Direct Line Blog

Why the Postal Exigent Increase Is a Mistake

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Postal Regulatory Commission Vice Chairman Robert Taub
Postal Regulatory Commission Vice Chairman Robert Taub

Was the Postal Regulatory Commission's startling award of the full 4.3% exigency increase to USPS a fait accompli?

So much of what gets handed down to us by people in power depends on their definitions and interpretations of words. The Postal Regulatory Commission's definition of the peculiar word “exigent” is in line with Merriam Webster's interpretation of “needing to be dealt with immediately.” It is, however, the Commission's interpretation of the “exceptional circumstance” behind the 4.3% surcharge on direct mailers that is questionable.

The PRC denied the Postal Service's first request for an exigent increase in 2010 on the basis that USPS failed to provide enough financial evidence that the Great Recession represented an exceptional circumstance. This time around, USPS came loaded for bear with extensive econometric models presented by financial consultant Thomas Thress. But the irony of the PRC decision handed down on December 24, 2013—a date that will live infamy in the history of direct mail—is that while it recognized Thress's assessment of the recession's cataclysmic effect, it ignored evidence in his report that showed many of the recession's effects to be permanent, thereby eliminating it from the category of exigency and placing it into the realm of the “new normal.”

That was the assessment of the lone dissenter in this week's decision, PRC Vice Chairman Robert Taub, who wrote that “the principal flaw in the Commission's order is the failure to recognize that, regardless of the volume loss found due to the Great Recession, the financial harm of that loss does not end immediately.”

In granting the Postal Service the 4.3% increase for a period of two years or less—rescindable when losses due to the recession are deemed to have been recovered—the Commission stamps the effects of the recession as exigent when, in fact, they have permanently altered the habits of the marketplace, Taub contends. He wrote that USPS and his fellow commissioners failed to factor out the loss in mail volume that occurred, and continues to occur, due to electronic divergences such as email.

“How is it,” Taub wrote in his opinion, “that the Postal Service suddenly experiences no further impact from the Great Recession and that the continuing financial harm attributable to volumes lost due to the Great Recession has ended?”

What's more, Taub avers that his colleagues chose to deny such evidence presented by the USPS's own economist, Thress.

Order No. 864, which sets parameters for the establishment of exigency, holds that the Postal Service must support its request with credible proof based on econometric models and expert opinion. “The Postal Service, through Thress and its entire postal demand analysis group, provides both,” Taub wrote. “However, the Commission now dismisses critical aspects of the Postal Service's data. The Commission claims that Thress's conclusions regarding the relative roles of the Great Recession versus ongoing electronic diversion, and his choice of macroeconomic variables are ‘not justified.' The Commission criticizes Thress for not including certain variables in his model, yet acknowledges that no commenter offered a model that included these variables and that the record is void of a model that is available to do so. The Commission appears to believe Thress should have developed one nonetheless.”

While mailers can take some solace in PRC's decision to limit the duration of the 4.3% hike by establishing a formula to rescind the increase based on a quarterly evaluation of additional revenue, the ameliorative can also be interpreted as an irritant. The time limitation on the increase ultimately identifies the recession as an exigent cirmcumstance, a quantifiable one-time belly blow to the Postal Service, which to Taub's way of thinking it was not.

Taub also is of the opinion that mailers' voices were quelled in the granting of the exigent increase and will continue to be during the process put in place to rescind it. “I am concerned that this formula is being imposed without the full benefit of broad public input and an opportunity to fully assess potential unintended consequences on both the Postal Service and mailers,” he wrote.

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