Holding the USPS Accountable

As a result of reforms in the Postal Accountability and Enhancement Act, passed in 2006, the U.S. Postal Service finds itself in a position that those of us in private industry know all too well. Printers have to provide quality service at the lowest price (or at least at a reasonable price)—and when costs go up or volumes go down, we can't react by raising prices. But that kind of knee-jerk reaction was the way the USPS operated under the old law.

Postal reform changes that model, and included in the law is a provision that allows the USPS to change rates on an annual basis without going through the lengthy and costly 10-month process at the Postal Regulatory Commission. The USPS has published its new rates that went into effect last month with subsequent changes to follow every May. The catch is that prices for each class of mail can only increase at or below the rate of the average for Consumer Price Index in the previous 12 months. There can be variance within each class, but the total increase must not average more than the rate of CPI. In the latest price change, that equates to 2.9%. The mailing industry has always wanted a system where postal prices would be predictable.

To maneuver under the price cap, the USPS needs to manage costs while growing mail volume and revenues. Given the current state of the economy, the cost of oil and related products, and the volatility in the paper industry causing problems with availability and increased prices, growing volume will not be an easy task in the short term. That was clearly displayed in the USPS First Quarter Financial Report for Fiscal Year 2008 (October-December 2007). In a three-month period that has always been the largest volume- and revenue-producing time, First Class flat volumes dropped 15%, and Standard Mail (the only consistent growth class over the last few years) was 13% lower, than the prior year.

The new law also includes a requirement that service standards for all classes of mail be developed and measured, and that the USPS publish the results. The mailing industry has wanted standards for many years and has worked with the Postal Service through the Mailers Technical Advisory Committee to develop a set of standards that are equitable and achievable. While this is a good thing, it will create added pressure on the USPS, forcing it to meet the standards while at the same time not adding costs in processing and delivery. However, there is a cost involved in the development of the system and its administration. It's still to be determined how those costs will be divided between the USPS and mailers.

USPS also is implementing two of the biggest process/system changes in a number of years: the Flats Sequencing System (FSS) and the Intelligent Mail Barcode (IMB). Deploying over the course of the next few years, their success is dependent on our compliance. But the USPS must keep in mind that our mutual goal is to create and maintain the “lowest combined costs.” Anything less will lead to a further erosion of mail volume—and printing volumes.

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