US Postal Service planning to increase rates, slow down first-class mail: report

The U.S. Postal Service is planning to raise postage rates and alter the way it delivers first-class mail as its leaders are looking to boost revenue following a challenging 2020, a report says.

The strategic plan, which Postmaster General Louis DeJoy is expected to unveil soon, comes after the agency lost $9.2 billion last year because of a decline in mail volume sparked by the coronavirus pandemic, according to The Washington Post.

The newspaper reports that USPS is looking to eliminate a tier of first-class mail in which letters, bills and other envelope-sized items can be delivered to local addresses in two days. All first-class correspondence would instead be grouped into a slower, three-to-five-day window, it adds.

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Two people familiar with the plan also told The Washington Post that first-class mail would no longer be shipped by plane, as the agency would utilize a network of trucks and distribution depots.

USPS reportedly spent more than $457 million on flying first-class mail in 2020, compared to $314 million shipping mail by truck.

The first-class mail changes would coincide with a push for postage hikes, the newspaper says, but DeJoy, in a statement to FOX Business, emphasized that the plan is not yet finalized and declined to provide any details.

“Over the past eight months, our executive leadership team has been working on developing a comprehensive 10-year strategy to address the serious but solvable challenges of the Postal Service that commits to six and seven day a week delivery service to every address in the nation ... that invests in our people as well as our infrastructure, including new vehicles, and that meets our statutory requirement to be self-sustaining," DeJoy said in the statement.

Last week, the USPS posted positive financial results for the first quarter of fiscal 2021 for the first time in several years, though it warned those encouraging results may not be sustainable.

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Total revenue for the quarter increased by $2.1 billion – or 11.1% – when compared with the same period last year, to $21.5 billion. The mail courier reported net income of $318 million.

The results were partially driven by a pandemic-related surge in holiday package volume – which grew by a record-breaking 25%, with revenue up $2.1 billion as more people turned to e-commerce options. Overall, the Postal Service said 1.1 billion packages were delivered during the holiday season.

But the USPS expects its heightened package volume to abate somewhat when the U.S. economy reopens.

“Our strong growth in package volume during the holiday quarter shows how dramatically our business and revenue mix is shifting,” DeJoy said in a statement. “While our positive financial results this quarter are certainly welcome, we continue to face systemic imbalances that make our current operating model unsustainable, and the economic impacts of the COVID-19 pandemic will continue to challenge the organization.”

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While package volume grew, sales from mail services -- the Postal Service’s largest sales category -- declined. Marketing mail revenue dropped 5.6% year over year and First-Class mail revenue fell 2.7%.

Total operating expenses at the Postal Service continued to balloon. Associated costs were up $1.1 billion in the first quarter to $21.1 billion, an increase of 5.3% when compared with the same period last year.

FOX Business’ Brittany De Lea contributed to this report.