Package Coalition Newsletter

January 21, 2022

The Package Coalition works to preserve an affordable, reliable and profitable postal package delivery system as an essential part of America’s infrastructure and economic growth.   “Rural communities depend so much on entrepreneurship. When there aren’t jobs, you create those jobs and you need the Postal Service to be there, to be consistent, to be reliable.” Marketplace profiled how rural communities and local jobs depend on the U.S. Postal Service’s package delivery. “The Postal Service Act of 1792 rapidly expanded what was then a chain of offices along the Atlantic seaboard into a network that would reach far into trans-Appalachian hinterland. It was an extraordinary commitment,” said historian Richard John.    The Postal Service’s universal obligation guarantees mail and package delivery for every address in the nation. Meanwhile, other private carriers levy surcharges on more than 50% of zip codes, and don’t deliver to many rural and remote addresses at all. Navajo jewelry maker and entrepreneur JJ Otero explained how the Postal Service keeps him in his business — and how threats to the postal package system could impact him. “I mean, it’s tough enough,” Otero said. “They’re overlooking the fact that poor people need to get mail and to get mail out. Among those poor people are the Indigenous folks that live in areas like here, that rely on [the Postal Service].”    Getting up to speed on postal reform legislation? For a one-stop resource on all things postal reform, we’ve compiled top resources for you. It’s time for Congress to pass the Postal Service Reform Act, which will boost the postal system’s capabilities to serve as an economic lifeline for small businesses and Americans nationwide. The legislation will codify the Postal Service’s integrated delivery network: mail and packages delivered together, six days a week. Below are resources on this important legislation.   Package Delivery Primer in the United States   The basis for package delivery: Affordable mail and package delivery service, in rural areas, suburbs and cities, is critical to businesses and consumers in the US The package delivery market, which consists of private carriers and the US Postal Service (USPS), is a network; the USPS is often the main (sometimes sole) package carrier for rural counties given its universal service obligation for mail Summary of the approach: Congress rightly established fair competition laws for the package delivery market because of the USPS’s participation in the market Implementation of fair competition has been led by the post’s regulator, the Postal Regulatory Commission (PRC), and the Federal Trade Commission (FTC) The current statutes and regulations on package pricing help protect fair competition Respecting competitive restrictions, the USPS should exercise pricing flexibility to serve changing consumer demands, ensure innovation, support mail and stabilize its finances Congress has ensured fair competition in the package delivery market: Each competitive product offered by the USPS must cover its costs Collectively, USPS’s competitive products must cover an “appropriate share” of institutional, or overhead, costs of the USPS These mandates preclude the USPS from subsidizing its package products with revenue from mail The USPS must also comply with standard antitrust laws, meaning it cannot price in a “predatory” way (no one has ever alleged that USPS has done so) The Postal Regulatory Commission (PRC) plays an important role in regulating the USPS:   1. The USPS does not subsidize package products with revenues from mail. The USPS’s revenues from packages outpace the cost of providing those products. In 2021, competitive package products revenues were $34.2 B compared to total competitive package product costs of $21 B. Package products provide an additional $13.2 B to USPS institutional costs, supporting mail delivery.    USPS data showing competitive product contribution (in billions) to USPS institutional costs.   2. The PRC reviews and validates the pricing of each USPS competitive product to ensure it covers its costs. This includes both public pricing and negotiated agreements. The PRC uses a methodology endorsed by the U.S. Supreme Court and followed in other regulated industries. The chart shows that how USPS package product revenues have covered their costs:   USPS data showing cumulative competitive price coverage (revenue as a percentage of cost). A rate higher than 100% means the products more than cover their costs.   3. The PRC also ensures that USPS’s competitive products cover an appropriate share of institutional costs (overhead) of the USPS through regular reviews created by the Postal Accountability and Enhancement Act (PAEA). In 2007 and 2012, the PRC established 5.5% as the minimum contribution requirement for competitive products. In Docket RM2017-3 reviewing the minimum contribution, the PRC approved a formula that adjusts annually and substantially increases the minimum contribution requirement from 5.5% to 9.1% in 2021. In recent years, USPS’s package products have been covering an increasing percentage of the USPS’s institutional costs:   USPS data showing competitive products’ share of institutional costs (from 5.7% in 2007 to 39.2% in 2021).   4. Finally, the PRC must make an annual finding that the USPS is complying with statutory requirements for fair competition in the package market.   Implementation of fair competition has been fostered in other ways:   The USPS is subject to general antitrust laws administered by the Federal Trade Commission and the Department of Justice: No violations have been alleged No evidence the USPS has a dominant market share, nor abused the market Congress asked and the Federal Trade Commission examined whether the USPS had an unfair competitive advantage in the package delivery market. The FTC found (2008) that the USPS has a net economic disadvantage of up to $1B annually The PRC recently reexamined the FTC’s findings (2017), updated the estimate and still finds a similar if not larger disadvantage to the USPS compared to private carriers Within limitations established by statute of by rule, the USPS should exercise pricing flexibility to serve consumers’ changing demands, ensure innovation, support mail and stabilize finances:   The USPS has been raising rates on packages and is incentivized to do so. Growing USPS package revenues, while 42% of USPS revenues, help to stabilize USPS finances and protects its ability to meet its universal service obligation (letter mail delivery six days per week).   USPS data showing that general competitive product prices are rising at a rate much faster than the Consumer Price Index (CPI-U), consistent with private carrier rates. The Package Coalition is an alliance of America’s top retail, e-commerce and logistics companies committed to preserving reliable and affordable postal package delivery services. The Postal Service delivers packages directly to the doorstep of more than 161 million delivery addresses across the country, contributing trillions of dollars to the US economy and supporting millions of jobs and small and medium sized businesses. Keep up with the Package Coalition by following us on Twitter (@PkgCoalition) or visiting our website.