Postage Rates Go Up — What Comes Down?

Issue Brief

Confronted with mounting deficits, the Postal Service has cut expenditures, reduced work hours (mainly in mail processing), and implemented a substantial postage rate increase June 30th. However, the Service’s latest quarterly figures indicate these stopgap measures will still fall far short of resolving the Service’s financial difficulties.

While the economy grew at an estimated 5.6 percent for the first quarter, the Postal Service’s most recent data indicate its total mail volume declined by 2.5 percent (the Service’s third quarter runs from February 23 – May 17). The expected depressing effects of the June postage increase could cause the Service’s mail volume to decline even further in the next quarter. The bad news for mail volume growth may, in fact, continue for several more quarters, as mailers adjust to the increase in postage rates. Some have even suggested that a “death spiral” of ever-rising postage rates and declining mail volume is the likely result if decisive action is not taken.

Because it is required to provide universal service, the Postal Service must deliver these smaller mail volumes to an ever-increasing number of delivery stops, as the amount of households and businesses served continue to grow. But mail delivery is free to the recipient and thus increased deliveries produces no additional revenue per se. So how can the Service cut delivery costs?

Not unexpectedly, when the USPS recently proposed closing, or merging, non-cost-effective post offices and reducing mail service to five days per week, Congress reacted with outrage. However, as unpopular as these ideas may be, substantial change is necessary if the nation’s postal system is to survive in its present form.

An alternative to reducing the number of mail deliveries per week is to reduce the number of delivery locations. Census data indicate that higher-income households are the fastest-growing and tend to reside in expanding suburbs. Mail delivery to cluster boxes would be more cost effective than delivery to every individual suburban mailbox. But cluster box mail delivery is not common since the suburb has veto power over this form of mail delivery.

Either the Postal Service should be allowed to use more cost-effective delivery methods or a fee for delivery beyond a predetermined standard should be considered. Further, local communities might choose to employ their own delivery forces to deliver mail from a USPS drop-off point. Still other arrangements could be envisioned. But just as was done to some extent in mail processing years ago, it will be necessary to cut delivery costs, through work-sharing or some other means, if a practical universal mail delivery system is to survive.

– Charles Guy, Ph.D., is Adjunct Fellow with the Lexington Institute and former Director, Office of Economics, Strategic Planning, U.S. Postal Service.