This fall there are two important USPS initiatives to watch. The first is the progress of the rate case filed by the USPS in July 2010 to raise rates effective January 2011. The second is the full implementation of Intelligent Mail, scheduled for May 2011. Both have important implications for mailers. The rate case, should it become effective, is predicted to further lower overall mail volume, which will affect the workload and sales volume of mailers, and complying with Intelligent Mail regulations may increase costs for mailers.
Exigent Rate Case
Under new rules established by Congress in 2006, the USPS can raise rates each May using a formula based on the Consumer Price Index (CPI), and under “extraordinary or exceptional circumstances” at times other than May. In July 2010 the USPS exercised the second option by filing what has come to be known as the exigent rate case (exigent means pressing or urgent). The USPS claims that the recession, coupled with a faster than anticipated decline in mail volume, renders the USPS unable to meet its operating expenses and its Congressionally mandated contribution to retiree benefits—a prepayment of $5.4 billion each year until 2016 to cover the healthcare costs of retired employees.
Its decision was supported by three separate studies conducted by three reputable consulting companies—Boston Consulting Group (forecast mail volume), Accenture (additional USPS products), and McKinsey and Company (business model). Here are the results:
- Boston Consulting Group: Projects another 15% drop in mail volume over the next decade, or 150 billion pieces by 2020 (down from a high of 213 billion pieces in 2006). Also, a shift away from first class mail (loss of 30 billion pieces). USPS revenue will be lower from both the loss in volume and the reduction in first class as a percent of overall volume.
- Accenture: Although other national postal systems provide additional services such as mobile phones, banking and logistics, this is not feasible for the USPS because of the required capital investments. However, even at a reduced volume of 150 billion pieces of mail, the USPS is still the largest postal system in the world, and should concentrate on its core business—mailing and shipping.
- McKinsey and Company: Without significant changes, the USPS faces a cumulative $238 billion loss from now until 2020, when the net income gap will be $33 billion. The current business model lacks the flexibility required to manage the USPS through this time of transition.
Using the results of all three studies and recommendations made by McKinsey, the USPS produced a plan with these primary features:
- Ask Congress to adjust the current retiree health benefit payment schedule to “pay as you go.”
- Ask Congress to eliminate Saturday delivery.
- Ask Congress to expand access to postal product by using retail, non-postal locations that are open seven days a week and up to 24 hours a day (like office supply, grocery, and pharmacy chain stores), and then close post offices where it makes economic sense.
McKinsey also recommended eliminating outdated work rules to bring labor costs in line with the USPS ability to pay, base pricing for market dominant products on demand for each product and cost structure, changing the pricing cap to the market dominant level, and use exigent pricing.
Postmaster General John Potter announced in early March that an exigent rate increase would be sought, and the actual rate case was filed in early July. At 5.6%, the increase is the largest since May 2007 (7.6%). Periodicals and package services have the highest rate of increase.
Industry response was swift, and centered almost exclusively on the idea of whether current conditions constitute the emergency that the USPS claims and, therefore, is a good reason for breaking the CPI cap. Also at issue was the wisdom of raising rates at a time when prices for most goods and services are either holding steady or declining.
Opponents of the exigent rate case argue that a circumstance must rise to the level of national disaster, for example, before it is qualifies as “extraordinary and exceptional.” Because this is the first invocation of exigency, the current rate case is precedent setting and therefore deserving of testing for appropriateness.
The Postal Regulatory Commission is hearing testimony from the USPS as well as receiving comments from industry organizations. Its deadline for rendering its decision is October 4, 2010.
Implementation of IMb
Intelligent Mail is the USPS product for uniquely identifying mail. Originally developed to help the USPS with its performance statistics (end-to-end visibility), Intelligent Mail has been expanded to include mailpiece tracking, confirmation of delivery and change of address information delivered electronically to mailers.
The enabling technology for Intelligent Mail is the Intelligent Mail Barcode (IMb), a machine readable barcode that contains all the information of a PostNet barcode (postal routing), plus sorting and additional services information. IMb allows each mailpiece to be uniquely identified and therefore tracked as it makes its way through the postal delivery system, and allows address correction information and confirmation of delivery to be transmitted electronically to the mailer.
Beginning in May 2011, mailers who seek a postage discount based on automation compatibility and those who want tracking services will be required to use the IMb on every mailpiece. Mail without an IMb will not be rejected by the USPS, but will be charged a higher rate and will not have tracking services available.
Implementing IMb requires several things:
- The ability to print the barcode. Since it is larger than the POSTNET code, it is possible that some mailers may have to invest in new inkjet heads that will address more than an inch of area.
- A mailer’s identification number. Because the IMb contains information about the mailer as well as the mailpiece, all mailers who print an IMb must have an identification number that is part of the IMb. The ID is issued by the USPS and can be obtained by applying through PostalOne!
- Decide on level of service. Intelligent Mail has two service levels: basic and full service. Basic requires a non-unique IMb to be printed on the mailpiece, and IMb on tray labels and container placards is optional. Full service requires a unique IMb on each mailpiece, each tray label, and container placard.
Because the basic service does not uniquely identify each mailpiece, the amount and type of tracking information is limited. If your customers need to know the status of each mailpiece or need delivery confirmation services, then full service is the best option. You will also need to identify a vendor who acts as an intermediary between the USPS (which provides tracking information as basically raw data) and you. Most mail list management software vendors provide Intelligent Mail tracking services.
Earlier this year there was some confusion about whether the IMb needed to be printed on reply mail (business reply and courtesy reply). Initially the USPS had set May 2010 as the implementation date for IMb on reply mail, but it later postponed implementation to May 2011 to allow customers to use up their stock of non-IMb envelopes.
The USPS has a Remittance Mail Advisory Committee that is working on IMb implementation for reply mail. To stay abreast of the latest information, contact your Business Service Representative (http://www.usps.com/ncsc/locators/find-bsn.html) or Mailpiece Design Analyst (MDA) before you print any reply envelopes. If you need the IMb on reply mail, they will guide you.
IMb is coming and will be expanded as the USPS converts mailing processes to more sophisticated, data driven technologies. The sooner mailers begin migrating to IMb, the sooner they will be ready to provide their customers with the benefits of Intelligent Mail.
Nancy DeDiemar is the president of Printing Resources of Southern California, a quick print shop in Upland, CA, offering printing, copying, electronic prepress, and mailing services. Nancy is the co-publisher of Printips (www.printips.com), a newsletter subscription service for printers. Contact her at Nancy@printingresources.com.