• on Jun 14th, 2010 in Pricing & Rates | 11 comments
    The Postal Service has more than 10,000 prices contained in a 1,800-page customer manual known as the Domestic Mail Manual (DMM). The DMM provides individual and commercial mailers with information about postal services and standards for both domestic and international mailings. The Price List, also known as Notice 123, contains domestic and international retail and commercial prices for all postal products and services. The list covers every price from mailing one First-Class Mail® letter to paying for a 100,000-piece mailing that has been presorted and transported closer to its final destination. If the mailer wants extra services such as Signature Confirmation, Collection on Delivery, or insurance, prices for these services are also provided. Does the Postal Service need more than 10,000 prices for its products and services? Can the Postal Service significantly reduce the number and complexity of prices?

    Share your ideas on how improvements could be made to the Postal Service’s DMM and prices, and what the Postal Service can do to significantly reduce the number of prices. Or tell us why you feel the current DMM and pricing structure should remain unchanged. This topic is hosted by the OIG’s Office of Audit Capital Investments team.

  • on Jan 4th, 2010 in Pricing & Rates | 10 comments
    The Postal Accountability and Enhancement Act of 2006 (PAEA) changed the way the Postal Service sets rates. It divided postal services into two broad categories: market dominant (mailing services) and competitive (shipping services). Market dominant products constitute about 90 percent of postal revenue. They include First-Class Mail, Standard Mail, Periodicals, and some Package Services. Products such as Priority Mail, Express Mail, and bulk Parcel Post are considered competitive. The PAEA placed a cap on price increases for market dominant products. The Postal Service is now permitted to make annual price changes after limited review by the Postal Regulatory Commission, but the average increase for each class of mail cannot be greater than the rate of inflation as measured by the Consumer Price Index for All Urban Consumers (CPI-U). The Postal Service can request a rate increase above the cap due to extraordinary or exceptional circumstances.

    When the PAEA was passed in December 2006, the Postal Service was still experiencing annual increases in mail volume. However, the recent, rapid drop in mail volume and revenue has forced the Postal Service into a financial crisis. The Postal Service’s Integrated Financial Plan for fiscal year 2010 forecasts a net loss of $7.8 billion. Since the Postal Service has substantial fixed costs, as mail volume falls, the Postal Service may have limited ability under the price cap to generate sufficient revenue to fund its network. Inflation was flat in 2009, so there was no room to raise prices under the cap this year. The Postal Service could have requested a rate increase above the cap due to extraordinary or exceptional circumstances, but it has announced that there will be no price increase in 2010 for First-Class Mail, Standard Mail, and Parcel Post.

    What do you think?

    This topic is hosted by the OIG's Cost, Revenue, and Rates directorate.

  • on Oct 5th, 2009 in Pricing & Rates | 23 comments
    Stamp prices are traditionally in whole cent increments. That means it is difficult to target a particular percentage increase. For instance, a one-cent increase on the 42-cent stamp would have been 2.4 percent; while the two-cent increase was 4.8 percent.

    Postal price increases are now limited by an inflation-based “cap” for each class of mail, and in First-Class Mail, the price of a stamp is a major component of the average revenue per piece for First-Class Mail. As such, the price change for the “stamp” plays a large role in the calculation of the average for the class. Other prices in First-Class Mail have to be set to bring the average back to the cap. This can make it difficult to meet many of the other pricing objectives in the class such as setting workshare discounts equal to the cost savings. It might be easier to meet the objectives if the stamp price were in a smaller increment.

    In any event, how important is it that the stamp’s price is in whole-cent increments?

    Since stamps are generally purchased in booklets or coils does it matter whether the individual price is rounded to a penny? Could increments larger than a penny be accommodated in the price cap environment? What other issues should be considered regarding the stamp price?

    This blog is hosted by the OIG’s Risk Analysis Research Center (RARC).

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