The Association of U S West Retirees



Mail 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 billions 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 compensation.

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 efficiently.

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 year.

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.

Write to John D. McKinnon at and Rick Brooks at