Stamp Price Increase — Why the Change in Postage Prices?

Wait! Didn’t the price of a first class stamp increase about, oh, five minutes ago? So why has the Postal Service announced yet another stamp cost increase?

If it seems postal rates increase every year, you’re right. On January 26th, the cost of a first class stamp went from 46 to 49 cents. This 3 cent rate hike in the price of a stamp is the Postal Service’s largest in more than a decade. Last year’s increase was by only 1 cent. It is now more expensive to mail a postcard as well, though that fee has only increased by a penny, to 34 cents.

Clearly, the mailing public didn’t make this decision. The Postal Service has been asking for a larger price hike for about three years now. Requests for these increases must go through the agency’s watchdog, the Postal Regulatory Commission (PRC). And the PRC is a tough overseer: they turned down the Postal Service’s 2010 request for an abnormal rate increase, claiming that they didn’t provide sufficient evidence of financial hardship. And the Postal Service was persistent — they then filed an appeal with the U.S. Court of Appeals, which agreed with the PRC and turned it down.

USPS Corner MailboxesFor this go round, the Postal Service presented evidence claiming that the agency had a loss of $22 billion between the years of 2008 and 2012. They also estimated a loss of $44 billion for the period between 2013 and 2014. The PRC uses a different calculation method than the Postal Service, however, and their grand profit loss total came in at just under $3 billion…

Therefore, they’re finally allowing the Postal Service to make only this amount in profits over the next eighteen months using higher than normal pricing. The Postal Service, which is hoping to keep this large rate hike permanent (the PRC says no, although this doesn’t mean postal rates will go down) is in the process of appealing the PRC’s decision to allow permanent increased rates.

So what did the PRC decide justified a stamp price increase at all? There are four main factors in their order granting the increase and they include losses suffered due to the economy, legal ramifications, the typical rate hike according to inflation and business risks around the USPS’s ability to operate.

Losses Due to the Great Recession and E-mail

The PRC agreed with the USPS that the recession was to blame for some profit losses in shipping, mailing letters, and doing business by mail; but they also blamed “electronic diversion” for much of the agency’s losses. This term refers to doing business over the Internet, e-mailing, etc. You should have seen this coming folks, and you didn’t, the PRC told the Postal Service. This reasoning plays a part in why the PRC thinks the Postal Service has lost much less money than they’re claiming.

The Stamp Price Increase Meets Legal Guidelines

Legally, the Postal Service’s rates are not permitted to rise at a greater rate than that of inflation and the PRC is required to enforce that. However, if the Postal Service can provide evidence of extreme financial hardship if capped by inflation, than this legal rule can be suspended (although this is somewhat debatable). The Postal Regulatory Commission says they have been provided with enough justification by the USPS to use this loophole. This is why they’re calling it an “exigent” rate hike.

Prices Can Go Up with Inflation Too

Despite all these mailing increases, the Postal Service actually hasn’t been keeping up with inflation over the years, so the decision issued by the PRC allows for an additional bump in price by¬†1.7%, just to keep up with inflation. This blends with the “exigent” part of the hike for a grand total of a roughly 7% increase.

USPS Services Were at Risk

In the PRC’s December decision, it was stated that the Postal Service “lacks a sufficient level of liquidity”(money) to provide services (like delivering packages and letters), and that the inflation-based rate alone will not be sufficient to finance operations. Because the USPS could show that their basic services were at risk, the PRC could justify a larger increase.

The PSRC will be reviewing this case to determine the fate of the exigent hike in May. In a strange twist in events, it’s possible that the price of a stamp will go down. Stay tuned…

Stamp Price Increase in 2014 — Going Up at Unprecedented Rate

On Christmas Eve, the Postal Regulatory Committee (PRC) officially approved an unprecedented increase to the price of a stamp — a full 3-cent increase — to take hold at the end of January 2014. This will bring the total price of a first class stamp to 49 cents from the current rate of 46 cents. The official change takes place on January 26th.

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Three cents may not seem like a lot but this is a 6 percent increase to the price of a stamp which is unprecedented.

The USPS is not ordinarily permitted to increase its prices beyond the rate of inflation. The ordinary price restrictions would have only raised prices by 1.7 percent — only enough to add one cent to the price of a stamp. Although a 3-cent increase sounds like nothing, the rate increase that the PRC approved comes to about 6 percent price hike which is unprecedented in USPS history… and an increase like that can have a real impact on businesses that depend on mailing letters.

The PRC made clear that this is a temporary increase to the price of a stamp and that it may only last 2 years although they did not outline a plan or guidelines for how the USPS will reverse the new rate. Instead they place the onus on the USPS to “report quarterly on revenues generated by the rate increases” and to come up with their own schedule to “phase out the rates once they have produced the revenue justified by their request.” Since the 1-cent portion of the price hike was in line with inflation, only 2 cents worth of the price increase will have to be rolled back.

The USPS has been suffering for a variety of reasons — from technology to inefficiencies in how it operates — however the regulatory committee that approved the USPS’s stamp price increase blamed the Great Recession for what they’ve been calling an “exigent” price hike. The agency believes that the financial harm caused to the USPS during the recession is an extenuating circumstance that justifies an extreme price increase.

Postage Rate Increase in 2014 — USPS Hopes to Hike Stamp Price by 3 Cents

Today, the USPS announced a proposal requesting permission to increase the price of a stamp by 3 cents in January 2014. That would hike the price of a stamp from 46 cents to 49 cents. But don’t jump the gun and invest in forever stamps just yet — the rate increase might not get approved.

It’s no secret that the Postal Service is losing tons of money — some say up to $15 billion per year. The reasons behind these losses run the gamut: from truck fuel and retired employee healthcare to competition from email, social media and private mail services. This increase request is another attempt at raising revenue to help cover ballooning costs and impossible margins. According to the USPS, these new price changes will add $2 billion in revenue in 2014.

When the USPS wants to enforce a postage rate increase, it proposes them to the “Postal Regulatory Commission” or PRC. The commission is an independent government body which regulates how the Postal Service operates and it’s required by law to prevent the price of a stamp from increasing by more than the rate of inflation each year. This is what would makes this proposal so controversial: the dollar has only inflated about 1% in the past 12 months and isn’t expected to deviate much more than that by 2014. Unfortunately at 1% inflation, the USPS should only be allowed to increase the stamp postage rate by one cent. Instead, they’re asking for 3 cents. The last time this happened, this year in January, the USPS raised the stamp price to 46 cents from 45 cents… which was copacetic with inflation and approved by the commission.

3-Cent Postage Rate Increase in 2014

The USPS is hoping to increase stamp prices to 49 cents.

Mickey Barnett, the Chairman of the Postal Service Board of Governors, called this a “last resort” to help deal with the USPS’s financial challenges. They’ve made attempts at reforming the organization through legislation, including a threat to end Saturday delivery, which wasn’t successful. The Postal Regulatory Commission has the latitude to raise prices faster than inflation if circumstances are “extraordinary or exceptional,” and while the Post Office’s fiscal situation may suit that qualification, it hasn’t been a sufficient justification in the past. So, it seems unlikely that you’ll find the stamp price increasing by more than one cent in January. If your business depends on mailing letters, do count on a postage rate hike early next year (and stock up on forever stamps!) but it’s unlikely to outpace inflation.

The USPS hopes to enforce the new postage pricing on January 26th, 2014. The full proposal also includes a one-cent hike to the postcard rate, making it 34 cents; and a one-cent increase on additional weight for letters, making it 21 cents per ounce. They’ll submit the proposal to the PRC tomorrow.

Update 9/26/13: The USPS submitted their proposal today, as promised. The chair of the House Oversight & Government Reform Committee commented, pointing out that such a hike is a desperate measure and will push businesses away from using the USPS all together. Other blogs are posting about how buying forever stamps in advance of the increase could be a scheme for making quick cash.