Transcript

Chris Lien: 00:00 Hi everyone. I’m Chris Lien, welcome to Industry Corner, a podcast where I discuss postal industry news to help you stay informed. On today’s podcast, we discuss highlights from the US Postal Service’s fiscal year 2019 annual report to Congress, so let’s get into it.

Chris Lien: 00:21 Welcome to the podcast everyone. I’m Chris Lien president at BCC software and today we’re going to talk a little bit about some highlights from the FY 2019 annual report to Congress and the US Postal Service. Recently published, it is mid January right now we’re just a few weeks away from the upcoming Mailers Technical Advisory Committee meetings in Washington, D C and many of us MTACers had anticipated saying our final farewell to postmaster general Megan Brennan. She is going to be retiring. She had announced that, and she’d actually set January 31st as her retirement date, but she graciously agreed that she was going to stay on temporarily as postmaster general while the board of governors finds the next postmaster general.

Chris Lien: 00:59 And I can imagine that it’s going to be a difficult challenge for the board of governors to find the next postmaster general. Not necessarily that there isn’t qualified candidates for that. And I can think of a number of people in the US Postal Service in particular that I think would be great Postmaster Generals. I’m not going to name names, but I definitely have some people on my list, but I can imagine that the board of governors, many of which were just recently appointed and confirmed by the Senate to serve on the board of governors, you know, it takes some time to figure out who do you want running the largest postal delivery network in the world, a delivery network and a Postal Service that handles 47% of all the mail in the world. So I’m sure it’s a big task to do that, but from an industry side and certainly from a BCC Software customer perspective, I really do appreciate that PMG, Megan Brennan is going to stay on. She’s certainly been a great partner for BCC software and I think the industry as a whole. So we certainly welcome PMG Brennan’s additional time before she finally retires, as she said at the last MTAC meeting, to some beach somewhere relaxing with a much deserved retirement.

Chris Lien: 01:59 But what I’d really like to pivot to is the recent report that the Postal Service put forth as part of their annual compliance report to Congress and this sort of summarizes fiscal year 2019 and there’s definitely some concerns with it. I mean first of all mail volume is down and we anticipated that there was going to continue to be some decline with mail volume. We saw a decline of a little over 3% for First-Class Mail®, about 1.8 billion pieces and we saw Marketing Mail decline as well, which is another concern. 2.1% decline for the Marketing Mail and the concern that we have with the Marketing Mail decline of courses that we don’t want to see marketers moving away from direct mail.

Chris Lien: 02:37 Direct mail continues to be the single most effective communication channel for direct communication and as evidenced by Informed Delivery®, which now has reached a point where it’s almost one out of every five households is receiving at least one daily email of Informed Delivery. That’s a great opportunity for direct marketers, so I’ve said it many times before. You cannot do multichannel without direct mail, so we certainly encourage astute and savvy, direct marketers to take advantage of the promise that direct mail has and use that strategically with a strategically timed multichannel digital communication to get the maximum amount of return on investment. Now, the Postal Service’s revenue did go up a little bit. A lot of that is driven by postage, but again, the overarching problem that they have is still the cost to be able to run their network. We saw more delivery points served in 2019 and in 2018 it was 1.2 million delivery points.

Chris Lien: 03:31 Now it’s 1.3 million delivery points for fiscal year 2019 so we continue to grow by 9.2% the number of delivery points that are served by the Postal Service. So that’s the challenge is there’s a lot of delivery points that they have to serve, and so they need to find ways to be able to reduce costs to do that because Congress is certainly not making any adjustments lately in terms of meaningful legislation to help ameliorate some of these costs and these problems with the Postal Service. And they do work on total factor productivity declines. In fact, it has been about flat in 2019 by 26% in terms of the cumulative percentage change since 1971 so they’re continuing to focus on ways to do that. We saw some improvements between 2009 and 2013 but it’s sort of plateaued over that period of time. And the mail volume, as I said before, does decline, but the number of delivery points increases.

Chris Lien: 04:23 And so that also puts additional pressure on the Postal Service in terms of trying to be able to satisfy that universal service obligation and that comes to their strategies as we go forward into next year. They’re looking at ways to be able to hit specific metrics for on time delivery in 2019 single piece First-Class mail for example, two-day we had a 92.05% for the actual on-time delivery, about 92% in 2020 they’re going to be pushing to 96.5 so an increase there. They’re also looking at ways to increase marketing mail and periodicals for the composite score as well. From 89.25% for on-time delivery with that for 2019 getting that up to 91.8% for 2020 so a lot of different ways to focus on trying to improve the overall performance for the Postal Service in terms of their on-time delivery. And one of the exciting devices that they’re using to do that is a new mobile delivery device and MDD.

Chris Lien: 05:20 So they recently made an upgrade in terms of these MDD devices. Think of it like a smartphone that the carriers have with them and they began rolling this out several years ago. And using that as a way to be able to communicate interactively with the carriers. This has reached now a point where these MDD devices are gathering great information. Postal Service often calls this breadcrumb trails where they can track and see where the carriers are going. And in 2019 the postmaster general announced a couple of new focus areas to help leverage the data out of this. And that includes the new vice president of logistics in being able to take a look at specific focus on this. And so by leveraging these new enhanced MDD devices, the Postal Service is going to be able to get that level of granularity that they need to be able to see where are those mailpieces, are they going to be delivered on time?

Chris Lien: 06:11 And I think that holds great promise when we start talking about expanded Informed Visibility®, the mail tracking part of the enhancements that the Postal Service is bringing forward, it would be an amazing to envision an opportunity where we’ve got enhanced daily feeds or hourly feeds, we’ll say, of Informed Visibility data that astute marketers can be leveraging so that we know not just the day that a mail piece is going to ride, but within hours of its arrival, not unlike some of the packages that we look at for arriving at our homes as well so that we know where we’re going to be with that and I can envision and imagine that the MDD devices could also gather additional information that could make logistics and delivery decisions for mail preparation. If I know where that physical mailbox is, not the latitude longitude for example, of the household, but where the actual mail moment is occurring through a latitude, longitude information, for example. That could be very powerful in helping to make a determination from just the delivery location for somebody. Hey, you’re only a block away from this exciting new opening of a restaurant or an opportunity to take advantage of additional marketing capabilities. And so I think these MDD devices hold great promise for the industry and I’m glad that the Postal Service is leveraging actionable data to be able to improve their overall total factor productivity and ensure increased on-time delivery scores that they’re shooting for for 2020.

Chris Lien: 07:34 Now I’d like to talk a little bit about some of the 2020 strategic initiatives that the Postal Service put forth on this. And it really comes into their corporate initiatives that they’re supported in 2019 and what they’re looking to do to expand on that in 2020. It starts with delivery of the world-class customer experience. And that’s a big focus where the Postal Service lately, while they’re waiting for Congress to resolve the, what’s arguably $130 billion issue with the Postal Service, 11 billion is the amount that the Postal Service borrowed from the treasury. So they had $11 billion left to pay back. That was at 15 billion and then the board of governors in fiscal year 2019 started paying down that debt a little bit to 11 billion. But still, no question, the overarching amount of financial burden to the Postal Service is still that pre-funded retiree healthcare benefits. So while Congress is looking for a way to be able to resolve that which they should, the Postal Service is going to continue to focus on trying to deliver the best in terms of customer experience. So they focused on things such as high-quality service, excellent customer support, safe workplace and engaged workforce. And they’re going to continue to focus on that in 2020. They’re going to focus more from the financial health in terms of the equipment and engaging employees with that. Looking to reduce that total factor productivity.

Chris Lien: 08:50 They’re also going to be focusing on three initiatives to do faster delivery, so to accelerate the innovation to maximize the business value. This is where they’re looking for things like Informed Delivery where you can add additional value with mail pieces by strategically timing, digital content that again can be leveraged using Informed Visibility of where those mail pieces are. Helping customers to innovate and create value and increased profitability. This is all about the promotions that we’ve been discussing with the Postal Service and they’re going to continue with the promotions in 2020. Great opportunities to be able to add color, for example, on the mail piece or trans promotional content to help expand the usage of the mail. Leveraging mobile devices to be able to expand the shopping capabilities and they’re going to continue to grow their package platform as well. Packages are still a very important focus area for the Postal Service. They’re certainly seeing a lot of competition now from the other package carriers, so the Postal Service has to continue to expand and focus on what is their package strategy.

Chris Lien: 09:49 And, you know, certainly there’s a pricing element of the package strategy. There’s a delivery aspect that they have. They’ve got an advantage in terms of the last mile and a dependable carrier force that helps to get that package where it’s supposed to be in a predictable manner. I wish some of the other carriers would do that for myself personally cause it’s still kind of seems like an Easter egg hunt trying to find where my package got delivered from my non-postal carrier. But they need to focus on that. And they also need to focus again on the tracking, the mailpiece tracking. So we’ve seen a lot of advances Informed Delivery for the mail pieces. I’d like to see some continued focus on Informed Delivery with the packages too. And I know that they’ve been focusing a lot on that. And then investing in future platforms, uh, optimizing the network platform. This is a subject that had begun a couple of years back with rationalizing the network. They put it on pause for a while and I think part of that was politically driven at the time, but it’s a conversation that needs to begin again. We have a delivery network that was structured based on decades old mail volumes that don’t exist anymore. Postal Service needs to revisit that and they should be revisiting that with the industry as well. New technologies and transportation geocoding capabilities, communication of information sharing between the industry and the Postal Service so that they can have visibility into what trailers are going to be arriving. When do they enter in the yard, breaking the geospatial information. These are all great opportunities for additional information to improve overall delivery. The Postal Service also needs to look at the delivery structure optimization. When we talk about actually delivering the mailpieces, I think there’s a good conversation that needs to be had with that and it’s a balance between workshare opportunities and a more streamlined postal delivery network.

Chris Lien: 11:31 The board of governors has often talked a little bit about that middle mile. How do we maximize the middle mile and I think that’s part of this conversation as well. The postal carriers certainly have the last mile part of that affecting the final deliverance of the mailpiece or the package. Whatever’s involved with that and I think these MDD devices are going to help give us some line of sight into what’s involved with that. The industry certainly has an and strategic role in preparing the most effective containers and grouping of mail pieces and of course address quality is foundational to all of that. So that still is a continued focus area for the industry and we’re anticipating some improvements with the upcoming CASS Cycle O that’ll happen in about 18 months or so, but it’s that middle mile. How does the postal servicing industry work together to make sure that the deliverance of mail containers, the pieces, the parcels are all being done in the most effective manner possible that reduces costs for the Postal Service, gives the data to the industry to be able to leverage that strategically so that we can time the preparation and the induction of those pieces so that we’ve got effective on-time delivery and then use mailpiece tracking and the Informed Visibility program to be able to do digital content that enhances the overall response rate with that.

Chris Lien: 12:42 So those are a few highlights from that. I certainly encourage you to take a look at the fiscal year 2019 annual report to Congress. There’s a lot of great information in there for you to take a look at certain. We’re waiting for the postal regulatory commission to come back after hearing some comments from the industry on their proposal for the 10-year review. The PRC as a reminder to our listeners suggested some expanded pricing authority of the Postal Service. That’s got a lot of people in the industry very concerned because we don’t want to lose the number one thing that we had fought for for postal accountability enhancement act, which is predictability and pricing.

Chris Lien: 13:16 So we need to continue to have a dialogue around that 10-year focus. We need to be responding to the PRC with that and we need to continue to hope that the board of governors now that they have a quorum are going to be able to pick the next postmaster general to serve for the United States Postal Service. And for those of you that like to follow postal law, and I know you do, that would be Title 39, Section 202C if you want to take a look at that. Talks about where the board of governors appoints the postmaster general who serves in an undetermined amount of time at the pleasure of the board of governors and then together the postmaster general and the board of governors select, the deputy postmaster general, who also again serves at the pleasure of the board of governors with them.

Chris Lien: 13:53 So as I wrap up here, a final thank you to postmaster general Megan Brennan. Thank you, Megan, for your partnership, for willing to work with the industry and a constructive dialogue. We didn’t always agree on everything, but you’ve always made sure that we came back to the table and had a good conversation, and I certainly respect that and really appreciate the partnership. So wishing you well on your retirement at the point when that makes sense. I guess as you’re going to continue to provide your dedication to the industry and to the Postal Service. Thanks to our listeners. Thanks for listening to today’s podcast. If you’ve got any questions or comments, please do visit us at bccsoftware.com or give us a phone call. Thanks everyone. Have a great day.