To Avoid Future Rate Hikes, USPS Must Cut Costs

Issue Brief

On Nov. 1, the Postal Rate Commission approved an across-the-board rate increase – essentially at 5.4% with some small variations. Postal analysts are now predicting that USPS will request another, larger increase next year. This may signal the beginning of a pattern of increasingly frequent rate hikes.

Adding to this concern is the fact that USPS is asking Congress for freedom to break an inflationary rate cap that would be imposed by pending legislation. This strongly suggests that the Postal Service is no longer confident in its ability to keep prices within inflation, as it has done for over 30 years.

However, breaking an inflationary cap would place an undue burden on captive Postal consumers. A far more sensible and efficient solution would be to expand measures — or implement new ones — to control spending. Here are a few such measures:

1. Adjust pay to incorporate geographical differences in cost of living. A mail clerk doesn’t need $70,000 a year in rural Missouri to support the same lifestyle as his $70,000-a-year colleague in Manhattan. If the Postal Service adopted a pay scale that reflected regional cost-of-living differences, it could save billions of dollars.

2. Expand worksharing discounts. Allowing big mailers to presort their own outgoing mail in exchange for lower pricing resulted in $11 billion in savings to the U.S. economy last year. So long as discounts don’t exceed savings, more worksharing would be a win-win situation for the USPS and its customers.

3. Allow local postmasters to outsource delivery service. In a few places, such as Palm Beach County, Florida, delivery routes have already been turned over to the private sector. Contracting mail delivery can cost half as much as using federal postal employees on the same routes.

4. Expand the use of contract postal units. Through CPUs, the Postal Service contracts an existing business, such as a pharmacy, to sell postal services. Some 5,000 CPUs already exist. Requiring virtually no investment in infrastructure, they offer a low-cost way for the USPS to meet demand.

5. Gradually reduce the wage premium for new hires. Taking salaries and benefits into account, postal workers earn substantially more than their private-sector counterparts. The postal service should start gradually reducing the premium offered to new postal hires, who receive, on average, a 28.4 percent increase from their previous jobs. Current employees would not experience a benefit cut.

6. Stop signing no-layoff union contracts. As of February 2003, 89 percent of USPS career union employees were protected by no-layoff guarantees. No organization can effectively control costs if it is barred from adjusting the size of its workforce.

Serious cost-cutting measures like these would go a long way toward protecting the Postal Service’s monopoly-market customers from a future of excessive rate hikes.