The United States Postal Service wants to raise their prices.

The agency recently filed a notice with the Postal Regulatory Commission (PRC)— the government body that regulates the postal service— informing them that they want to increase their prices on Jan. 27, 2019.

If the PRC approves the price hikes, USPS Mailing Service rates will increase by about 2.5 percent. Priority Mail rates will rise too, with varying increases for each service. These changes have already been approved by the Governors of the Postal Service, who say the proposed increases “will keep the Postal Service competitive while providing the agency with needed revenue.”

USPS Mailing Service rates are based on the Consumer Price Index, while Shipping Services prices are based on the rest of the shipping market, according to the agency.

United States Postal Service Mailing Service Prices

Forever stamps would rise from 50 cents to 55 cents under the new rules, with 15 cents for each additional ounce. USPS says a typical wedding invitation weighs 2 ounces, so it would cost 70 cents—which is actually a decrease from the current 71 cents.
The price of international letters would stay at $1.15, and domestic postcards would stay at 35 cents.

Priority Mail Flat Rate Prices

A small flat-rate box would rise from $7.20 to $7.90. A medium flat-rate box would climb from $13.65 to $14.35, and a large-flat rate box would climb from $18.90 to $19.95.

Additionally, an APO/FPO large flat rate box would jump from $17.40 to $18.45.

Priority Mail envelopes would see price increases, too. A regular flat-rate envelope currently costs $6.70; that would jump to $7.35. A legal flat-rate envelope would climb from $7.00 to $7.65, and a padded flat-rate envelope would increase from $7.25 to $8.00.

Finally, USPS wants to impose zone-based pricing on its First-Class Package Service, which is most often used by businesses for order fulfillment.

Resource: Shipping Rate Increases: What to Know and How to Save (on-demand webinar)

Why is USPS Raising Prices?

Although the U.S. Postal Service is a government agency, it does not receive tax dollars for its operating expenses. It is fully funded by its own revenue: sales of stamps and package services.

But unlike other package delivery companies, USPS has a mandate to serve all Americans, even those in far-flung rural areas. FedEx and the United Parcel Service often do not serve those regions because, it’s expensive. Delivering in dense areas is much more efficient than driving dozens of miles to drop one or two packages.

USPS has also been providing six-day delivery services at no extra cost for years. FedEx is introducing that service this holiday season, and UPS is in the process of finalizing a contract that will guarantee weekend delivery.

USPS has to provide service that its competitors do not, which helps it win customers. USPS has also proven itself to independent and small-batch sellers with Priority Mail, which offers more competitive rates to small businesses than either of the U.S.’s major carriers. But it still lags far behind UPS and FedEx when it comes to big contracts. This means it’s almost always more cash-strapped.

If USPS is going to continue to fund its operations—and a majority of players in the industry rely on the agency for at least some parcel service, especially for last-mile deliveries for e-commerce companies—it needs to bring in more revenue.

How Does This Affect Shipping Costs For Shippers?

USPS has been on the upswing lately. In 2017, a Parcel survey found that 84 percent of shippers had used USPS within the previous year. This is up 8 percent from 2016.

By comparison, only 81 percent had used FedEx, and only 78 percent had used UPS. Both private carriers saw declines in the percentage of the industry that used their services.

If these rate increases are enacted, parcel costs will rise for USPS deliveries.

Currently, USPS is most cost-effective for parcels weighing less than three pounds. If a product fits into Priority Mail packaging, USPS can be as much as $1 cheaper per package than UPS and FedEx.

Even with USPS’s rate increases, the service will still be significantly cheaper than FedEx and UPS. This is especially for small businesses who have little room to negotiate friendly contracts. Better yet, while USPS’s top-tier services are usually slower than those of private carriers, its low-tier services tend to be faster.

And USPS still says it will not impose surcharges, which tend to be the biggest source of shippers’ complaints about their carriers. It also has no plans to charge holiday fees.

Still, the proposed rate increase has not come without pushback. Several major retailers including Amazon and QVC, recently formed a lobbying group called the Package Coalition. Industry-watchers took note of the Package Coalition primarily because Amazon was involved. So far, the coalition’s primary point of argument has been that USPS is already profitable and does not need to raise prices.

Whether that argument will resonate with the Postal Regulatory Commission enough that they block USPS’s proposed price increase remains to be seen.

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