PAEA and New Postal Rates

Discussion of the United States Postal Service® and new rates must begin with the fact that the Postal Accountability and Enhancement Act (PAEA) was signed into law on December 20, 2006.

The PAEA is the first significant change in the rules governing the Postal Service since 1970. The PAEA creates a new system for setting postal rates that replaces the time-consuming and expensive "rate cases" under the old law. The PAEA also establishes a new Postal Regulatory Commission (PRC) that replaces the old Postal Rate Commission. Under the PAEA, the PRC has broader regulatory authority, is responsible for establishing regulations and issuing reports, must seek public input on key issues affecting rate-setting and the mailstream, and must establish a formal complaint process.

The PAEA establishes two separate product categories: Market-Dominant products (now called "mailing services" by the Postal Service) and Competitive products (now called "shipping services") . As directed by the PAEA, the Postal Service has established new service standards for Market-Dominant products. The Postal Service has proposed a "hybrid" performance measurement system that relies on internal and external data with a particular emphasis on data obtained through the widespread use of the Intelligent Mail Barcode.

Market-dominant services include:

First-Class Mail®
Periodicals
Standard Mail®
Package Services: single-piece Parcel Post®, Media Mail®, Bound Printed Matter and Library Mail
Extra Services
Single-Piece International Mail

Competitive services include:

Expedited Mail (Express Mail®)
Priority Mail®
Bulk Parcel Post®
Bulk International Mail

Under the PAEA, there is a new process for setting prices, with increases for Market-Dominant products capped at the Consumer Price Index (CPI), by class. The Postal Service must use a "moving average" method for calculating the CPI; this averaging will smooth out the month-to-month inflation spikes that can occur.

The PRC website, www.prc.gov, has a link to a chart, which is updated monthly, detailing the monthly changes of the Consumer Price Index for All Urban Consumers (CPI-U). The Price Cap for Market Dominant Products is 2.7% as of 12/14/2007.

The Postal Service has made a commitment to the mailing industry to provide at least 90 daysâ€™ notice for rate changes for Market-Dominant products, even though under the PAEA, the USPS is only required to announce Market-Dominant price changes with a minimum advance notice of 45 days.

The PAEA also strongly encourages worksharing. In fact, the new rate regulations issued by the PRC require the Postal Service to justify any workshare discount that falls "substantially below" the avoided costs of the Postal Service. Business mailers who are willing to presort and/or automate their mail should continue to receive postal discounts that appropriately reflect the amount of savings from work that would otherwise be performed by the Postal Service.

For Competitive products, the new law gives the Postal Service substantial pricing flexibility with rates not capped at the CPI. Competitive products, however, must cover their "attributable" costs and , in the aggregate, must make an appropriate contribution to the Postal Serviceâ€™s institutional costs..

So, what does this mean for business mailers and when might be the next rate increase?

The good news is that rate increases will be more predictable, and hopefully, more incremental. This should allow mailers to plan and budget more effectively and encourage investment in the mailstream. It is likely that the Postal Service will announce a price change for Market-Dominant products early next year (perhaps in late January or early February) with an effective date for these changes sometime in the spring. (Stay tuned!)

In conclusion, while the Postal Accountability and Enhancement Act has changed many things, the USPS® mission will not change, and that mission is "reliable universal service at affordable rates."