US Postal Service 2010 Annual Report Download - page 15

2010 Annual Report United States Postal Service 13
PROGRESS AGAINST THE PLAN
OUR CHECKLIST
Pricing
One of the highest priorities of the Postal
Service is to provide affordable products
and services to the American people.
Indeed, U.S. postage prices are among the
least expensive in the world. At the same time,
pricing is an important tool for ensuring that
our products are competitively positioned in
the marketplace and for generating revenue to
maintain our long-term fi nancial stability. We
strive always to strike the right balance between
ensuring affordability for customers and respon-
sibly preserving our long-term fi nancial health.
Current pricing constraints have severely
hampered our ability to remain fi nancially
solvent. The Postal Act of 2006 caps prices
for every class of Mailing Services mail at the
Consumer Price Index for All Urban Consum-
ers (CPI-U), ignoring the key drivers of postal
infl ation. This legal framework must be modifi ed
to allow the Postal Service the fi nancial fl exibility
we need to remain viable into the future. Simply
put, we require the authority to adjust pricing
to better refl ect market dynamics and to offset
current and future volume and revenue declines.
In 2010, pursuant to the tenets of our
March 2 Ensuring a Viable Postal Service for
America: An Action Plan for the Future, we
have actively pursued a number of initiatives
to address our pricing constraints.
Perhaps most signifi cantly, on July 6, we
submitted a fi ling with the Postal Regulatory
Commission (PRC) seeking an average 5-6 per-
cent exigent price increase for Mailing Services
products. Such price increases beyond the
Consumer Price Index are allowed in extraor-
dinary circumstances under the Postal Act of
2006. Given the signifi cant volume declines we
experienced during and after the recent reces-
sion, and the continued potential for increasing
net losses, we believe — and the PRC con-
curred — that the current situation certainly
qualifi es as extraordinary and exigent.
Unfortunately, the Postal Regulatory Com-
mission recently announced its denial of our
request. Encouragingly, however, the PRC
recognized recent volume losses and acknowl-
edged the larger fi nancial risk we face through
the mandated prefunding of retiree health
benefi ts. We will continue to pursue moderate
price increases as one part of a fair and bal-
anced approach to ensuring mail service for all
Americans well into the future.
We also are pursuing several legal modifi ca-
tions related to pricing.
First, we are seeking to apply a single infl a-
tion price cap to Mailing Services products as a
whole, rather than specifi cally to each class of
mail. Under this reformed structure, we would
be able to adjust individual prices based upon
market demand and unit costs, with prices for
some classes rising above the rate of infl a-
tion and prices for other classes rising at a
lower rate. This pricing fl exibility is necessary
in particular for products currently generating
insuffi cient revenue to cover their costs.
As an organization that is funded through the
sale of postage, and operates independently
of taxpayer support, the Postal Service simply
must have the authority to adjust its pricing to
better refl ect market dynamics and offset future
downturns in both volume and revenue. We
will continue to pursue long-term solutions that
allow greater pricing authority and fl exibility,
enabling us to continue providing the very best
service to the American people. ■
CHALLENGE
Current pricing
constraints hamper
our ability to price
products and services
appropriately and to
raise needed revenue.
SOLUTION
Obtaining greater
pricing authority and
fl exibility would allow
the Postal Service
to adjust pricing to
better refl ect market
dynamics and offset
future volume and
revenue declines.
Innovative, competitive pricing is a vital tool
for ensuring the fi nancial strength of the Postal
Service.