A Look Over the U.S. Postal Horizon
At the start of this first decade of the new millennium, everyone was optimistic about what was to come. At that time, the U.S. Postal Service was aware that there were challenges ahead: First Class diversion to electronic media (bill payment, correspondence) and the disproportionate rise of labor costs. If it had only known ...
Now, at the mid-point of the decade, the economic reversals of 2001 still can be felt. The USPS has seen the economic softening act as a catalyst of its rising difficulties. Although cost-cutting and capital investment constraints have kept it about even, challenges abound. Even the initially viewed bonus to be derived from the discovery of substantial retirement overpayment has turned into a possible financial and political dead-end.
So what does the future hold for the U.S. postal environment? I'm sporting my best future-vision glasses to report on some shapes I see forming over the horizon.
Postal Reform is a great idea caught in the midst of other more visible, more critical, and easier-to-understand issues before Congress. Direct mail is still the strongest and most effective medium to achieve measurable, predictable and reproducible results in the marketplace. Those who work in this industry are pros at marketing. But in the coming year, you will need to become much better at marketing your needs and concerns to Congress if the following years are to be ones of continued growth for this industry.
The Congressional champions have performed valiantly; the lobbyists have messaged all the right folks. But internal politics, the distraction of re-election and budget closure, and the counter-effect of the postal unions have resulted in no action. Sadly, the odds of postal reform happening this year are probably not as good as a roulette bet on "black" in Vegas.
USPS Employee Retirement Funding has been an emotional and financial roller coaster for the last two years. The initial discovery that the USPS had over-funded its retirement payment obligation was seen as a critical opportunity to buy some economic time. However, Congress created constraints on the "savings" received during the few years identified in the bill. Specifically, the USPS could not use the savings for operations, but only for paying down debt and capital expenditures. So, the $2.8 billion missed the side of the financial books that drives rate case filings. This might have been resolved by a postal reform bill. This might have been resolved by its own specific retirement-funding legislation. But once again, Congress has chosen to ignore the obvious correctness of taking action (avoid paying double costs), and instead has left the industry (the rate-payers) to pick up the cost, which is even more egregious since the money is actually in the USPS' other financial pocket. The current law will expire in 2006, which could close the door even tighter on this topic, if it is not resolved by then, because if no Congressional action is taken (at minimum, continuing as is), then the USPS would not even get the $3.6 billion per year in relief from retirement payment Congress ear-marked for capital investment and debt pay-down.
Nonprofit Eligibility will continue to be a hot topic as the new rules spread into that mailing community. The identification of what qualifies now for nonprofit rates as opposed to what has qualified in the past is a critical crossroads for many, especially the smaller, contract-agent-dependent organizations. The stringent interpretation of the USPS on eligibility for nonprofit mailings has put many smaller nonprofit mailers between the proverbial "rock and a hard place." Mailers need the low postage to maintain a viable business plan (donations are at an all-time low), but they also are dependent upon the professional services of commercial agencies which blend the solicitation inside a commercial offering. Sometimes the USPS seems to pick the wrong fight as a provider struggling to maintain business volume. According to USPS officials, decisions on personalization in Standard mail will be made on a case-by-case basis upon the submission of actual mail samples.
Flats Standardization will be a contentious topic between the USPS and the flats-shape mailing community. The USPS is working toward more specific addressing and packaging requirements to, in its opinion, enhance the performance of flats automation processing equipment. Many mailers have concerns about the impact these new rules would have on creativity within the mail piece as well as on production costs. This may be an instance of the USPS having lost the perspective of "overall cost" when its savings are less than the cost to the industry.
The USPS' Board of Governors has several seats that need to be filled. The absences have necessitated board action to minimize the possibility of the board not having sufficient members to legally act. As with postal reform, the President and Congressional postal leadership show a distinct low level of interest in these absences.
The USPS' Evolutionary Network Development plan is still (so the USPS says) moving forward. Over the last 18 months this project has been a USPS secret, which it cites as having resulted in closures of some 30 USPS processing facilities and the re-alignment of work processed in the remaining facilities. While all of this is good, it would seem that the USPS could be more open and engage the scores of industry experts in forming what is to be the ultimate infrastructure relationship of brick and mortar assets for the USPS and the industry for the next decade. But the USPS has been very tight as to its future plans. The industry only gets to see the results after the fact, as was the case as changes occurred over these last many months.
Negotiated Service Agreements are still a work-in-progress. The original NSA brought forward by CapitalOne has never produced, for either side, the benefits originally pursued. The goal was to have lower rates for CapitalOne if certain higher First Class mail volumes were achieved. To justify this pricing strategy, the USPS would reduce its work in processing "returned" mail, thereby avoiding the full cost of fulfilling that function for CapitalOne. This original agreement is so soft in probable outcome at this time that the USPS has mirrored one of the new NSA filings and pursued an early-out option if the described benefits fail to materialize. However, reflecting their market optimism, Discover Financial Services entered into an NSA in late October, and BankOne has filed a similar NSA, which the Postal Rate Commission is expected to rule on shortly.
LACSLink will be the newest USPS address quality tool. As with its predecessor, Locatable Address Conversion System (LACS), LACSLink will allow you to identify the new 911-style address for those rural route addresses within your mail files. LACSLink will follow the design of DSF2 and NCOALink in processing architecture as LACSLink also will use the CASS (ZIP+4)-derived 11-digit delivery point numeric to access the LACSLink look-up data.
Move Update requirement planning would be a good idea. The USPS is likely to incorporate new Move Update requirements in the emerging rate case, which likely will be implemented in early 2006. Move Update is a current First Class requirement that mail addresses must be updated with NCOALink within the previous 180 days to be eligible for carrier route and barcode rates. The new requirement may apply to all classes and may stipulate that the addresses must have been updated in the last 60 days. So start planning your NCOALink update schedule to
qualify for discounted rates after the first of the year (2006).
The Flats Sort Sequencing (FSS) or Delivery Point Packaging decision should be made toward the end of 2006. The industry has concerns about what the USPS may require if it pursues the Sort Sequencing of flat-size mail for carrier delivery as is done today in about half the country for letter-size mail. Would this require even more standardization of the mail piece? (See Flats Standard-ization, page 18.) Delivery Point Packaging is the USPS' other pursued alternative. This possibility raises the same industry questions as FSS, but in addition the industry asks what would occur if all pieces (flat- and letter-size) were delivered to a household in a combined (poly-wrapped, strapped, rubber-banded) package? Would this impact marketing differentiation? Would this precipitate mass discarding of mail? USPS says it will continue to keep the industry apprised of progress on both fronts, and that it will continue broad market testing of consumer acceptance of consolidated pieces. USPS also indicated that it would not implement either of these options if it could not achieve significant cost-savings. The industry is very concerned about the USPS' push to make one or the other of these options work! Read that as concern that the industry will not be allowed to participate in the process as it unfolds.
The 4-State Barcode will be progressing in its effort to replace the current PostNet Barcode and the current PLANET Code, and to carry other mail piece data. The PostNet Barcode has full and short bars to represent the 11-digit delivery point numeric. The PLANET Code uses a reverse set of full and short bars to represent Confirm information. Instead of having only two forms of bars (full/short), each bar in the 4-State Barcode would have four possible bar positions. This creates the capacity for much more data representation in the same number of bars, plus, the 4-State Barcode has more barsapproximately 31 bits of data for the 4-State Barcode versus 11 bits of data for either PostNet or PLANET Code.
Get ready for new rates. The USPS Rate Case filing of April 2005 most likely will be implemented in the first quarter of 2006. The proposed increases of 5.4 percent across most mail categories would raise the regular Standard mail rates of presorted basic letters from their current cost of 0.268 cents to 0.282 cents. Nonprofit Standard mail rates for presorted basic letters would increase from the current 0.165 cents to 0.174 cents. Throughout the rest of the year you should be receiving updates as to the rate filing and Postal Rate Commission hearings. By around the end of November, the final rates should have surfaced. In addition, by this time the Board of Governors should have set the date for actual implementation. Here are a couple of suggestions for dealing with these new rates:
* If you prospect, then you should accelerate that behavior in 2005 to allow some reduction of what will be a much more costly behavior in 2006.
* Modify your schedules to get any possible mailings entered prior to the increase.
* For what it's worth, in the past, the USPS has offered legacy rates to mail that was in transit, which created the opportunity to pay legacy rates, have slow transportation and still have an entry date up to 10 days after the rate increase.
And keep your eyes on this: By the end of this year, Standard mail volume will exceed First Class volume in 2005, which will be the first time in history that this has occurred. This event is more than obvious. Due to the pricing and associated markups (USPS gross profit) of these two classes, it takes nearly three pieces of Standard mail to replace the USPS profit for just one piece of First Class mail that is lost to electronic diversion (billing, bill remittance, correspondence, marketing). Standard mail surpassing First Class volume is another facet of the multiple challenges facing the USPS. First Class volume is shrinking, but Standard mail does not have sufficient growth to compensate for that lost profit.
Some of the above will come true, some will not. But there are so many critical issues lying over this horizon that I cannot, under any scenario, offer you an expectation of an easy year. But rather, I do promise a year in which you can influence your business destiny. Of any time in the direct marketing industry's existence, this is the time to get engaged with your industry associations. DMA, PostCom, MFSA, the Alliance and many others are channels to both the interested and disinterested individuals within the Beltway who have your business environment in their hands.
Daniel J. Minnick is president of Shade Tree Software Consulting, a knowledge resource for the direct marketing industry. He can be reached at (847) 212-6450 or firstname.lastname@example.org.