USPS Update: 7 Issues Mailers Need to KnowSeptember 9, 2013 By Kurt Ruppel
1. USPS Finances - How Bad Is It?
Thankfully, revenue is showing year-over-year gains. Although mail volume is down 0.9 percent for the year, driven by a 4 percent decline in First-Class (transactional) Mail, Standard (advertising) Mail is up 1.9 percent for the year.
The Postal Service's biggest financial challenge is cash flow. It is currently operating with less than eleven days cash on hand and that is expected to dip to five days. But the situation should improve, as the first postal quarter (the fourth quarter of the calendar year) is typically the strongest for the USPS.
2. The Elephant in the Room - Healthcare and Pension Payments
Retiree Healthcare Prepayments: Although the Postal Service is paying current retiree healthcare from current income, it is required to prepay more than $5 billion into its Retiree Healthcare Benefit Fund (RHBF) each year. The RHBF currently has more than $44 billion—nearly half the amount it needs to fund retiree healthcare for the next 75 years. A longer term payment plan would put the Postal Service on stronger financial footing without obligating the Treasury for future payments.
Pension System Overpayments: All parties agree that the Postal Service has overpaid into its Federal Employee Retirement System (FERS) pension account. Since the Postal Service is funded almost exclusively by postage fees, this overpayment is being funded by postage ratepayers—not taxpayers. Refunding the overpayment would provide the Postal Service with working capital needed for debt reduction, capital investment or restructuring costs.
Addressing these issues is necessary to provide financial stability for the Postal Service; but it won't provide the Postal Service the business model changes needed for long-term financial success.
3. What About Postage Rates?
In September, the USPS Board of Governors is expected to consider an "exigent" increase. The fear is that raising prices above the rate of inflation will force mailers to seek alternative means to distribute their communications, further reducing mail volumes and revenue. To oppose raising postage rates above inflation, the Affordable Mail Alliance (AMA) has been re-launched by a coalition of postal customers.
If the board decides not to pursue an exigent increase, the annual inflation-based price adjustment scheduled for January 26, 2014, will average about 1.7 percent (based on CPI calculations through July).
4. Aligning Resources with Demand
Processing Network Optimization: The USPS is working to align the size of its mail processing network to its mail volume, which has declined 25 percent since its peak in 2006. The processing network optimization initiative will create a network that better fits current mail volume and the needs of today's mailers. This initiative has been well-planned and well-communicated, with little operational disruption for mailers.
Delivery Schedule - Five-day Mail/Six-day Packages: The Postal Service has also proposed adjustments to its delivery schedule. The five-day mail/six-day package delivery proposal put forth this year is a promising alternative for cutting costs and reducing excess capacity—especially if the alternative is an exigent rate increase. Mail service providers stand ready to assist their customers in managing in-home delivery in a five-day mail environment.
5. Legislation - Will Congress Respond?
Comprehensive postal reform bills are moving in both the House and Senate. The House Oversight and Government Reform Committee passed a bill introduced by committee chairman Darrell Issa (R-CA) on a party-line vote. This bill could come to the floor later this year. Sens. Tom Carper (D-DE) and Tom Coburn (R-OK) introduced bipartisan legislation in the Senate. This bill has several similarities, as well as significant differences, with Rep. Issa's bill. The Senate bill was introduced as lawmakers were leaving for their August break, so committee hearings are expected this fall.
Having comprehensive bills in both chambers with the backing of postal oversight committee leaders is a necessary first step. While it's a long way to final legislation, it is encouraging to see the debate over how to strengthen the Postal Service's business model has begun. Direct marketers need to talk with their congressional representatives to ensure that the importance of a financially healthy Postal Service is understood.
6. Intelligent Mail - It's All About the Data
Full-Service Intelligent Mail Requirement: Beginning January 26, 2014, mailers must use Full-Service Intelligent Mail to claim automation discounts. Full-Service requires the use of 45-day unique IMb barcodes (opens as a pdf) on mailpieces, handling units (i.e., trays) and containers (i.e., pallets). In addition, mailing information must be supplied electronically to the Postal Service, electronic mailing statements must be generated through PostalOne!, and drop-shipped mail appointments must be made using the online FAST system. If you aren't using Full-Service, now is the time to work with your mail service provider or software vendor to ensure you're ready for January.
Visibility and Service Performance: The USPS is using data it collects to enhance visibility of mail moving through its network and ensure timely delivery. A "Mail at Risk" Report has been created that identifies mail in danger of missing its service standard, so it can be identified, expedited through processing and delivered on time. This is driving more consistent and predictable delivery performance, making mail a stronger partner in multichannel marketing.
Enhanced Services: Intelligent Mail data is also driving enhanced mailer services, such as Seamless Acceptance and Mail Anywhere, Pay Anywhere (MAPA, opens as a pdf). Seamless Acceptance (in pilot) uses electronic documentation cross-referenced with piece, tray and pallet scans to verify mail. This has the potential to streamline mail acceptance for both mailers and the Postal Service. MAPA allows mailers to present and pay for Full-Service mailings at any postal location where they hold a permit. The Mail Anywhere part of MAPA launched this past summer, the Pay Anywhere piece is in pilot.
7. Can Promotions Help?
The Postal Service will continue offering promotions in 2014 to encourage mailers to integrate mail with mobile technology, use technology to drive the relevance of mail, ensure reply mail and advertising remain a relevant part of the First-Class Mail mix, and provide incentives for new small business customers to try direct mail. Participants may find new ways to make mail more relevant to customers and prospects while shaving a little off postage costs.
The Future of Direct Mail
Direct mail works. Direct mail is the backbone of many multichannel marketing campaigns. The direct mail community must embrace data-driven technologies that will make mail more efficient and more relevant. Doing so will keep direct mail a significant part of the marketing mix for years to come.
Kurt Ruppel is marketing services Manager at Chanhassen, Minn.-based direct marketing and postal services firm IWCO Direct. He is also a member of the Mailers' Technical Advisory Committee. Reach him at Kurt.Ruppel@iwco.com.