Postal Service wants another rate hike

Forget saving pennies; it's time to start saving nickels. Less than one month after instituting a penny increase for the cost of a first class stamp, the U.S. Postal Service announced plans to seek yet another rate hike. This time, the agency could ask for a two-to-three cent increase for first class mail. The agency may seek a 20 percent hike for parcels and advertising mail, according to sources. By July, a rate case will likely be filed with the Postal Rate Commission, which oversees postal activities and sets new rates. The commission would then launch a 10-month proceeding to study the agency's request. It can accept, reject or alter the agency's request. The Postal Service's board of governors announced its decision to seek another increase Feb. 6 at the conclusion of its monthly meeting in San Antonio. The governors also cut $1 billion from the agency's capital investment budget for fiscal 2001. It is not clear yet which projects will be affected. Both moves are part of an effort to stop the agency's financial free fall. USPS lost $199 million last year and could lose upwards of $2 billion this fiscal year. That represents a dramatic shift from the financial picture agency brass were painting in January 2000. At that time, USPS officials expected to have a $500 million surplus. "We don't really understand why they are losing that much money," said Robert Cohen, director of rates, analysis and planning at the Postal Rate Commission. Agency officials partly blame the economic slowdown. During the past few months, the growth in the volume of first class and priority mail has slowed considerably. As a result, the agency is well off its financial targets for the year. During the first quarter, net income was $246 million, or $142 million below plan. Revenue hit $15.4 million, which is $159 million below plan. Agency officials also claim they were hit with higher than expected health care costs and spikes in fuel prices. Cohen argues that those costs were factored into the most recent rate case, which resulted in an across-the-board rate increase of 4.6 percent for all postal products. The board of governors' announcement did not come as a big surprise to agency watchers. Most predict that short of major legislative reforms to its operations, the agency is entering a period where it will have to file rate case after rate case in order to stay afloat. The Postal Service is bound by law to act like a business and break even. "For a while we've had a buoyant economy that masked all of their shortcomings," says Gene Del Polito, president of the Association of Postal Commerce. "In a weak economy, those shortcomings become much more glaring."