Agency Oversight

USPS mail revenue still ‘critical’ to bottom line, as agency offers reprieve from price hikes

USPS is holding off on further price hikes as its inspector general’s office says mail still accounts for most of its total revenue.

Jory Heckman@jheckmanWFED

September 24, 2024 6:30 pm

4 min read

The Postal Service says it won’t raise mail prices in January 2025, breaking a cycle of semiannual rate hikes that began in recent years.

Last Friday, the USPS Board of Governors approved Postmaster General Louis DeJoy’s recommendation not to raise prices on “market-dominant” mail products over which the agency has a monopoly.

“Our strategies are working and projected inflation is declining,” DeJoy said in a statement. “Therefore, we will wait until at least July before proposing any increases for market-dominant services.”

USPS in July raised the price of a first-class Forever stamp from 68 to 73 cents — its sixth rate increase since 2020, when it got the authority from its regulator to set prices higher than the rate of inflation.

The reprieve from higher mail prices, however, appears short-lived.

Rate increases

USPS told its regulator, the Postal Regulatory Commission, in a filing on Monday that it still plans to raise mail prices in July 2025, “and each January and July thereafter,” through December 2027.

USPS is holding off on further price hikes as its inspector general’s office says mail still accounts for most of its total revenue.

A recent USPS OIG white paper shows that market-dominant mail still accounted for 53% of the agency’s total revenue last year.

USPS OIG research analyst David Neu said the Postal Service’s price increases “definitely have an effect on volume,” but that according to the agency’s pricing models, those increases don’t impact volume as much as “electronic diversion” — customers opting for digital alternatives to mail such as email or online messaging.

“Our goal here was to look at these decreases, and not so much assess the model the Postal Service’s uses for elasticity and price increases,” Neu said in a USPS OIG webinar on Wednesday.

An industry report earlier this year warned that USPS is underestimating how much its recent rate hikes on its monopoly mail products are driving away some of its biggest customers.

A USPS spokesman, however, called the study “deeply flawed,” and said the agency’s prices are among the lowest in the world.

Long-term challenges

The USPS OIG analysis found total market-dominant mail volume by 46% between fiscal 2008 and 2023 — from 201 billion pieces to 109 billion pieces, respectively.

Revenue for its monopoly mail products dropped by about a third during this period, going from $63 billion in 2008 to $42 billion last year.

First-class-mail, which includes letters, postcards, and large envelopes, dropped half its volume during this period — from 92 billion pieces in 2008 to just 46 billion pieces in 2023.

Volume fell every year, but 40% of the overall decrease occurred in fiscal 2009 and 2020, in the wake of both the Great Recession and the start of the COVID-19 pandemic.

Mail volume peaked in fiscal 2006 at 213 billion total pieces.

Neu said the IG’s office is working on a model for projecting future USPS mail volume.

Under a 10-year “Delivering for America” reform plan, DeJoy is looking to grow the Postal Service’s package business to keep the agency financially stable.

While an increase in package volume is helping to offset some of the lost revenue from mail, Tristan Dreisbach, a USPS OIG research analyst, said revenue still is not keeping pace with increasing expenses for the agency.

USPS revenue increased by $3 billion between 2008 and 2023, but its expenses increased by more than twice that amount.

“Even with the Delivering for America plan’s increased focus on the package market, future trends in mail volume will have a critical impact on the Postal Service’s efforts to restore its profitability in the future,” Dreisbach said.

Mail volume is decreasing, but the number of stops USPS makes to deliver mail and packages keeps increasing.

USPS currently delivers to 167 million addresses at least six days a week — a more than 12% increase in addresses compared to FY 2008.

“The Postal Service has to maintain a high level of service while the volume and revenue of mail products has declined. Mail delivery is therefore less profitable,” Dreisbach said.

While USPS is delivering to more addresses, the number of mail pieces delivered to each address fell by more than half over this period.

“The more this density decreases, the more costly it is for the Postal Service to serve each address,” Dreisbach said.

While USPS still profits from first-class and marketing mail, its IG office found that the agency is losing about 21 cents for all periodicals — such as newspapers and magazines — that it delivers.