U.S. Postal Service Wins Rate Increases of 6% to Make Up Losses

Dec 25, 2013 12:00 am ET

Dec. 25 (Bloomberg) -- The U.S. Postal Service’s regulator has approved price increases amounting to 6 percent on most mail, a step the service’s board called a “last resort” forced by Congress’s failure to pass cost-cutting legislation.

A first-class stamp will cost 49 cents, up from 46 cents, starting Jan. 26. Similar changes will apply to magazines, bills and advertising mail. The increases of 4.3 percent approved yesterday are on top of 1.7 percent, an amount equal to inflation, approved last month.

The Postal Regulatory Commission, in a 2-1 vote, rejected a Postal Service request to make the higher rates permanent, saying they will probably need to end in less than two years. The increase is designed to boost revenue by $1.8 billion a year to make up for losses during the economic downturn in 2008 and 2009, according to yesterday’s order.

“The Postal Service is disappointed in the Postal Regulatory Commission’s split decision to limit the duration of a modest exigent rate increase,” Roy Betts, a postal service spokesman, said in an e-mail.

The Postal Service, which is supposed to fund its operations through postage sales, can’t increase prices by more than the inflation rate without regulator blessing.

The commission disagreed with the postal service’s argument that it had lost $6.6 billion in revenue from the recession. Some of the decline has been due to the growth of Internet-based communications as a substitute for mail, which the service isn’t allowed to make up through price increases, it found.

Phased Out

The Postal Service’s revenue from the increase beyond inflation will be limited to $2.8 billion, according to the commission.

“The commission’s decision closely follows the law we are charged by the president and Congress to uphold,” Chairman Ruth Goldway said in an e-mailed statement.

The Time publishing unit of Time Warner Inc. and a trade group representing financial institutions including Bank of America Corp. were among large mailers opposing the increase request.

The New York-based Association of Magazine Media trade group, in an e-mail, called the decision counterproductive and harmful to the postal service’s long-term prospects.

“It will drive more customers away from using the Postal Service and will have ripple effects through our economy –- hurting consumers, forcing layoffs, and impacting businesses,” Mary Berner, president of the group, said in the e-mail. “It doesn’t delay the inevitable but will hasten it.”

The group is considering a court challenge, Berner said.

Postal Legislation

The Postal Service, which lost $5 billion in the 2013 fiscal year ended Sept. 30, is trying to close its budget gap with cost cuts and revenue increases.

Postal management has few options to make large-scale cost cuts without changes the U.S. Congress must allow, the board said in September. Such measures in the U.S. House and Senate are stalled.

Postal unions last week said they oppose a legislative compromise proposed by Senator Tom Carper, a Delaware Democrat, that would allow the service to end Saturday mail delivery if volume continues to decrease.

The service’s board in September month asked the regulatory commission for permission to raise prices by more than the inflation rate, repeating a 2010 request the regulator rejected.

--Editors: Bernard Kohn, Don Frederick

Alan Levin in Washington at alevin24@bloomberg.net