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Postal Service could survive volume decreases with significant price hikes: study

The US Postal Service would be financially sustainable even if annual mail volume were to drop another 75 billion pieces to 100 billion pieces a year. However, it would require price increases in excess of inflation, a report released by the Postal Service’s Office of Inspector General (OIG) indicated.

The USPS projected that mail volume will decline to 150 billion pieces over the next 10 years in its March 2 action plan. Against that projection, the OIG asked the George Mason University School of Public Policy to study whether the Postal Service can remain solvent at much lower volume levels. The answer is “yes,” up to a point, and at considerably higher prices than mailers pay today.

Such price hikes raise the possibility of tipping the Postal Service into a “death spiral,” where price increases drive out customers, the report noted. However, the study said that is not a certainty.

“Modern economies can support higher price levels. Many posts in developed countries maintain profitable mail businesses while delivering fewer pieces and charging up to 86% more than the Postal Service,” the report said.

However, many US mailers pushed for Congress to pass the Postal Accountability and Enhancement Act in 2006 because it tied price increases on market-dominant products to the Consumer Price Index, allowing for more predictable and stable increases.

The study’s model determined that if the Postal Service were allowed to reduce its delivery to five times a week – if its annual volumes were 100 billion pieces a year – it could increase prices about 12% less than if it were required to deliver six days a week.

The OIG released the study one day before the Postal Regulatory Commission is expected to issue its decision on whether to grant the Postal Service exigent price increases. Days ago, Sen. Thomas Carper (D-DE) introduced his comprehensive postal reform bill.

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