Direct Mail: State of the USPS
As direct marketers, we're closely watching the changes at the United States Postal Service. Discussions about full-service requirements, the consolidation of facilities, elimination of Saturday delivery, proposed exigent rate increases on top of the annual CPI-capped increases, and the ongoing battle over postal reform continue. The decisions made on these issues will have a lasting impact on mailers.
Where do the big issues stand and what can marketers expect? Here is a consolidated summary to help you navigate 2014 and beyond.
In January, POSTNET Barcodes were sunset and replaced with the required Basic IMb (Intelligent Mail barcode). As this transformation has been adopted and in use for the majority of mail, the USPS continues to move toward Full Service IMb barcodes and technology. With Full Service, every piece of mail and container will be required to have a unique sequence number. Mailers will need to be Full-Service compliant starting Jan. 26, 2014.
Mailers have good reason to comply. A unique identification on each mail piece means the USPS can report on all mailing facets, from the entry or pallet scan to tray and bundle scans, in addition to standard processing. New reporting formats offer access to such data as piece size and shape, as well as presort levels and entry qualifications. With Full Service, mailers will realize more reliable and consistent mail delivery.
Because the USPS recognizes the process to become Full-Service certified is challenging, it has streamlined the testing process. Specifically, the certification has been split into two parts. Mailers should start the certification process as early as possible before the January deadline to avoid surcharges and the loss of automated discounts.
The USPS continues to consolidate postal facilities in an effort to right-size its internal network while maintaining high-level service. To date, service interruptions have been minimal—actually almost non-existent. As a result, the USPS has accelerated portions of Phase 2 consolidations to move some 2014 closures into 2013. In going from 417 mail processing facilities to fewer than 250, USPS will save $3.4 billion by 2017. Cost savings are already evident as USPS monthly losses continue to shrink.
Related to the issue of facility consolidation is the entry of mail and Postal Service performance standards. With Sunday counting as a processing day, the USPS will have to deliver mail drop-ship entered to a sectional center facility on a Friday by end of day the following Monday. This means enormous overtime. What's more, 60 percent of Standard Flat Mail is entered on Friday, inflating the postal cost for that product. The bigger issue, however, is moving as much drop-ship entry from Fridays to mid-week as possible, so it can get the mail delivered prior to the weekend. The USPS has performed load-level testing in Southern New Jersey on the weekends of Sept. 14 and Sept. 21 in an effort to minimize cost without impacting performance.
Exigent Rate Increases
Will the Postal Service file an exigency rate case this year? If so, how much?
The five-day delivery program was squashed due to pressure from Congress and, with it, the estimated $2 billion potential savings the program was expected to deliver. Without those savings, the USPS was directed by the Postal Board of Governors (BOG) to aggressively pursue all cost cuts within its power and to look at an exigency rate filing to close the gap.
Postmaster General Pat Donahoe has made it clear he opposes exigency rates due to negative impact on mail owners. Donahoe recommends the mailing industry continue to put consistent pressure on Congress to enact proper postal reform. However, that effort from Congress has been slow to materialize and the chance for postal reform this year is failing fast. Without relief from Congress, the BOG will feel compelled to push for an across-the-board exigent rate increase. The belief is it will be filed at the same time as the CPI-capped filing and implemented in late January 2014, if it is filed. The anticipated range is between 3 percent and 8 percent. This would be on top of a CPI-capped increase estimated to be a little below 2 percent. The mailing industry is trying to stop this effort.
There has been no real movement in terms of postal reform and industry support has been fragmented. The largest line item to be addressed that has the potential to create significant cost savings (an estimated $8 billion) for the USPS is healthcare and retirement benefits. The USPS wants to go private and manage these costs. The other big-ticket item is the prefunding requirement for the Civil Service Retirement System (CSRS). Properly calculated based upon postal employees rather than federal government employees, the amount already prefunded would cover future costs. The $5.6 to $5.7 billion per year amount needs to be eliminated. However, both houses of Congress feel otherwise, and want to continue prefunding at perhaps a less-aggressive rate.
In response to Donahoe's disappointment in the lack of support given by the mailing industry, PostCom has approved a set of nine principles it believes should be part of any legislative reform. Additionally, House Oversight and Government Reform Committee Chairman Darrell Issa posted a discussion draft of new legislation.
The Senate bill in play seems to be an effort to forgo real reform until after the 2014 Congressional elections. This proposed bill would cease facility closures, put off five-day delivery for two years and eliminate the CPI rate cap in 2016, while making it an overall cap rather than a per-class cap. The Senate bill would also create a consulting advisory committee to ascertain what it would take to make the USPS financially secure, with its findings required nine months after enactment. The bottom line: Postal legislative reform does not seem likely this late in the year.
The Future of the USPS
Congress must work before it's too late to enact postal reform. "Too late" for the USPS doesn't mean just running out of cash. Uncertainty, not cash flow, is the issue. Not knowing what and how Congress will act is enough to cause companies using the mail to look elsewhere. If direct marketers find alternatives that work, they will not come back to the USPS—a problem that will have a ripple effect throughout the direct marketing community.
This year's PostalVision 2020 conference generated a laundry list of possible sneak peeks into where our Postal Service may be in the future, assuming it survives. Most ideas centered on the USPS providing a digital platform. One presentation focused on the results of a study sponsored by the Office of Inspector General called "What America Wants and Needs from the U.S. Postal Service: A Survey of Internet-connected Americans" (InfoTrends, May 21, 2013). The survey indicates the Postal Service is ingrained in American culture, and most people want it to continue to serve in existing and new capacities. Internet-connected Americans are "open to the Postal Service implementing new services and undertaking cost-reduction measures, as long as a certain level of service is maintained."
The USPS is doing its part to facilitate mail as an enabler of omnichannel marketing. It is incentivizing the integration of digital tools and technologies to further improve the success of direct mail campaigns. The use of 2D barcodes, QR Codes and augmented reality have been rewarded with modest postage discounts. MyPost, a USPS tool that will allow consumers and marketers to see what's in the mailstream before it's delivered, is designed to improve the experience of consumers and mailers, alike.
The mailing industry faces significant challenges regarding the USPS. For once, these challenges have little to do with postal delivery performance and consistency—as these have largely been achieved. The real issue: Will Congress allow the USPS to do what is necessary to become financially sound, competitive and master of its own destiny? If not, will Congress get out of the way? Or will it continue the atmosphere of uncertainty giving marketers cause to look elsewhere for solutions.
Congress needs to act and act now. The mailing industry is larger than the U.S. automotive industry, and yet we seem to not get the same required attention. We, the mailing industry, must let Congress know what is at stake and what we want them to do. We must act now—the future of the USPS depends on it!
Charley Howard is vice president of postal affairs for San Antonio-based direct and targeted marketing company Harte-Hanks. Reach him at (252) 492-3418 or firstname.lastname@example.org.