Proposed Postal Service reforms could hike package delivery costs

By FinancialsFOXBusiness

USPS CEO sees big opportunity in package deliveries

U.S. Postal Service postmaster general Patrick Donahoe weighs in on budget woes.

The Trump administration on Tuesday released a report on the financially-distressed Postal Service, complete with recommendations to restructure its pricing practices – which could spell bad news for some companies.

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Among its key recommendations, Tuesday's report calls for the development of a new pricing model, which eliminates across the board price caps and suggests charging “market-based prices” for both mail and package items that are not considered essential postal services. President Trump has sharply criticized the Postal Service for undercharging companies for package delivery – specifically e-commerce giant Amazon.

“Although the USPS does have pricing flexibility within its package delivery segment, packages have not been priced with profitability in mind,” the report read.

The administration found that the Postal Service has not accounted for a decline in mail volume and the growth in package volume in its current pricing structure. During fiscal 2018, overall volume declined by 3.2 billion pieces, which includes a 3.6 percent decline in first-class mail volume – its main source of revenue.

The administration also recommends strengthening governance, pursuing cost-cutting strategies and restructuring mounting retiree health benefit liabilities. Worker compensation and retiree health benefit costs increased by more than $800 million and $221 million, respectively, during the most recent fiscal year.

One suggestion that was missing, however, was privatizing the agency, which has been floated by members of the administration.

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The White House said the Postal Service lost $69 billion between fiscal 2007 and fiscal 2018, with “tens of billions of dollars” in losses expected over the next decade. During the 2018 fiscal year, the Postal Service recorded a net loss of $3.9 billion, which is an increase of more than $1 billion over the losses it suffered in 2017.

The last time the agency recorded a profit was more than a decade ago.

Last month, the Postal Service proposed a slew of price increases that were approved by the Postal Regulatory Commission – slated to take effect in 2019. Priority Mail Express prices will rise by 3.9 percent, while Priority Mail will increase 5.9 percent – those prices aren’t adjusted in line with inflation, but rather with perceived market conditions. First-class mail prices will rise by 10 percent.

The price of a “Forever” stamp is set to rise by 5 cents to 55 cents, a 10 percent and record nominal price adjustment. The price to ship a small flat-rate box will increase to $7.90, from $7.20, while a large flat-rate box will rise by more than $1 to $19.95.