Comments of American Consumer Institute Center for Citizen Research
Regarding Docket No. RM2022-2
Submitted to the United States Postal Regulatory Commission
March 25, 2022
To the attention of the Commission:
The American Consumer Institute (“ACI”) is appreciative of the opportunities to keep an open dialogue and submit comments, past and present, on this critical subject of the institutional cost contribution requirements for competitive products.[1]
In the past 24 months, the United States Postal system has been deeply affected by market forces leveled by adjusted consumer behaviors stemming from the COVID-19 pandemic. In short, the US Postal system has found itself ushered into a new role in everyday life, which in large part comprises its capacities in parcel in-take and distribution to the point that the system operates, on a near regular basis, at what is considered to be “Peak Season” delivery load.
Relative to pre-pandemic status, the Postal Service’s shipping and package segment has accelerated 22.9 percent in just a two-year period (7,578,000 units in FY2021 compared 6,165,000 in FY2019).[2]
Despite growth of the product segment that the Postal Service considers an essential competitive market venture, and critical to the formation of a modern postal system, the institution’s financial difficulties have notably accelerated. While Congress has largely absolved the USPS’ net losses of $9.2 billion and $4.2 billion during the pandemic years, and for many years prior, significant concerns remain.
Specifically, the Postal Service Reform Act omits business and operational overhauls that would counteract escalating losses stemming from its own decision-making and authority. The Postal Service has cumulatively posted $11.6 billion in controllable losses since FY2018 and it projects to lose $4.1 billion in FY2022.[3] It should concern the Commission that the origin of such operational losses largely remain unknown, especially as expenses are projected to grow beyond the institution’s record high of $79.5 billion outlays in FY2021.
ACI has previously commented to the Commission on loss-inducing cost pressures, including “USPS’ extensive expenditures on labor, capital and services for the provision of shipping products.” Absent a clear and comprehensible balance sheet standard, ACI cites an apparent pervasive regime of “shifting costs and risk from competitive services to market dominant services, among a litany of further balance sheet abuses.”[4]
The Postal Service’s accommodations for increased package delivery, particularly for 2021 holiday peak season, involved installation of 112 new package-sorting machines, new facility acquisitions to house the equipment, and the hiring of 40,000 seasonal employees.[5] Without identifying the inter-relations of such costs compared to revenues, Postal leadership has made parallel actions to increase rates for packages, including an average increase of 8.8 percent for First-Class package service.[6]
Increases in postal costs, including institutional costs, are driven by the competitive shipping and package segment, as evidenced by the fact that packages now occupy the majority of the space on delivery vehicles. This shift has led to increases in fixed overheads, like the need for more trucks to deliver packages and the need for more package sorting machines. Yet, only 8.8% of institutional costs are allocated to these competitive services. In addition, because post offices are generally closed on Sundays while delivery of packages carries on, the allocation of institutional costs to competitive packages should include another 14.3% of costs – reflecting one of seven days of operations that exclusively use these overheads.
The USPS’ pricing changes reflect the agency’s ostensible intuition that its packages have pervasively received a free ride in the delivery system and the Commission should validate this with an intelligible formula. The Commission must adopt rules that ensure that competitive products absorb a commensurate degree of institutional costs, relative to the stresses that the product segments convey.
If the USPS were required to provide transparent financial statements showing that the allocation of costs to competitive products and services was similar to the allocation to monopoly products and services, questions about the potential cost shifting would be settled. Until this void is filled, the Commission bears part of the responsibility for infringements and fiscal implications that USPS disproportionately transfers institutional costs to American taxpayers and monopoly service ratepayers.
Thank you for the opportunity to share our organization’s view and please consider contacting me should there be further questions and rulemaking issues to consider.
Respectfully submitted,
Steve Pociask
President and CEO
American Consumer Institute
Center for Citizen Research
1701 Pennsylvania Avenue, NW Suite 200
Washington, DC 20006
[1] The American Consumer Institute is a 501c3 nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org.
[2] USPS, Fiscal Year 2021 Annual Report to Congress, 12/9/21, https://about.usps.com/what/financials/annual-reports/fy2021.pdf.
[3] USPS, Fiscal Year 2022 Integrated Financial Plan, https://about.usps.com/what/financials/integrated-financial-plans/fy2022.pdf.
[4] Comments of American Consumer Institute Center for Citizen Research Regarding Docket No. RM2017-3 Submitted to the United States Postal Regulatory Commission, January 31, 2020, https://www.prc.gov/docs/112/112094/aci%20-%20rm2017-3%20final.pdf.
[5] “US Postal Service Recovers From Poor Holiday Showing in 2020,” Associated Press, 12/31/21, https://www.usnews.com/news/us/articles/2021-12-31/us-postal-service-recovers-from-poor-holiday-showing-in-2020.
[6] Domestic Competitive Products Pricing and Mailing Standards Changes, USPS, 11/18/21, https://www.federalregister.gov/documents/2021/11/18/2021-25059/domestic-competitive-products-pricing-and-mailing-standards-changes.