Postal Service was asking for roughly $18 billion, and it got less than $3 billion.
The Commission’s estimates of lost volume were far, far less than what the Postal Service came up with, but they were still substantial enough to justify at least a temporary rate increase, particularly considering the agency’s dangerously low liquidity level.
December 22, 2013
On Monday or Tuesday of this week, the Postal Regulatory Commission will issue an order on the Postal Service’s renewed request for an exigent rate increase. If it’s granted in full, postal rates will go up about 4.3 percent. That’s on top of the 1.7 percent increase already granted under the CPI cap, so the total increase would be about 6 percent.
According to the exigency provision in the federal regulations, the PRC's decision on the rate increase must be issued within ninety days of the request. The Postal Service submitted the request on September 26, so the ninetieth day would be Tuesday, December 24. The decision will probably be issued on Christmas Eve. Will the mailers find a nice gift in their stockings, or will they find a lump of coal?
Arguing the case
For the average customer who may spend a few dollars a month on postage, a 4 percent increase won’t mean much (Canadians are looking at a 30 percent increase). But for small businesses that mail a lot, nonprofits and periodical publishers with tight budgets, and big mailers looking at their bottom line, even a relatively small increase would be significant. Not surprisingly, the mailers have been putting up quite a fight in the Commission’s proceedings.
It’s anybody’s guess what the PRC will say, but judging by the tone of the Commissioners’ comments and questions during the oral cross-examination of the Postal Service’s three witnesses a few weeks ago, it doesn't seem likely that the Commission will grant the request in its entirety.
During the hearings, the Commissioners seemed very skeptical about the Postal Service’s basic claim that most of the losses in mail volumes were due to the Great Recession, both during the official period of the recession in 2008 and 2009 and in the years after. They seemed to feel that technological changes like smartphones, tablets, Facebook, Twitter, and the Cloud were having a much larger effect than the Postal Service was acknowledging.
A recurring phrase during the hearings was “the new normal,” the implication being that while the Great Recession may have been an “extraordinary” and “exceptional” circumstance justifying a rate increase, things can’t go on being extraordinary forever. The Postal Service must adjust to lower mail volumes and not expect its customers to pay a permanent rate increase to help cover losses that occurred during a limited period of time.
The mailers have filed hundreds of pages of comments opposing the rate increase. They have called the Postal Service’s econometric estimates of volume lost due to the recession “implausible,” they have presented alternative analyses showing that diversion to the internet is much more significant than the Postal Service admits, they have argued that price elasticities are greater than in the past so that a rate increase will drive away much more volume than the Postal Service estimates, and they say that if an increase must be granted it should be much smaller than requested and it should be rescinded after a specified period of time.
The Postal Service argues that it has done just as the Commission has previously ordered and presented a reasonable “sources of change” analysis showing how much of its losses are due to the recession, it has made every reasonable effort to be efficient and economical in its operations, and it needs the additional revenue in order to maintain liquidity. The Postal Service has also presented an exhaustive counter-critique of the testimony presented by the mailers and tried to show that their alternative sources-of-change analysis is implausible.
December 18, 2013
The Postal Service may no longer be talking about closing thousands of post offices, but it has been busy “relocating” them. In dozens of cities across the country, a downtown post office is being closed and the building, often a historic landmark, is being sold. According to the Postal Service, however, the post office isn't actually "closing." Because a new, smaller office will be opened somewhere else in the community, the Postal Service says it is just "relocating retail services."
The distinction may seem just a matter of semantics, but it allows the Postal Service to go through a quick relocation procedure, which has minimal requirements for notification, public comment, and appeals, instead of a lengthy, complicated discontinuance procedure. In taking the easy route to closing post offices this way, the Postal Service is causing all kinds of problems.
Complaints about the relocations have prompted the USPS Office of Inspector General to initiate an audit investigation. One of the aims of the audit is "to look specifically at whether the Postal Service is providing affected customers enough information about relocation plans to enable those customers to fully understand and react to their potential impact.”
The OIG is also in the middle of another audit that involves these relocations. This one, which began last summer, is looking into the disposal and preservation of historic postal properties. The two audits are related because the Postal Service typically replaces the historic post office with a new retail facility elsewhere in town.
The audit on relocations is due out in January. If you’ve had experience with a relocation process, your input would be very valuable. You can still submit comments on the OIG's website here.
The audit on historic properties was initially due out last October, but it’s been postponed until next year, perhaps as late as March. The only explanation for the delay the OIG has offered is the government shutdown, but that lasted only two weeks, which wouldn’t quite explain a delay of several months. Perhaps the investigation is proving more complicated than the OIG expected.
There's also some mystery about why the announcement on the historic properties audit keeps appearing and disappearing on the OIG website, but an archived version with some of the initial comments can be found here. While you're waiting for the OIG's report, you can take a look at my report to the OIG on the preservation and disposal of historic post offices, which can be found here.
December 15, 2013
Canada Post announced this week that over the next five years it would be converting five million urban residences from door delivery to cluster box units (CBUs), also known euphemistically as Community Mailboxes (CMBs). Along with other cost-cutting initiatives, like consolidating processing plants, closing post offices, and reducing employee benefits, the Canada plan will supposedly save $700 to $900 million a year and involve eliminating 6,000 to 8,000 jobs.
The news that Canada would get cluster-boxed was greeted with applause by Congressman Darrell Issa, whose Postal Reform Act (H.R. 2748) mandates a similar conversion for the U.S., with some thirty million residences and businesses being required to shift to cluster boxes over the next ten years. There’s a similar provision in the Senate bill (S. 1486), but it’s more moderate — it requires a conversion program but shifts customers only on a voluntary basis, with no target numbers.
The Postmaster General has also expressed interest in switching to more cluster boxes. In January 2013, he said, “We’ll be looking at some centralized delivery, rolling that out across the country – no major push, but starting to move on that.”
Over the past year, there have been many instances of customers getting converted to cluster boxes, often on a less-than-voluntary basis. The Postal Service has been using a variety of explanations for making the conversions, like protecting letter carriers from unchained dogs, and it’s been sending out misleading letters to customers telling them they need to change modes of delivery when in fact they don’t.
A couple of weeks ago, the National Association of Letter Carriers put out a news release noting that it had “become aware of an effort by the Postal Service in different parts of the country to convince customers to agree to change their mode of delivery to cluster box or centralized delivery.” In order to make sure carriers and customers know their rights, the announcement reviews all the regulations, which include a requirement that customers must agree voluntarily to a change in the mode of delivery.
Despite all the signs that the U.S. is trending toward more cluster boxes, we are a long way from mass conversions. Many politicians and commentators will point to Canada as a model to be imitated and a harbinger of things to come, but the United States will see a mass conversion to cluster boxes at about the same time we get a Canadian-style healthcare system.
Learning from Canada
Time Magazine has already come out with an editorial arguing that "we can learn something from Canada." Time says that switching to cluster boxes is "an essential step for the post office to remain self-sustaining in a digital age. For Americans there should be only one reaction: envy."
Time puts the blame for the fact that we're not following the Canadian lead on Congress, which keeps the Postal Service tethered "like a dog on a leash."
But Time has it wrong. Current law permits the Postal Service to change a customer’s mode of delivery on its own. Mass conversions don't require Congressional approval. The reason our postal system hasn't resorted to this particular austerity move is that it's a terrible idea.
The Postal Service has long recognized that there are many problems with changing over to cluster boxes, not the least of which is angering customers, especially if you do it without their permission. As one person commented about the Canada Post announcement, "Nothing gets people more riled up than having something they are accustomed to taken from them by the government."
So while Canada may be ready to make the switch to cluster boxes, and while Congressman Issa and Time Magazine may be applauding the move, there’s not much chance that it will happen in this country anytime soon. It’s one thing to introduce cluster boxes for new residences and businesses, but converting the mode of delivery for millions of existing customers is another story.