• Project Title:
  • Cost and Pricing Strategies for Underwater Market Dominant Products
  • Start Date:
  • Monday, December 2, 2019
  • Estimated Report Release Date:
  • May 2020

When it comes to postal products that don’t cover their costs, the Postal Service finds itself in a no-win situation. The Postal Accountability and Enhancement Act (PAEA) requires the Postal Service to make sure all products cover 100 percent of their direct costs. Products that fall below costs (also known as underwater products) violate PAEA. However, attempting to increase prices above the price cap or above the rate of inflation to enable these products to cover their costs also violates PAEA. 

Underwater products for fiscal year (FY) 2018 included: USPS Marketing Mail flats, Standard Mail parcels, In-County and Outside County Periodicals, and Media and Library Mail. These products have been underwater for 10 years in a row, and in FY 2018 came up short by $1.4 billion.

A prior FY 2016 OIG audit report, Strategies for Underwater Market Dominant Products (CP-AR-16-005), recommended the Postal Service develop a strategy for managing underwater products.

  • How should the Postal Service improve the cost coverage of underwater products?   
  • How should the Postal Regulatory Commission change the rate-setting process?
  • What are the benefits or risks of selling products that do not cover their costs?
  • How would mailers be impacted by a price increase on underwater products?

 

Comments (2)

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  • anon

    It is quite apparent that the rate setting process simply isn't effective. I actually agree somewhat with that the Postal Task Force report recommended with the idea of setting separate methods for pricing flexibility between 'essential' services and 'competitive' services. In other words, items such as medicine, media/library mail, etc. which is deemed to be an 'essential' service is subsidized in effect, where rates are only marginally raised to not substantially impact postal costs. 'Competitive' services where the intent is to advertise such as standard letters/flats, e commerce products of FC/priority/standard packages need a rapid pricing system free of so much bureaucratic oversight with prices designed to generate revenue to fund the 'essential' services while 'breaking even' overall. The current system is pretty much designed to subsidize the large mailers (industry)/e-commerce interests instead of those of the public IMO. The PAEA mandated price fixing to match the consumer index simply isn't allowing the postal service to cover its costs and it never will, it is essentially strangling the postal service to make increasingly risky decisions towards a path where it is going to be completely underwater. In other words, what good did that mandate achieve if there isn't going to effectively be a USPS any longer because it is so completely in the red? We're better off substantially increasing prices beyond what was mandated to at least allow the USPS to sustain itself. The couple times where the rates were temporarily increased beyond the allowed limit by a mere few cents per stamp made enormous gains to the overall bottom line for those time periods. The prices consumers pay at the USPS for similar products at other services are absurdly low. For services such as stamps and standard letter/flat rates our rates are even more absurdly low than what they should be realistically.

    Dec 31, 2019
  • anon

    I have a missing package and have made multiple attempts to locate it. I have e-mailed the supervisor, gone to the local USPS office, called the phone number given to me, tracked the package on line yet have made zero progress from a package that I should have received by December 13, 2019. No notices by email, paper, or phone from the USPS have been given to me regarding the whereabouts of my package which is valued at over $1,500. I am very frustrated and concerned. This was a Christmas gift and I have no idea when I will receive it or where it even is!

    Dec 22, 2019

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