Links to the resources mentioned in the podcast.
On today’s podcast, postal reform legislation has finally been signed into law, I recap the April MTAC meetings, and the USPS files for another significant price increase for July 10, 2022.
Welcome to the podcast everyone!
It took Congress fifteen years, but we finally have a new law that corrects some of the problems with the Postal Accountability Enhancement Act and forms the foundation for the USPS Delivering for America Plan. Of course, I am talking about the Postal Service Reform Act of 2022, which was formerly known as H.R. 3076; a topic I’ve been discussing on this podcast for over a year now. It’s always interesting to me to reflect how sometimes Congress can move at a snail’s pace on some issues that on the surface seem like a “no brainer”, and yet capriciously rush through political agendas that can take years to reverse unintended consequences.
PAEA, as the 2006 Postal Reform Enhancement Act is often called, was known to have an issue within just two years after it passed. The requirement to prefund retiree healthcare benefits, while perhaps a noble idea at the time, was immediately impossible to comply with as soon as the Great Recession hit in 2008. And yet, it took over a decade for Congress to finally remove this burden which the USPS stopped complying with shortly after it was enacted.
I won’t go into all the details of what the Postal Service Reform Act entails, as I already did that on a prior podcast. But I will say this, this legislation that is now Law is long overdue. It not only provides a $58 billion foundation for the USPS Delivering for America Plan, it also removes what has been somewhat of a distraction from other key initiatives for the USPS and the mailing industry overall. In fact, as I reflect on this new corrective Law to PAEA, it is really just a reaffirmation of what we already know. Yes, USPS prefunded retiree healthcare is unnecessary; yes, the USPS should continue delivering mail six days a week; yes, the USPS should be allowed to provide non-postal services to local governments provided they cover their attributable costs; and yes, there should be greater transparency in USPS service standards at national, regional, and local levels. So, while the Postal Service Reform Act of 2022 is absolutely welcomed by many in the mailing industry, it’s a bit of a “duh!” we should have done this like a decade ago!
Okay, moving on, which is what the PMG basically said at MTAC, let’s focus instead on other real issues for the USPS and the mailing industry. The April MTAC meetings were thankfully in-person as well as via remote for those members who may still be unable to travel. I attended in person and was very pleased to see well over 100 of my fellow “MTAC-ers” and dozens of guests gather in the Ben Franklin room of USPS Headquarters. And a super “Thank you!” to the MTAC staff and leadership team who setup tables for us to sit at for the meetings!
The PMG kicked off the meetings with the same passion and candor many have come to respect, including me. He again noted how everything was so broken when he got there and that in his opinion, he could build a better, faster USPS from scratch faster than trying to fix the current one. His leadership team is working on over 200 “get it right” initiatives, and you could tell that they are 100% behind PMG DeJoy in working quickly to execute on the DFA Plan.
After the PMG’s opening remarks, Dr. Josh Colin, USPS Chief Retail & Delivery Officer, provided an update on how the USPS is leveraging their vast amount of data they have now to track and improve the quality of mailing handling. Dr. Colin is continuing to implement the same type of proven methodologies he used for the Eastern Area Operations, which resulted in improved mail handling.
Jakki Strako, USPS Chief Commerce & Business Solutions Officer, then provided a review of the USPS Connect suite of services. This includes national, regional, and local parcel pickup and delivery primarily aimed at small businesses. Flat rate pricing for local delivery range from $2.95 to $4.95 per parcel, so a fairly competitive price for next day or in some markets same day delivery for parcels.
After a brief break, we heard from Greg Lovensheimer from the paper industry. Greg noted that 39% of all paper flows through the USPS. Unfortunately, there is a serious paper shortage right now, and margins for paper suppliers are on a “razors edge”. Labor shortages, supply chain headaches, price increases and more have made the recovery from the pandemic more difficult for paper suppliers. And unfortunately, envelopes are being hit the hardest as they typically have the lowest margin. This, along with the steep price increases I will discuss in a moment, are having a devastating impact on transactional mailers and will continue to do so for the foreseeable future.
Another topic discussed during MTAC was the Business Customer Gateway and how the USPS is working to provide a “birds eye” view of the overall USPS network. A color-coded system of blue, green, yellow, orange, and red would visually reflect how each facility is performing for mailing handling within established parameters. The concept is certainly intriguing and welcomed, but many MTAC members were of the opinion that the status was more of a leading indicator than a more immediate reflection of problem areas. Personally, I am a big fan of any data the USPS is willing to provide and think there may indeed be future value in this for some type of trending, or early warning system.
FSS, the USPS Flats Sequencing System, is finally being slowly dismantled. These football field sized sortation machines, which may have made sense twenty years ago when flat volume was much higher, are being removed with about 20 such machines already dismantled. The USPS has not yet changed the FSS sort schemes, but it is very possible that they may slip something into the July 10 price increase, so we need to keep a close eye on this.
Finally, the USPS also provided an important update on preparations for what they believe will be a huge year for election mail. They have a new organizational structure for election and government mail services, have been having outreach meetings since February with state executives and local jurisdiction administrators, and published an updated 2022 Election Mail Guide, known as Kit 600. If you are doing election mail, or are interested in expanding your business with this service, you need to download Kit 600 and you may want to reach out to a company like BlueCrest who has an amazing end-to-end solution for election mail know as Relia-Vote.
So, all in all, a good MTAC meeting that felt somewhat normal albeit without the Tuesday evening reception. I do hope they bring back the reception, though, as that sometimes provides an additional venue to chat about topics discussed during the day and can help guide the Focus Group conversations. Now, switching to the July 10 price increase, which Sharon Owens, USPS VP Costing, presented during MTAC since it was filed with the PRC during MTAC. No surprises, at least not from what I’ve been reporting and discussing on the podcast, the USPS is moving forward with the maximum pricing authority they can based on the filing they did last month with a range of 6.5% to 8.5% depending on the class of mail. The largest contributor to this sizeable, or judicious as the USPS calls it, price increase is actually CPI-U due to the highest inflation in 40 years. The 6.5% price increase breaks down as 5.135% for CPI, and then adders of 0.584% for volume density, 0.785% for retirement, and banked authority of 0.004% for First-Class Mail. You might be wondering, as am I to an extent, why there is still a retirement adder even though the postal legislation was supposed to remove that adder. The answer from the USPS was that the retirement adder was supposed to initially be over 1%, but that they did factor in a partial reduction which is why it is only 0.785%.
So, 6.5% at the class level for First-Class and Marketing Mail, but Periodicals get hit with a “non-compensatory” increase of 2% more for a total of 8.5%. Ouch! I realize Periodicals is considered “underwater” in terms of cost coverage, but I’m not sure how much more that class can continue to take. I realize this is not a popular opinion, but I have always thought that Periodicals is the one class of mail that really could make a case for some type of subsidy from Congress to remain a viable form of communication in this nation. Periodicals bind the nation providing educational, cultural, scientific and informational value often abbreviated as ECSI, and are really the anchor of the mailbox enabling and facilitating more mail volume through other classes of mail such as First-Class and Marketing Mail. Okay, okay I know I have a soft spot for Periodicals, but perhaps that’s because I grew up reading and enjoying Highlights for Children and National Geographic.
As always, the devil is in the details with any price increase and that is certainly true with this one. Marketing Mail has a few areas where increases are well above the 6.5% average. This includes high density letters at 12%, flats at 8.5%, and Marketing Mail parcels at 9.8%. However, the pricing incentives has widened to presort and dropship Marketing Mail; especially at the SCF. Drop shipping 5-digit mail to an NDC would yield a $2 per thousand discount and an additional $1 per thousand to go to the SCF. Saturation mail dropped at the SCF versus origin entered would yield a $5 per thousand discount.
So, now that we have the price proposal, we just need to see the sortation changes. Of course, that assumed the PRC approves the pricing, which seems pretty likely. As always, the goal of software providers is to get the updated technology to customers as soon as possible so please be patient as we work closely with our postal partners to understand the new sortation rules and provide feedback to them on any unintended consequences or errors.
Folks, I want to thank you for listening to today’s podcast, and if you’d like to learn more about mail tracking, or how to better automate your mailing workflows, please visit us at BCC Software.com or give us a call. As always, we’d like to know “How can we help?” Thank you for listening to the podcast, and have a great day!