Rates to Be Harnessed As Part of Postal-Overhaul Bill
By John D. McKinnon and Rick Brooks
The Wall Street Journal
Monday, December 11, 2006
The Postal Service generally will be barred from raising
postage rates beyond the rate of inflation for the next
decade under an overhaul passed by Congress.
The new law -- the first major changes to the service in
more than three decades -- aims to stabilize rates for
households and bulk mailers and to help the service cope
with the challenges of the Internet and compete against
delivery companies such as
FedEx Corp. and
United Parcel Service Inc.
The White House said President Bush would sign the bill.
In return for accepting new limits on rate-setting, the
Postal Service was given new flexibility in the process of
setting rates and will gradually be relieved of
dollars of employee-retirement expenses.
The changes should make the Postal Service more attractive
to catalog companies and other bulk mailers, by letting them
plan costs more accurately. For consumers, the changes could
bring more frequent rate increases, though they would rarely
be as large as some recent ones, including an average 8.5%
jump proposed in May that would be the biggest price
increase in 12 years if it takes effect. Under that, the
cost of a first-class postage stamp is supposed to rise to
42 cents in May from the current 39 cents.
Sponsors also hope that by capping rates, they will force
the Postal Service to become more efficient. The legislation
also calls for plans to shrink the service's huge employee
and infrastructure base.
At the same time, a financial overhaul will allow the Postal
Service to erase billions of dollars of unfunded retiree
health-care obligations, thanks to an earlier reduction of
its obligations for pension benefits for its workers.
The Postal Service has been using those savings to pay down
debt for the past couple of years. The bill also achieves
some savings on employee-injury claims by requiring workers
to take sick time for three days before filing for workers
In addition, postal officials will have to make many of the
same disclosures as public companies, including complying
with financial-reporting provisions of the Sarbanes-Oxley
law. A newly formed Postal Regulatory Commission will have
the power to issue subpoenas and burrow much deeper into the
Postal Service's operations than its current regulator.
The Postal Service has its origins in the earliest days of
the country, and used to be a government agency. It was
partly privatized beginning in the early 1970s, to force it
toward self-sufficiency. Despite strides, much of its
business model has been made obsolete by fax machines, email
and Internet commerce, as well as increased competition from
private carriers. The new changes aim to make it run more
While the changes generally make the Postal Service more
competitive, it isn't clear they can offset challenges such
as continued declines in the volume of first-class mail.
Some analysts say the Internet could help as well as hurt
the Postal Service, by generating more package shipments
from Web-based commerce. Meanwhile, though, the Postal
Service remains responsible for providing universal mail
service, and about one million new addresses are added each
The overhaul bill appeared to be in big trouble in recent
weeks. But bulk mailers rallied to push it through after
House Democrats -- led by Rep. Henry Waxman of California --
signaled that they were willing to drop their opposition to
the rate cap. That led mailers to put pressure on the White
House to reach a deal. The Bush administration, in turn,
relented on some of its demands for big concessions on
contract benefits from Postal Service employees.
"When this bill looked dead a month or two ago, it sparked a
lot of people to action," said Robert E. McLean, executive
director of the Mailers Council, an Arlington, Va., trade
group of mailers who generate about 70% of U.S. mail volume.
The last hurdle was a concern that congressional
appropriators would have to absorb about $1.8 billion over
10 years -- the cost of running the newly empowered
regulatory commission and inspector general's office.
FedEx and UPS generally supported the bill, even though UPS
has accused the Postal Service of using its monopoly on
first-class mail deliveries to prop up its package
operations. The hostility has eased now that FedEx and UPS
carry mail on their planes. "We have been in favor of postal
reform for a long time and anything that allows the Postal
Service to make decisions more nimbly and operate more like
a business," said Kristin Krause, a FedEx spokeswoman.
John D. McKinnon at
email@example.com and Rick Brooks at