UPDATE: As of September 30, 2010, the postage increase is on hold. Regulators have denied the request for a rate hike so postage prices will not be increasing in 2011 as originally planned. This doesn’t mean a rate hike isn’t in our future, but it won’t happen as soon as originally anticipated.
The remainder of this post is the original from July when the rate hike was first anticipated.
Does it seem like the cost of a postage stamp just went up? That’s because it did: Last year, the Postal Service last increased the price of a first-class stamp to 44 cents, up from 42 cents in 2009. Yesterday the Postal Service met to discuss a new rate increase and they have agreed that it’s time to increase rates once again. Technically, the law prohibits a price increase that’s greater than the rate of inflation, which for the last year has been 0.9 percent. But under “unusual circumstances,” the Postal Service can sidestep the law and increase postage rates by more, which is what they plan on doing.
Why is the post office increasing rates greater than the rate of inflation? “The Postal Service faces a serious risk of financial insolvency,” postal vice president Stephen M. Kearney said. The post office lost $3.8 billion last year, despite cutting 40,000 full-time positions and making other reductions, and Kearney said it is facing a $7 billion loss for this year and the same for fiscal 2011, which begins in October. The rate increase would bring in $2.5 billion, meaning there still would be a large loss for next year.
How Much and When Rates Will Increase
The most noticeable increase will be the first-class stamp with another 2 cent increase to 46 cents. That’s about a 5% increase. While your average letter will be going up a few cents, everything else is increasing as well. Priority mail, express mail, addtional first class postage, media mail, and so on. Across the board, most services will see about a 5% increase. One noticeable increase comes to the mailing of periodicals. Those mailings are slated to see a whopping 8% increase. The new rates still need to be approved, but with almost certainty they will be, and then the new rates will take effect on January 2, 2011.
How This Will Affect You
I know what you’re thinking. You don’t send letters and use email instead, you pay all of your bills online, and the increase won’t really matter to you. It’s true that an extra two cents for a stamp isn’t going to break the bank for most people who only mail a handful of items a year, but these postage increases don’t stop there and even if you don’t mail anything these days you may still feel the pinch.
Think about the companies that rely on the postal service to ship their products to consumers. What does a 5% increase in postage mean to a company that already spends tens of millions of dollars a year on postage? Amazon, anyone? An even bigger player has to be Netflix. Their core business model resolves around sending you movies in the mail. In fact, media mail, which Netflix mailings fall under, is slated to get a 7% increase. This would end up costing Netflix upwards of $50 million more on shipping costs in 2011. That’s on top of the already hundreds of millions being spent on shipping.
So, while you may not fret over the two extra pennies you need to stick on an envelope, don’t expect companies who rely on the post office for shipping to just eat the cost. Instead, it will likely get passed down to you in some form or another.
The Forever Stamp
Finally, the one bright spot is that forever stamps are still being sold and that means you can still effectively lock in the lower first class postage rates. A lot of people ask whether or not the forever stamp is a good investment. Well, considering you can essentially get a 5% return on your money in a year, yes, on paper it’s a good investment. But you have to look at how much you really stand to make. For example, if you use 50 stamps a year, the 2 cent savings is one dollar a year. It’s still about a 5% return on your investment, but in the end it’s still only a dollar. So, you have to ask yourself whether or not it’s worth it to stock up on forever stamps just to save what could be a matter of a dollar or two in the coming few years.
In my opinion, it’s a good idea to buy a healthy supply that will last a year or so, but I’m more concerned about the savings I see by not having to go to the post office as frequently. As far as I’m concerned, the amount of time I save by not having to go into a post office is priceless. I don’t really care about saving a few cents on postage, but I do care about not wasting a half hour of my time standing in line at an understaffed post office.
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
