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Commentary & Analysis

In The Mail: April 2018 – What You Need to Know About Postal Issues

President Donald Trump signs an Executive Order forming a Task Force to evaluate operations and finances of the U.S. Postal System…The PRC Scolds the USPS for performance shortfalls…Promo standstill…No returns needed.

By Idealliance
Published: April 26, 2018

Postal Task Force. On April 12, President Donald Trump signed an Executive Order to form a "Task Force on the United States Postal System" with a report due in 120 days. The order calls for the Task Force to “conduct a thorough evaluation of the operations and finances of the USPS” and “develop recommendations for administrative and legislative reforms to the United States postal system.”

It further calls for such recommendations to “promote our Nation’s commerce and communication without shifting additional costs to taxpayers” and to “consider the views of the USPS workforce; commercial, non-profit, and residential users of the USPS services; and competitors in the marketplace.”

The Task Force is to be chaired by the Secretary of the Treasury, or his designee, and to include the Director of the Office of Management and Budget and the Director of the Office of Personnel Management or their designees. It is also to consult with the Postmaster General and the Chairman of the Postal Regulatory Commission; and engage the Attorney General, on issues relating to government monopolies operating in the commercial marketplace and the Secretary of Labor, on issues related to workers compensation programs.

Challenges and progress. As in past years, the Postal Regulatory Commission (PRC) scolded the U.S. Postal Service, in the fiscal year (FY) 2017 Annual Compliance Determination (ACD), to improve profitability of underwater products, better align some workshare discounts, and improve service performance.

The PRC found 42 worksharing discounts with compliance issues, and for 20 of them the USPS didn’t have a justification. In seven cases, the PRC found that price changes that went into effect in January would help align the discounts with avoided costs or the USPS eliminated the discount. For 13 remaining discounts, the PRC directed postal officials to bring the discounts closer to 100% of the cost the USPS avoids when the mailers do the work (like drop ship deep in the system) or provide a justification for not doing so.

The PRC identified 10 Market Dominant products that didn’t cover their costs in 2017 and urged the Postal Service to improve transparency for these products in order to be accountable. It also directed the USPS to investigate the accuracy of the costing methods for Money Orders.

Despite improvements in service performance results in FY 2017 over FY 2016 for a majority of products, most products failed to meet their service performance targets in FY 2017. In particular, service performance targets were not met for all First-Class Mail products, both Periodicals products, USPS Marketing Mail High Density and Saturation Flats/Parcels, USPS Marketing Mail Flats, USPS Marketing Mail Every Door Direct Mail—Retail, Bound Printed Matter Flats, and Post Office Box Service.

Finally, the Commission focused on the ongoing cost and service challenges with flat-shaped mail. It noted that it has initiated a strategic rulemaking to develop proposed reporting requirements related to flats operational cost and service issues. From this data, the PRC will develop potential data enhancements and consistent reporting requirements that will be used to develop metrics to measure, track, and report the cost and service performance issues associated with flats.

Half full, half empty. In fiscal year (FY) 2017, the U.S. Postal Service recorded its first net loss from operations since FY 2013, at $1.3 billion, which was largely due to declining mail volume, the expiration of the one-time exigent surcharge, and higher operating costs. When non-cash workers’ compensation costs and retirement expenses are included, the net loss from operations increases to a total net loss of $2.7 billion in FY 2017, announced the PRC in the analysis it released this month of USPS finances.

The good news is that this was an overall improvement of $2.8 billion compared to the total net loss in FY 2016, because there was a $4.8 billion decrease in the retiree health benefits expense, and a $3.4 billion decrease in the non-cash workers’ compensation expense, offset by $2.4 billion in increased expenses that resulted from provisions in the Postal Accountability and Enhancement Act (PAEA) for unfunded retirement benefit costs. The PRC noted that liquidity also improved in FY 2017 and is at its highest level since FY 2007. However, liabilities on and off-balance sheet for pension and annuitant health benefits continue to threaten the improvements in liquidity.

While most Market Dominant products saw revenue declines, Competitive products’ revenue increased by $2.2 billion in FY 2017. The Competitive product price increase effective January 2017, the transfer of First-Class Mail Retail-Single-Piece from the Market Dominant category, and higher volume were the primary drivers of the additional revenue, the PRC said.

 

Now you see it. A look at enterprise analytics and data usage for the U.S. Postal Service first quarter of fiscal year (FY) 2018 shows some interesting statistics. Only 4% of letters had no visibility while 15% of flats lacked visibility in the first quarter. In Periodicals, 20% lacked visibility at the piece level. The Mail Visibility Application was launched in September 2017. It enables the plant to scan a bundle to determine when it’s to be delivered or to validate delivery code coding. The USPS is working to improve these numbers over time.

Nothing new. No new mail promotions are in the pipeline at the USPS because, by law, they must be approved by the Board of Governors and there are currently no appointed USPS Governors. But existing promotions saw lots of activity in 2017. There were 1,948 participants representing 2,236 mail owners. The 18 billion pieces of mail utilizing promotions represented a 7.3% increase over the previous year, with revenue—at $4 billion—up 11.6% over the previous year. Color Transpromo was the most popular promotion activity, with a 52% increase in use over the previous year.

No returns. Green and Secure is a new Address Change Service (ACS) option that lets the USPS destroy mail instead of returning it. First-Class Mail will have to go into Secure Destruction. The process saves the Postal Service money on undeliverable as addressed mail because it won’t have to incur the costs of returning that mail. The final rule, issued April 4, also provided some much-welcome clarification of how the U.S. Postal Inspection Service prioritizes inspections regarding Move Update. The final rule stated that “the Inspection Service will not initiate Move Update investigations unless non-compliance from a mailer has been demonstrated to be a routine and repeatable practice despite an opportunity, through communication from Mail Entry with the mailer, to correct the practice.”

Add your voice. The Postal Regulatory Commission (PRC) is taking comments until April 30 on the U.S. Postal Service internal service performance measurement. The USPS has been developing this system for measuring First-Class Mail, Periodicals, Marketing Mail, and Package Services since January 2015. The PRC says that the system is now generating sufficient service performance data for the PRC to make a final decision on it, and it is seeking public comment before doing so.

Comments should focus on whether the proposed systems are able to report accurate, reliable, and representative service performance data; can ensure the USPS meets its reporting obligations; and provide “a system of objective external performance measurements for each market-dominant product as a basis for measurement of Postal Service performance.”

Idealliance is a global industry association representing the visual communications industry, comprised of content and media creators, and their print and digital service providers, material suppliers and technology partners.

 

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