When you need to mail a package, you have a few different options, including the U.S. Postal Service (USPS), FedEx, and UPS. But when it comes to cards and letters, you can't argue that USPS isn't the most convenient—and often affordable—option. All you have to do is pop a stamp on the envelope, stick it in your mailbox, and trust that it will arrive at its destination. On a larger scale, the ease and affordability of USPS' services are also a plus for companies and operations that rely on the agency for more than greeting cards and bills. But according to a new report, some of USPS' biggest customers are actively abandoning the agency.
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Nonprofit organization Keep US Posted—which is comprised of individual Americans and organizations "united in the belief that a reliable, affordable U.S. Postal Service is essential to our way of life"—published its "Critique of USPS Elasticities" this month, pointing out flaws in the agency's regular price hikes. The price increases are part of Postmaster General Louis DeJoy's 10-year Delivering for America (DFA) plan, intended to take USPS "from an organization in financial and operational crisis to one that is self-sustaining and high performing."
Since Aug. 2021, the price of the Forever stamp has continued to climb twice a year, reaching 68 cents in January. According to Federal News Network, USPS is planning to ask the Postal Regulatory Commission (PRC) for a sixth increase this summer.
While the USPS argues that the hikes create a "more rational pricing strategy" and need to go up due to inflation, the new report from Keep US Posted points out that they are driving customers away.
According to the report, market-dominant revenue fell $1.8 billion short of what the USPS anticipated for 2023. This revenue includes products the USPS has a monopoly on (including First-Class Mail and marketing mail).
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The rationale for the price hikes doesn't fully take customers' price sensitivity into account, relies too much on historical data, and is "based on flawed economic forecasting," a press release from Keep It Posted claims. And even though market-dominant products typically don't decrease as much in volume in response to rising prices, more and more customers are mailing less, the report says.
“[USPS is] seeing larger decreases than their models predicted, because of that error,” Mike Plunkett, former USPS manager for pricing strategy and innovation and manager of retail alliances, told Federal News Network. “They’ve taken a short-term, aggressive approach that has created some long-term challenges.”
Making matters more complicated, those who reduce or eliminate mail because of pricing aren't likely to go back to their old ways even if rates stabilize, the report says.
In a statement to Best Life about the report, USPS spokesperson David Coleman said that USPS prices "remain among the most affordable in the world," noting that the recent report and critique "appear to be deeply flawed."
The USPS also stands by its pricing plan, per Coleman's statement.
"As inflationary pressures on operating expenses continue and the effects of a previously defective pricing model are still being felt, price adjustments have provided the Postal Service with much-needed net revenue to achieve the financial stability sought by its Delivering for America 10-year plan," Coleman said. "The Postal Service continually updates and improves its estimates of how mail volume responds to price changes and other factors, and those estimates have been filed with the Postal Regulatory Commission for decades.”
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But while the USPS is continuing to evaluate pricing, the new report asserts that the recent decline in revenue indicates "a potential issue with the model used to defend rate increases."
"The size of the [price] increases—and almost as importantly, having two increases a year—has changed mailer behavior, because of the magnitude of the increases, and the fact that now twice a year, mailers have to go to their finance people and say, 'Hey, rates are going up again,'" Plunkett, now president of PostCom (which commissioned the report), told Federal News Network.
He added, "Twice a year, you have to have another discussion about how can we possibly get out of the mail for a more affordable channel."
If another rate hike is approved by the PRC, it could end up being an "ugly tipping point," Steve Kearney, executive director of Alliance of Nonprofit Mailers and former USPS treasurer and vice president of pricing, told Federal News Network.
“The study verifies what many mailers already know in their guts. The Postal Service is damaging its current finances, its long-term solvency, and many of the mailers that fund the agency with market-dominant mail. It would be very irresponsible to continue digging a deeper hole based on flawed information,” Kearney said.
