Postal Service bets on freedom to raise prices to fix fiscal woes
Buffeted by threats from Amazon drones to deliveries by golf cart, the beleaguered U.S. Postal Service is counting on a different strategy to stay competitive: more freedom to raise prices on mailing letters.
After a 10-year review, the Postal Regulatory Commission appears likely to move to grant the Postal Service power to increase stamp costs beyond the rate of inflation, marking the biggest change in its pricing system in nearly a half-century. A decision is expected next month.
The commission, which oversees postal rates, might limit how high stamp prices could go. But the price of a firstclass stamp, now 49 cents, could jump, though it’s not known by how much.
The plan has received praise from financial analysts but raised the ire of the mail-order industry, which could pay millions more for sending items like prescription drugs and magazines, and be forced to pass the costs onto consumers.
The Postal Service is trying to stay financially afloat as it seeks to invest billions in new delivery trucks to get packages more nimbly to American homes.
An independent agency of government, the Postal Service has lost money for 10 consecutive years.
While online shopping has led to years of double-digit growth in its packagedelivery business, it hasn’t offset declines in lucrative first-class mail. Overall mail volume, which makes up more than twothirds of postal revenue, dropped 27 percent over the last decade as people rely more on email and online bill payments.
Congress’ failure to address its underlying financial woes, such as onerous requirements to prefund retiree health benefits, has left the commission more likely to embrace the Postal Service’s request for complete freedom to set prices. The Postal Service already has ruled out closing post offices and ending Saturday delivery to reduce costs.
“We are calling for action from Congress, but we’ll do what we have to based on the reality of what is,” Robert Taub, the Republican chairman of the regulatory commission, said in a telephone interview.
He declined to comment on the upcoming decision, but noted the Postal Service doesn’t make enough money to cover its mandated expenses and invest for the future. Mr. Taub stressed a need to fix the balance sheet at the 242-yearold Postal Service, which generates $71 billion in annual revenue.
The decision comes as internet sales continue to flourish, led by Amazon, spurring consumer demand for everfaster and cheaper delivery.
Forty percent of the e-commerce giant’s packages are delivered by the Postal Service, compared to 20 percent to 25 percent by United Parcel Service and 15 percent to 20 percent for FedEx, thanks to lower package delivery rates it can offer by tapping into a network that already delivers to every U.S. household six days a week.
Still, growing competition is challenging postal dominance in the “last mile” portion of delivery, the final and usually most expensive stretch of a package’s journey from a retailer’s warehouse to a customer’s door.
In a bid to control more of its deliveries, Amazon has been testing the use of drones and launched Amazon Flex, a network of contract drivers similar to courier services offered by Uber. UPS has been trying deliveries via golf carts.
The post office also takes hits for perceived bad service, including Reddit threads devoted to consumer complaints about lackluster home delivery attempts. One thread on Amazon’s site has 1,000 posts under the title, “Amazon, Quit shipping via USPS and btw, you suck.”
“Price increases are long overdue,” said David G. Ross, a shipping analyst at Stifel Financial Corp., noting that first-class stamp prices in countries like Germany cost the equivalent of 80 cents or more. He said the Postal Service needs “to make the investment and deliver the packages so that Amazon doesn’t have to do it themselves.”
Buffeted by threats from Amazon drones and Uber to delivery by golf cart, the beleaguered U.S. Postal Service is counting on a strategy of raising stamp prices.