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Chris: 00:00 Hi everyone. I'm Chris Lien. Welcome to industry corner, a podcast where I discuss postal industry news to help you stay informed. On today's podcast, we discuss the recently filed USPS proposed price increases for 2020 and how a major software provider prepares for this annual update. We'll also recap two major announcements since the last podcast that will certainly impact future USPS direction and legislative changes. So let's get into it. Welcome to the podcast, everyone. This is Chris Lien and on October 17th the US Postal Service filed their proposed pricing adjustments for 2020 and I thought it would be great to have a guest on our podcast today to give us a little bit of guidance and maybe sort of the behind the scenes of what goes on when a price adjustment is filed like that in the context of a major software provider and the thousands of customers that they're supporting. So I'm gonna welcome Mitch Carpenter, our product manager here to the podcast. Hi Mitch.
Mitch: 00:56 Hi Chris. How are you today?
Chris: 00:56 I am. Well thank you so much for joining us and I know our listeners are, I'm sure anxious to kind of hear a little bit about what's involved in preparing for a major price adjustment and there's a lot of different facets with that. Before we get into the numbers and so forth, I just want to remind our listeners, as I stated on October 17th is when the federal register notice was published for the postal service with their proposed pricing. And this is a reflection of the meeting that the Board of Governors had with the Postmaster General and the Deputy Postmaster General on October 3rd this is again as a reminder to the listeners the very first time since 2014 that we've had a quorum for the Board of Governors. So really an important meeting and pricing was certainly one topic that they covered. The other topic that we have yet to see is the 10 year plan, but let's talk more specifically about next year, 2020. So they did file their price adjustments and we've been watching the CPI-U the Consumer Price Index Urban, which has been at 1.9% and that sort of that average number that by the law you're not supposed to increase the prices above 1.9% or CPI for each class of mail. But there's always nuances. And so I thought we'd kind of talk through this a little bit here with Mitch and just kind of get into that a little bit. So Mitch, let's start at a high level. We'll work our way down, right first-class mail go over some of the changes that are being proposed on that
Mitch: 02:14 First-Class mail is actually relatively stable. There's some discounts introduced to the two ounce rate for flats, but for the average person sending out a letter to their grandmother or grandfather, that stamp price is staying the same as they want to stay with this round five pricing system where they're trying to make the pricing as predictable as possible. In general first class mail is not seeing a giant change. It's in line with the CPI. So first class mail is, is really just prices. There's no structural changes. There's really nothing else there.
Chris: 02:46 Alright, thanks Mitch. And as a reminder to our listeners, the decision from the department of justice relative to that nickel increase that we saw at the beginning of this year, there was a filing on that a lawsuit that there wasn't enough time with that. I don't think that's going to impact anything going forward with that. I do expect that nickel increase to stay the same. So that covers first-class mail. Let's talk a little bit about marketing mail, specifically flats. I know there was some conversation about the Postal Regulatory Commission giving an additional allowance for the postal service to go above the CPI pricing, particularly with flats due to cover their attributable costs.
Mitch: 03:18 Correct. One of the things the postal service is trying to achieve is cost coverage, so they have a thing called a pass-through discount that they calculate where they're determining how much money the post office is saving versus how much postage the customer's paying. And they want that to be pretty much at a parody state. They want it to be around a hundred percent. They've specifically targeted marketing mail flats that are being dropped ship entered to try and get the cost savings to the customer and the cost of processing the mail a little bit closer. So they've changed that almost 10% in each of the previous years and they're continuing to do that in this rate change.
Chris: 03:55 So my understanding here again is that marketing mail flats, uh again catalogs, things like that, the price is increasing on average about 3.9% on that. That's at 1.9% with the additional 2% that the PRC provided.
Mitch: 04:07 Correct, correct and then as you go through it, you can see that the most of the changes are balanced towards the automation. And then the changes for the DNDC and DSCF entry are a little higher than the ones for the origin entered pieces.
Chris: 04:21 Okay. And so what are some of the other things relative to marketing mail? Cause I know a lot of our listeners are mailing that particular class of mail.
Mitch: 04:28 For the most part, marketing mail sees a price change. That's in line with the percentage. They've balanced it more towards increasing the price on non-automation pieces rather than on automation pieces. So you see in general non auto pieces have gone up a little bit higher, especially for heavy pieces. There's also been another adjustment made in standard flats in regards to detached marketing labels and detached address labels. They've taken the first step this year of no longer having the same price for those two products. And one I believe has gone up to 5 cents. One has gone up to four and a half cents. It seems like they're testing some of these detached mailing devices, which also kind of leads into the Plus One incentive that's being offered for marketing letters where they're testing the price of those additional pieces at somewhere between eight and a half and 10 cents depending on what part of the country you're mailing in this signal with the detached address label, detached marketing label sort of signals that they're trying to test what kind of value the market is giving these and what kind of price they can charge and still maintain their volumes.
Chris: 05:33 This is often called marriage mail, right, where you've got a sort of an envelope with a bunch of different coupons that are in there that are, they're all brought together, right?
Mitch: 05:42 For the letter sized pieces. Yes, for sure. In the flat sides it's a, it's a, it's a little bit different than detached address label or marketing label is you get a small card in your mailbox that has an address label reflecting your address and along with it gets delivered a magazine or catalog or some other flat that's being mailed. But that's how that device works, that the marriage mail is many pieces in the same envelope where the detached marketing label is actually two separate pieces that are delivered to the same recipient.
Chris: 06:09 Got it. Okay. All right. And what else in marketing mail are we seeing as either as an opportunity or, or kind of some signals that you think that the Postal Service is sending?
Mitch: 06:17 Really the primary signal is the reduction in the drop ship discounts. That's where we're seeing the post office doing the most to shave off costs on their end. For the most part. The rest of it with marketing mail letters is pretty stable increases across the board. We're not looking at anything drastic. There are no real pieces that stick out as having a giant rate increase where in previous years they've really focused in on one or the other products to increase. This one has been following their percentage, the math that they have to do based on PAEA and making sure that they can get the dropship discounts in line with their costs.
Chris: 06:54 How about nonprofit mail? Is anything specific to nonprofit mailers? I know that there are always sensitive each year to a price adjustment.
Mitch: 07:01 Nonprofit mailers are seeing some increases but they're primarily balanced towards the non machineable and machineable pieces. So pieces that are specifically not able to be processed through a sorting machine are seeing an increase in cost. And that also could be a signal of the post office trying to lightly enforce the claim they made last year where they only wanted paper to be mailed in marketing mail, not to be used for fulfillment. So most of these nonprofit, non machineable pieces are usually sending a sticker or some other item back to a customer that may have donated to you. So they increase those rates to sort of enforce what they were looking to do with the change of the content standards without having to change the content standards.
Chris: 07:47 Okay, well let's talk a little bit about promotions, Mitch. I know that that's a really important for a lot of mailers, a 2% discount in a lot of cases depending on how you're preparing the mail pieces or complimenting that with digital communication. What are some of the promotions that we can expect for 2020?
Mitch: 08:01 You know, the promotions this year have not changed. It looks like they're going to offer the same group of promotions. Informed Delivery was and is appearing to be pretty successful. So they're going to offer that again, mobile shopping, reply rides free. So they have continued by pushing all of their incentives into 2020 literally the PRC filing has the dates for the incentives just changed from 2019 to 2020 so all of the incentives you've been able to take advantage of this year are going to continue to be available next year to help you save money for your customers and hopefully get more mailing volume.
Chris: 08:35 Okay, so that sounds good. So I'll, so kind of a repeat of what we saw in 2019 again in 2020 I know when I talked to a Gary Reblin at MTAC and I'm anxious to see them here next week during the MTAC meetings, but there was some conversation about maybe decoupling some of those promotions from certain times of the year, which I think is a great idea. We need to be looking for new ways to be able take advantage of the power that mail has at that physical to digital communication and strategically timing that with Informed Visibility. There's a lot of opportunities. You mentioned Informed Delivery, Mitch. You know, one of the things that I'm expecting to hear is that we're now over 12% of all the delivery points, the nearly 160 million delivery points serviced by the Postal Service. About 12% of those has at least one person that is subscribing to the Informed Delivery campaigns. So that's a pretty good number. I know I'm certainly seeing a lot more color replacement ads and that click through box there in my daily email feeds from the postal service.
Mitch: 09:29 Yes, the Informed Delivery incentive has definitely moved customers in to doing more with Informed Delivery. I have also received a lot more color images, replacement images in my mailbox and I've also heard a lot more discussion about Informed Delivery. Now your average mail recipient doesn't actually know what Informed Delivery is, but if you have a conversation about them, they'll say, Oh yeah, I have to go home and check my mail because X is in my mailbox today. So you can kind of suss out that people are using it. And from a couple of years ago when we first signed up for it, it's a major change that people are aware of it and appear to be responding to it. And that's gonna continue to be more interesting as the post office introduces things like Informed Addressing and the other electronic promotions they're doing now through their portal to connect mail recipients with vendors who are communicating about items they'd like to purchase.
Chris: 10:20 Yep. Agreed. Well let's talk a little bit about the timeline then. So you know, as I mentioned before, the Board of Governors had their vote on October 3rd. They filed that with the Postal Regulatory Commission October 9th. It was posted in the federal register notice on the 17th, as I mentioned before, that's the publication date on it. Now the PRC has a window of time to review that, right, Mitch?
Mitch: 10:38 Correct. They have, I believe, it's 45 days.
Chris: 10:41 That is, I believe what is in the law. It's my understanding, and again this goes back to a presentation that the vice president of pricing Steve Phelps put forward and in during that presentation they had mentioned about a 34 day period that they were anticipating for the PRC to do that. That would put us at November 12th for the PRC's decision and if that happens, that gives us about 75 days then, between November 12th and the January 26th the implementation date, so 75 day window, that's not a lot of time. Mitch, switching to you as a product manager, you're responsible for all these products here that BCC Software provides and and has been providing and the thousands of customers that are using that on a regular basis. 75 days doesn't sound like a lot of time to me. Is the team already started? How do you approach that?
Mitch: 11:28 We approach it by basically, the second the PRC files, we start grabbing the documentation and reading through it less for price changes. Price changes are very meaningful to mailers because it's going to affect their bottom line. But for us it's mostly making sure we've got the correct number in the correct cell. So price changes are a smaller effort. What we look for is going through and looking the little devil in the detail things. Like one of them is, as I mentioned earlier, the separation of detached marketing label and detached address labels. So in software those are sometimes treated as a single concept because they've always been used the same way. That's a place where we'd have to make a structural change to price them separately. In this case, it turns out in discussing with engineering, we already were using them as two separate things. So that's going to be small for us. But we really are seeking out structural changes and customers may remember significant structural changes like all of the changes with the FSS sorting systems. Those things make a rate case very large and very difficult. Where changes in price are much more manageable. And what we found so far is that 99% of this rate case is just adjustments in pricing, which is good in light of the short development window we've been allowed.
Chris: 12:41 Right. Well that's a good point and and you know, as far as the structural changes, I think that's one of the things for our listeners to understand. That's one of the reasons why BCC software engineering team, product management, you at various levels within the organization, we stay tuned into what's happening, sort of trying to get a feel for where the Postal Service is thinking through venues like MTAC and Association for Postal Commerce and through the PCCs even where it makes sense just to try to at least get an idea of what they're thinking from a structural change. And so it's good to know that this particular price adjustment is really just about prices and really not about the structure changes. So hopefully that makes it a little bit easier. What typical window of time do we strive to, to have the software in our customer's hands before that January 26th date?
Mitch: 13:26 The minimum time we want to deliver in is at least two weeks before the change. Okay. So with the change being on the 26th, that would put us around the 12th, which is a Sunday. Obviously we're not delivering it on a Sunday, so it would be the previous week. This year we're going to be a little more aggressive with the products in the Rochester office with Mail Manager and the products that come out of here. Because the price change is only prices. We believe we'll be able to deliver it more quickly. The Satori side of the business, the other products we have Pre-Sort Monticello typically are on a little bit more advanced of a schedule they release more quickly so that mailers can do research into the impact of the rate change. And then they might do another release before the rate change to sort of finalize things if anything's changed. And we're trying to pull the Rochester products into that scheme where we're going to try and get something out as quickly as possible and we'll see how that goes. This year, like I said, it's only prices. Our ability to try and make that change this year is, is better than it might be in a year where there's a lot of structural changes.
Chris: 14:28 Okay, good, good. So trying to sort of align the teams on best practices of what they do with that. Excellent. Excellent. Okay. Any other guidance or suggestions for our customers, Mitch, about preparing for the price adjustment next year? Uh, other ways that they should prepare internally for the software or be a little bit more informed?
Mitch: 14:41 Certainly, the first thing I would do is go through your list of customers and see what products they're purchasing you. If they're primarily a marketing mail user or they're primarily a first-class user, now that you have the rates, you can give them a projection of what their postal budgets should be. And a customer that has an idea about the budget that they're going to have to use to make their advertising spend is very good. As budgets get set towards the end of the year, you want to give people time to plan for their mailings and make sure that they still bring them to you. They still have the money to mail them. That's a very important thing. The other thing is for customers that are doing a lot of drop shipping, you're going to have to sort of replan and figure out what sort of discounts your drop ships are going to offer customers. That's another thing to think about. That threshold of when it makes sense to ship is probably a little higher after the rates have changed. So there'll be some calculations on what's your best path towards figuring out your logistics plan and your entry plan for very large mailings. And I know that customers at the very high end of the spectrum have whole departments that do this, but sometimes in the middle or lower middle portion of the market, they're not always spending time projecting those kinds of postage things. So you might end up with customers that are surprised that a mailing that costs X is now X times 1.9. So I think it's very good practice to try and prepare your customers for the change in postage based on what they mailed with you last year.
Chris: 16:11 All right, excellent. Good tips and certainly if you're not involved in the promotions, now's a great time to take a look at that because those promotions are going to continue as you talked about before, Mitch, and that presents an opportunity for growth and opportunity for innovation and certainly additional discounts. Right?
Mitch: 16:25 Absolutely. The promotions for the most part are fairly easy to claim. Even the Informed Delivery with the, they had a little bit of a rough start this year, but now people are up and going it. It's fairly easy to participate as long as you're involved with your customer a little bit upstream so you can kind of help them make sure they've got the right kind of copy of the right kind of piece and a landing page to match with it. That's a great 2% discount and it's something that I think any of our customers can claim. The software products all support the ability to upload the stuff through E docs, so anyone who's not participating in it is really leaving some postage on the table. I also think it's especially valuable for customers that are selling a total cost per piece because as they can shave additional postage monies off, they can make mailings more profitable and perhaps even quote them lower to their customers.
Chris: 17:12 Well, thank you Mitch. I appreciate all the great information for our listeners about the price adjustment for next year.
Mitch: 17:16 Thank you very much for having me.
Chris: 17:17 All right, two other points here for our listeners just to cover. So first of all, since our last podcast unfortunately Chairman Elijah Cummings passed away. Chairman Cummings was the chair of the House Oversight and Reform Committee, very important committee within the House of Representatives in particular as it relates to postage. So it's unfortunate certainly for the passing of representative Cummings, but also in particular for the mailing industry. Chairman Cummings was very vocal, very powerful in his position relative to post reform. He understood it well. He was a great advocate and in a lot of cases, a great advocate for postal unions, which is an important part of trying to get anything in terms of a legislative approval to move forward. With his passing I don't personally think that there's going to be a lot of movement for any of the postal reform. Even some of the, the most basic things. We'll have to wait and see what the acting Chairwoman, Representative Carolyn Maloney will do as she begins to continue to work on that committee. It's my understanding that she's going to be trying to continue with the same vigor that we saw with Chairman Cummings. So that's an unfortunate thing and certainly hope that that committee is able to continue to move forward. And then the second piece of information was that Postmaster General, Megan Brennan did announce her retirement. She's going to retire from the postal service as the chief executive officer and Postmaster General effective January 31st of 2020. The PMG, Megan Brennan, is a wonderful person and I have to say that I've had the pleasure of knowing her, working with her for quite some time, going all the way back to when she was chief operating officer and on the operation side of the business when I was involved in MTAC and I've always found her to be an excellent leader, very articulate. She cares deeply about the postal service, about the mailing industry. She's been a great, great partner and certainly I wish her the very, very best in her future endeavors. We don't know yet what the Board of Governors are going to do as far as naming another Postmaster General. In the meantime, it's my understanding that Deputy Postmaster General Ron Stroman is going to be sort of the acting Postmaster General during the transition. If I'm correct on that, I, you know, if I'm not correct, I apologize, but that's my understanding with it. I'm looking forward to seeing the Postmaster General Megan Brennan next week at MTAC and hopefully she'll be there. So I have a chance to shake her hand and thank her one last time in person, but I wish her the very, very best. So those were two important announcements that we heard in conjunction with the price adjustment and, Mitch, you're still here with us. So any other final comments before we wrap this up?
Mitch: 19:48 I guess the only thing I could really say is with a year upcoming that's going to introduce very little change. This is a great time for everyone to look at their operations. And normally you're spending time adapting to big changes in sorting big changes in what you're required to do to comply with postal this year. There's not a lot changing, so this is a great time of year to look to ways to help automate procedures, help reduce the amount of error you can come across and and then, you know, if you come to that point, we probably have something to help you do that.
Chris: 20:19 Thank you Mitch. That's a great point. You know, automated workflows. That's an important topic and we heard a lot about that, you know, at the various venues, PCC, the PRINT show, and in PRINTING United as well, and to learn more about some of the automated workflow technology that BCC Software provides our expansive technology with personalized support, please make sure to visit our webpage, bccsoftware.com or give us a phone call. Thanks again everybody, and I hope to hear from you soon.