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The Facts

The new law requires Postal Service products to be split into “competitive” and “market dominant” categories. Competitive products are Priority Mail, Expedited (Express) Mail, Bulk Parcel Post and Bulk International Mail. Market dominant includes all the others: First-Class Mail, Standard Mail, Periodicals, single-piece Parcel Post, single-piece International mail, Media Mail, Bound Printed Matter, Library Mail and Special Services.

Price changes for market-dominant products must be tied to the rate of inflation, measured by the Consumer Price Index (CPI). This does not apply to competitive products, which can be priced to generate a profit. But to keep competition fair, the prices for competitive products cannot go below a certain level.

With the ability to price competitive products for a profit, there is a new obligation. We will have to pay the equivalent of the federal income tax, just as if our competitive products business was a stand-alone corporation. This money would be transferred to the Postal Service Fund and can be used to support our universal service obligation.

The PMG’s View

The Postal Service must take advantage of all the pricing flexibility afforded by the new law so we can provide universal service at affordable rates for decades to come.

For market-dominant products, there is a CPI price cap at the class level. Within each class, the Postal Service is not required to raise rates uniformly. The average rate adjustment for the entire class must be at or below the rate cap. We can and will use this pricing flexibility to encourage positive mailer behavior. Lower increases for those who correctly barcode, use letters versus flats and/or participate in other workshare activities should be expected.

Regarding our competitive products, the Postal Service now will have greater ability to adjust prices to compete for package business. You can expect USPS to use volume pricing along with presorting and other workshare opportunities to lower some prices.

While it is true that we will pay a “tax” on profits from the competitive businesses, these tax revenues will be used to support our market-dominant products and fund universal service. We must continue to focus on high levels of package service and productivity in package operations to assure that we have a viable product to sell. The competition is, and will continue to be, fierce.