Links to the resources mentioned in the podcast.
Chris: 00:01 Hi, this is Chris Lien.
Anita: 00:41 And I'm Anita Pursley. Welcome to Industry Corner, a podcast where we share postal industry news to help you stay informed.
Chris: 00:49 On today's podcast. We discuss further information about the 2020 pricing, legislative update on the Board of Governors and the Postal Regulatory Commission. The Postal Service's 10 year plan and labor negotiations, and finally a quick comment about Mail.dat and the IDEAlliance Association. So let's get into it. Welcome to the podcast. Hi Anita.
Anita: 01:12 Hi Chris.
Chris: 01:13 Anita, this is our 25th episode. It's been a year now that we've been doing these podcasts and it's been a lot of fun. So I hope our listeners continue to enjoy that. They seem to give us positive comments about it.
Anita: 01:23 Yeah. You know, I was thinking about that the other day, that I remember when the idea was first proposed and I kind of got a chuckle out of it because as you know, I was born in Finland and when I was growing up, my mother had a radio program for an hour on Sunday morning talking about American news in Finnish. And so, when we first started these podcasts and I put the headset on, I thought, oh my gosh, I have become my mother. So here we are a year later and it's actually a lot of fun, isn't it?
Chris: 01:55 It is. It's been a lot of fun. Although if you did a podcast in Finnish, I don't think I'd be able to follow you on that one, Anita.
Anita: 02:01 Well, nobody would because my Finnish is really poor.
Chris: 02:05 Well. So as I said, it's our 25th podcast here today and it is mid-July, and even though it's warm and it's summer and we're excited about the weather and being in the middle of summer, the fact is that the cold of winter in January 2020 is really not that far away. And I share that because pricing for 2020 is top of mind at this time of year. And I know we talked a little bit about that on the last podcast, Anita, but you've got some new information that you wanted to share with our listeners. What's going on with that?
Anita: 02:29 Well, I don't know that it's necessarily new information, but I think I've become obsessed with this topic and trying to understand where the Postal Service is going with it. But what I failed to mention on the last podcast is that I think it's pretty safe to say that First-Class mail presort mailers should expect a higher than average increase. And the reason for that is if you'll recall in the last increase, the Postal Service raised the First-Class stamp by a nickel – that was unprecedented. But what that did for the presort mailers is it left very, very little of the CPI to the presort mailers. So they got a really, really low increase. They were very, very happy last time. So I doubt that the Postal Service is going to raise the First-Class stamp again like that. In fact, I wouldn't be surprised if they didn't raise it at all. And then the presort mailers will get hit significantly. But I did a little bit of math yesterday and 2% on top of a First -lass stamp is only a 1.1 cents, so if they raised it to 56 cents, then maybe the presort mailers won't get hit that bad. But I just wanted to kind of warn listeners that if you are First-Class mail presort, or, excuse me, then you might see higher than the 2% or 1.98 as we've been talking. And then the other thing is MTAC User Group 13 which is focusing on presort optimization –
Chris: 03:50 Right.
Anita: 03:50 At the last face to face meeting, it was right after MTAC, they showed a few slides and discussed their rate design strategy. And what they did was they took the RPW reports, their “Revenue, Pieces, and Weight” report, and looked at all of the different presort levels to determine the shifts. Where is the mail shifting to? And what stood out significantly was that high-density and high-density plus are going up significantly on both letters and flats. So I think what they're trying to figure out is what are the appropriate pastures – where is mail migrating and where is our revenue opportunity? Cause you know the Postal Service always says that they want pricing flexibility, but yet they haven't really used the authority that they have creatively. So what I'm afraid is going to happen here, and I hope I'm wrong, but where they see the growth, that's an opportunity to, you know, gain revenue.
Chris: 04:46 Right.
Anita: 04:46 So anyway, anybody who's on User Group 13 or is interested in joining that, I think that discussion is going to go places and we need to watch that.
Chris: 04:54 I think we do too. So a couple of comments on what you just shared to our listeners. So first of all, it was my understanding that consumer face pricing like stamps, we're going to be from this point forward nickel incremental based. So I don't know if I would agree with you that it's going to go to 56 cents. I think that the next jump from 55 would be all the way to 60 cents, and I don't see that happening for a while. And having said that, I think you are correct that First-Class presort has to watch the pricing very carefully with this because sort of this rollercoaster ride of pricing First-Class mail because of the consumer facing postage that's tied to that is going to sort of go through ebbs and flows and that may result in some pretty wild swings with that. So it'll be interesting to see how that changes. The other comment, and you touched on it, it's very interesting Anita, it's almost a shift because up to this point, Postal Service would set their pricing and in a lot of cases it was cost based that they would do with the pricing. And then they would establish that to the industry and then we on the industry side would look at those pricing changes and then make determinations of containerization and optimizing our presort to be able to take advantage of the works or discounts with that. It seems to have changed a little bit. It's almost like the Postal Service is watching to see how the industry is now strategically presorting, consolidating and inducting mail, and trying to adjust their pricing to reflect that behavior. So it's, it's almost a change in pricing methodology in a lot of ways, in my mind from what I would say sort of a cost based approach to now value based approach, and looking to see where does the industry sort of get this perceived value with that. It feels like we're chasing each other with the pricing then if that's how it's going to go forward. And I'm not sure if that's going to end up being a good thing for the industry. I'd rather see it, or I guess maybe because I'm more conservative in my mindset, but I'd rather see it sort of the way that we did before where the Postal Service would establish their price and it's based on the attributable cost and what it takes for them to run the networking to be able to provide the service that we expect, and then allow the astute thinking and the innovation of the industry to be able to work within that construct to make sure that we're preparing mail that's effective for them and, and helps to improve that value to the end consumer that's receiving them.
Anita: 07:01 Right. That's very true. And I think they really have to evaluate: Is it a revenue opportunity or is it the price signals that we really want to send?
Chris: 07:10 Yeah, exactly. And the signals are really important because volume continues to go down. And the 2018 Household Diary Study that was recently published, it's available on the https://www.prc.gov/dockets/document/109368 webpage. Um, you have to dig around a little bit to find it. But again, as always, it's chock full of interesting information, but the behaviors in the usage of the mail is so critical and maybe it's because the volume has reached a certain level to where we watch that pulse so closely. And I think that's part of the reason why you and I have found that these podcasts are being well received because people are anxious to hear what's going on with that. Speaking of some other things lets pivot to the Board of Governors and the Commissioners, there are some legislative updates that you wanted to share this morning about that. Right?
Anita: 07:47 Right. Okay. So all three of the governor nominees have had their hearings, which of course is the first step. So they're just awaiting confirmation from the Senate. So that's Ron Bloom, Roman Martinez IV and John Barger. So all three have gone through the hearing process and I believe the PMG believes that all three will be confirmed prior to the August recess. So yeah, that's not too far away. So we'll see. But also Governor Duncan, who's the chairman, when he was confirmed it was serving the remainder of a seven year term cause each governor has a seven year term but there was still some remaining and so he also has to be reappointed.
Chris: 08:26 Reappointed and confirmed, right?
Anita: 08:28 Exactly. So hopefully we'll have some good news to report because as you know and we've reported many times, the Postal Service hasn't had a quorum since 2014 so really excited about that. And then on the PRC side, you know I should mention that we're recording this on July 16th and this morning at 10 o'clock which I will be watching is a Senate hearing for both of the PRC commissioners – Ann Fisher and Ashley Poling. So that process is starting already as well.
Chris: 08:55 Great, okay. So hopefully the Senate is able to get these confirmed and we'll get quorum again on the Board of Governors, we'll get a full set for the Postal Regulatory Commission, and now we can get down to business with the Postal Service and putting together strategies and plans. And in fact that's a great pivot into the 10 year strategy. It is time, in fact, and according to some, it's a little bit overdue for the Postal Service to publish the 10 Year Plan of how they're going to move forward. And Anita, what's the latest on that?
Anita: 09:23 Well, you know what, before we talk about that, I want to mention that the Postal Service has begun talks with the National Association of Letter Carriers.
Chris: 09:30 Okay.
Anita: 09:31 And so I think this is really key because what's leaked in the 10 Year Plan, and we can discuss that later, is that the Postal Service is really going to be looking at reducing employee benefits and pay. So the NALC contract expires in September, September 20th I believe. And they're already in arbitration with the APWU. And then also they recently, I don't know, maybe it was end of last year, reached an agreement with the rural carriers. And in that rural carrier's contract, it's a three year contract. It includes wage increases all three years and cost of living adjustments. So with the APWU going into arbitration, the attempted mediation of the sides were too far apart. So I think both the APWU and the NALC will be expecting an agreement similar to the rural carriers. You know, there's always been a lot of criticism about Postal Service pay and the agreements that the Postal Service centers into, but I can't imagine having to go through that process. So anyway, that's just kind of a lead in into the 10 Year Plan discussion that we wanted to have.
Chris: 10:40 Yeah, so you're correct. Right. As far as I know, we haven't seen a published version of the 10 Year Plan, although pieces of it had been kind of leaked, as you said before. But the timing, if indeed the postal service's plan is really rooted firmly in cost reductions, and specifically labor since that's such a huge part of their cost is labor – that's a tough time to begin to have negotiations with two of these large unions, APWU and NALC.
Anita: 11:06 And if you make an agreement with one –
Chris: 11:08 Right, they're all going to expect the same thing.
Anita: 11:10 Exactly. So we expected the 10 Year Plan last week, I think about the 10th of July was when we expected it. And it's still not out. But you know, I've been thinking a lot about this too Chris, that what has been leaked might be on purpose. You know, and there was a blog on the postal news website where the PMG actually addressed the employees and it's almost like, you know, giving little pieces of information out to get a reaction because this is really serious. I mean they have to close, what was it, $125 billion gap in the next 10 years? So she addressed the employees and gave a hint into what might be in the plan, but also said that it is not finalized. It could change and that it's still subject to change I think is the words that she used. But anyways, so here's a couple of the things: This business plan would include significant cuts to employees' take home pay and benefits. That's the key there with the union contracts. How is that possible? Well, I think they're probably going to be trying to build the number of non-career employees because they earn less, fewer benefits. They're also looking to further cut hours at post offices, you know, which was always controversial. And then resume closure of mail processing plants. But you know, these are the hard decisions. In fact, in her address to the employees, she said some tough public policy decisions will be necessary and they're not going to be popular. So I'm really anxious for this 10 Year Plan to come out.
Chris: 12:40 Yeah, so am I. And I know one comment from the PMG and you share that with me, and I'm quoting this: “If some elements of our plan are politically unpalatable, Congress will need to find substitutes for those elements to ensure that the financial gap is fully closed and that we are sustainable for the long term.” The PMG's right. The United States Postal Service is a quasi-government entity and in as much as the Postal Reorganization Act in 1970 allowed it to operate as a business to cover its attributable costs through raising postage. The fact of the matter is, is that it maintains a monopoly on the mailbox and enjoys certain responsibilities and privileges, and that's why Congress has an oversight and we need to have our US Postal Service sustainable. It's critical to communication and binding the nation. So it'll be interesting to see that. And I guess for our listeners, it's, we're one supply chain, the Postal Service is a platform, and we built our businesses and our infrastructures across that. But it's so critical that our voice is heard as an industry and that we communicate that and the criticality of what we provide and the size and breadth of mail to our representatives in Congress so that they fully understand the Postal Service is vital to our businesses and to the industry.
Anita: 13:50 Right. And we expected the House to introduce a bill or reintroduce the bill that the majority of the industry supported, but the House committee has been silent and I'm sure that they're waiting for this to be released and judge how it's being received and make those business decisions that have to be made.
Chris: 14:07 Well yeah, absolutely. And that's why I shared that quote from the PMG's letter because she's spot on, right? Congress is going to want to see what this is and gauge the reaction of the unions and the industry, you know, all of us as stakeholders, right. And then if necessary, intervene with legislation to correct it or give more latitude to the Postal Service to self-correct, or we'll have to kind of see what it looks like with that. But that's why I made that commentary, my soapbox moment there, is this is why the industry either directly or through industry associations need to make sure that our representatives in Congress understand how this affects our nation, why the Postal Service and the mailing industry is so vital to the infrastructure in the United States. And speaking of industry associations Anita, I want to leave off on the podcast today with something that's going on right now and I think our listeners need to understand. So IDEAlliance, an industry association that's been in existence – in fact it even goes further back to something called the Graphic Communication Associations, GCA, which was formed in 1966. Anita, you and I, uh, have been very much involved in IDEAlliance and I represented them in MTAC at one point –
Anita: 15:14 You were on their board at one time.
Chris: 15:15 I was on the board of IDEAlliance, exactly. So IDEAlliance has always been near and dear to my heart personally, but one of the things that IDEAlliance does so exceptionally well is create standards and specifications that provides a common voice, a common way to communicate to the industry. And one of those standards is something called Mail.dat. Mail.dat was born in the early to mid nineties, it really came out of something called a production container summary file. Back in the late eighties/early nineties everyone was creating these things called pound specs and per-spend specs and things like that. These are text files that would come out of the presort process.
Anita: 15:52 And that was geared towards drop shipping when that was first introduced, right?
Chris: 15:56 Yep. And late '91/'92 is when Third-Class Mail at the time was being destination entered for additional postage discounts for those printers that were astute enough to leverage some of the containerization information, what I would call postal metadata, and look at that and determine the optimal entry points. Well, Mail.dat was created to form this common communication manner to what was effectively a Tower of Babel of postal specifications.
Anita: 16:24 Tower of Babel
Chris: 16:24 Yeah, it was. It was like a postal Tower of Babel – and so Mail.dat was really kind of this unifying voice and David Steinhardt, the former CEO President of IDEAlliance called Mail.dat the coin of the realm. And David was absolutely correct. You know, David's a great friend and it just an incredible leader for the industry and one of the things that David really championed was to make sure that Mail.dat would continue to be enhanced and move forward and evolve and leveraged across the supply chain. And that's what we have today is this coin of the realm communication standard of Mail.dat, and it is so ubiquitous in every single thing that we do and it's now become just kind of an accepted way that we communicate throughout the supply chain. I share that with our listeners because right now there's been kind of an abrupt change in top leadership. David Steinhardt is no longer the CEO President of IDEAlliance. And I think at this point, IDEAliance is trying to understand better what is this Mail.dat and Mail.XML – the criticality of it to our industry. How is this important and how do we as an industry community provide changes and updates and stuff? There's something called the Postal Operation & Technologies Committee and some of the members on that committee were part of the original brain trust behind Mail.dat, and I'm talking about such people as Phil Thompson. Bob Schimek is involved. I wasn't part of that original group. There was a, you know Dan Minnick – there's a number of people, there's about a half a dozen or a dozen people. Judy Blank is another name that I, that comes to mind. Just individuals that way back in that early nineties saw this vision and have continued to see that through. Joe Bailey, for example, you know, another name. And so I feel bad cause I'm gonna miss somebody's name and I don't mean to do that. It's just that this specification is so important. Anita, I really hope that our listeners who are members of IDEAlliance, let Steve Ballinger and the folks at IDEAlliance know how important Mail.dat is to their business, and why it's so important that we have a group like POTC, the Operation Technology Committee, that is maintaining this specification and reflecting the changes of what this industry needs to be innovative and to continue to grow. So if you're a member of IDEAlliance, I really suggest that you let them know. If you're not a member of IDEAlliance, know that BCC Software and our representation on that industry association through Anita and myself and a number of others, primarily Anita, is making sure that your voice is heard with what we're doing with this. So I just wanted to give a shout out to the people that are working hard on making sure that Mail.dat continues to be the important coin of the realm, uh, as it is as David Steinhardt had noted.
Anita: 18:59 He must have been a Game of Thrones fan.
Chris: 19:02 He probably is.
Anita: 19:04 I'm so glad that you brought that up though, Chris, because it's critically important to our industry and we're at a very critical juncture in where we go with that in the future.
Chris: 19:13 Right. I agree. All right, well thank you Anita. Anything else today?
Anita: 19:17 No, I think that's it. I think we covered a lot.
Chris: 19:19 Very good. Very good. All right, well I want to thank our listeners for tuning into the podcast today and I do appreciate your comments on our webpage. As always, if you've got any questions or suggestions, please visit us at bccsoftware.com or give us a phone call, and as always, let us know – how can we help? Thanks and have a great day.