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New Study Shows Serious Flaws in USPS Economic Analysis Used to Support Rate Hikes

Keep US Posted Says the “Delivering for America” Plan’s Twice-Annual Stamp Increases are Driving USPS Economic Models


WASHINGTON, D.C. (March 20, 2024) – Keep US Posted — a nonprofit advocacy group of consumers, nonprofits, newspapers, greeting card publishers, magazines, catalogs and small businesses — is calling attention to new analysis, which shows that U.S. Postal Service’s practice of raising mailing rates every six months is based on flawed economic forecasting that greatly underestimates the rate hikes’ impact on lost mail volume.


The report, which was commissioned by the Greeting Card Association and the Association for Postal Commerce (PostCom), has been published just weeks before USPS is expected to ask the Postal Regulatory Commission to approve the sixth stamp hike in just two years, likely occurring in July. According to the report, USPS is basing stamp hikes on a demand model which underestimates the elasticities (or price sensitivity) of its consumers —relying too heavily on historical data, among other issues.


The modeling flaws help explain how USPS posted an operating loss of $6.5 billion in 2023 (the year it was projected to break even according to the Delivering for America plan) and why it is projecting a $6.3 billion loss in 2024 — all after receiving a $120 billion windfall from Congress in 2022. According to the report, volume losses exceeding the USPS model’s predictions cost the USPS $1.8 billion in lost revenue in FY2021-2022 alone.


“While economic modeling is both a science and an art, much is at stake with the USPS model,” states the NDP Report. “The USPS model characteristics and practices, such as the number of variables, frequent changes to equations, high degree of subjectivity, and lack of best practices present challenges when using it for predictive purposes. Ignoring price sensitivity may boost revenue in the short run, but USPS must retain volume to achieve and maintain solvency in the long run … If rate increases continue to proceed at this frequency and magnitude without critical review, it risks plummeting volume further and exacerbating USPS's financial challenges.”


“Rate increases are driving the Postal Service’s economic forecasting, when it should be the other way around,” said Kevin Yoder, executive director of Keep US Posted and a former congressman from Kansas. “It’s time for USPS to get its head out of the sand and stop using flawed projections to justify price increases in the Delivering for America plan. Traditional mail is still the largest revenue-generator for USPS, and each rate hike just destroys demand for it. We are looking at the worst productivity performance in the history of the agency.”


The study notes several errors in USPS economic modeling, including:

  • The USPS model is overfitted and subjective. The implication is that the model may explain historical data well but fails to make accurate forecasts due to numerous shifting variables and subjective assumptions.

  • The USPS model fails to follow best practices. While there is some subjectivity in demand modeling, multiple failures to follow accepted methodology degrade the effectiveness of the model.

  • Market dominant mail is critical to the USPS bottom line. In FY2023, First Class and Marketing Mail accounted for 96% of the market dominant volume and 89% of revenue. Market dominant mail accounts for 94% of total USPS volume and 56% of revenue. The inability to accurately predict the impact of rate increases on market dominant products threatens the stability of the USPS’s volume and revenue base.

To access the report, titled “Critique of USPS Elasticities," visit https://ndpanalytics.com/critique-of-usps-elasticities/.


About Keep US Posted

Keep US Posted is a nonprofit advocacy group of consumers, nonprofits, newspapers, greeting card publishers, magazines, catalogs, and small businesses—all united in the belief that a reliable, affordable U.S. Postal Service is essential to our way of life and should be protected. Keep US Posted supports alternatives to current and future efforts to slow the mail and increase postage rates. To learn more about the organization and to get involved, visit www.KeepUSPosted.org.

 

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