Transcript

On today’s podcast, I recap the many changes since the last podcast including a decision, or actually lack of one, from the Supreme Court on future USPS pricing, a preview of PMG DeJoy’s vision for the largest overhaul of mail processing in decades, and the “aftershocks” from the July 10 price increase.

Welcome to the podcast everyone! 

Happy summer everyone! It’s been a while since the last podcast and this summer has already been anything but quiet. Traditionally, well at least in my recollection, June and July are typically quiet months for the mailing industry. As many of you know, the fall mailing season is the busiest time of the year. The second busiest is usually late July and early August for back-to-school mailings. But this year is indeed very different in that we had a price increase on July 10, more on that in a moment, and a decision or lack thereof from the Supreme Court on the PRC 10-year review and expanded USPS pricing authority.

If you recall, and I’ve talked about this on prior podcasts, the Postal Accountability Enhancement Act passed in 2006 capped the USPS price increase by CPI-U for each class of mail. It also required the Postal Regulatory Commission, or PRC, to completely review the pricing cap and methodology after ten years just to make sure it was covering attributable costs and ensured a viable USPS. Well, the ten-year review essentially stated that the CPI-U cap was flawed in that it did not take into consideration declining mail volume as well as coverage of institutional costs and employee healthcare retirement coverage. Thus, the PRC revised, some would say severely, the pricing methodology to provide the USPS with additional pricing adders.

The mailing industry objected to this and filed a series of motions in DC District Court arguing that the ten-year review did not give the PRC the ability to completely replace the pricing methodology in PAEA that Congress has devised. However, that appeal was overruled, and the National Postal Policy Council filed what is called a certiorari. This is kind of like an appeal, but to the Supreme Court. The basis of the certiorari is that the Executive branch, of which the USPS and the PRC fall under, was unconstitutionally assuming a delegation of authority from the Legislative branch, from which PAEA was created as Law, and thus the pricing adders were an overreach in authority and should be rescinded. Unfortunately for the industry, the Supreme Court chose not to hear the appeal and thus the pricing adders will remain without any further industry appeal possible.

It is worth noting that during the Obama and Trump administration, CPI-U which measures the urban consumer price index was relatively low at around 2%. Sometimes it was even negative. But recently under the Biden administration, CPI-U is at a forty-year high due to inflation. That by itself gives the USPS considerable pricing authority, and when you add on these pricing adders, you see price increases of 6.5% to 8.5% like we saw on July 10. And since inflation seems to continue to rise at levels not seen since the Carter administration, you can already assume that January 2023 will have a price increase of about 4.5%. Of course, that assumes the PMG will raise prices in January instead of banking the CPI authority until July of 2023 when the USPS could leverage the additional pricing adders. If he does that, then we could see a double-digit increase in July of 2023! That’s a substantial increase in postage in just the past 24 months and for some mailers, is untenable.

Personally, I think the PMG will want to raise postage in January in part because he will need the revenue to help fund his massive plan to restructure the USPS processing network. In case you missed it, on July 5 the PMG posted a video on link.usps.com for all USPS employees that outlines his bold plan to transform the USPS processing network into an advanced logistics and distribution network that seems to be focused more on shape and weight than on mail class and content. This transformation is part of the Delivering For America plan, and represents part of the $40 billion investment the USPS is making to right size their network for both mail and package delivery.

There are about 19,000 Destination Delivery Units and the PMG shared in the video that he wants to consolidate much of that into 60 to 75 mega sort and distribution centers. The mega centers would be standardized with layout, processes, docks, equipment, and timing. Basically, he wants to follow the McDonald’s model of consistency and efficiency. And while on the surface I can understand the desire for consistency to reduce operating expenses, I am concerned that consistency of mail processing could lead to less flexibility for mailers to use shape and content to stand out in the mailbox. The OIG did an interesting report back in 2019 on how mail mix matters and they noted that shape is a key factor in terms of reading and responding.

I am hoping the USPS will be able to share more about this bold plan at MTAC. In the meantime, I know there are many questions about how this will change the way we presort mail and strategically induct it into the USPS network. For example, how do the Sort and Delivery Centers (SDCs) fit into this plan? Will they be replaced, or are these mega centers doing some type of pre distribution and consolidation effort first? Can the industry dropship mail into these mega centers? If so, what type of sortation schemes are involved, and can they be mixed class bundles and containers? What type of impact to service levels will we see with this new structure? And finally, will this increase or decrease the amount of workshare discounts that are an essential part of this industry?

Perhaps the most important part of this whole bold transformation plan is for the USPS and the mailing industry to remember this is a public, private, partnership. The USPS needs the mailing industry with our address quality services and presort solutions in order to achieve financial stability and fulfill their universal service obligation, and the industry needs a predictable and stable platform upon which to build our businesses so that together we can bind the nation with direct communication be it newspapers, magazines, catalogs, life saving pharmaceuticals, and transactional documents.

I’d like to shift now to pricing and I’m certain that if you’re listening to this podcast and it’s still July, you’re still probably trying to figure out the impact of the July 10 price increase on your mailings. Let me start of first by saying that the July 10 price rollout was anything but a smoothly coordinated event. And yes, it’s easy to point fingers, but the fact is that there were just too many last-minute changes to labeling lists and sort schemes that resulted in software providers releasing updated technology as soon as we’d all would have liked. We cannot live in the past, but we can certainly learn from it and I am pleased that say that efforts are already underway to try and prevent another rushed release in the future.

The Delivery Technology Advocacy Council has formed or more correctly reimplemented the Postal Early Exchange Committee (PEEC) committee. PEEC is a venue whereby the USPS and the mailing software community can have a much earlier conversation on what the USPS is planning for future sortation changes. It is not meant to be a venue to discuss pricing, but rather to align product roadmaps to ensure a mutual understanding of future changes. PEEC is similar to the MSDG committee, which is also part of DTAC, but MSDG also includes software users and other stakeholders and is at a level of conversation somewhat higher than PEEC. Adam Koester, presort Product Manager for BCC Software, was recently appointed the next MSDG chair and I’m certain he will help lead that team forward in working to avoid the issues with had with the July 10 price increase.

And speaking of price increase, people are already starting to forecast what we may see in January 2023 and July of 2023. With inflation at a forty-year high and approaching levels we haven’t seen since Jimmy Carter was president, CPI-U continues to climb at a rate that will give the USPS plenty of pricing authority. I already mentioned that we could see an increase of 4.5% for January of 2023. And fortunately, the USPS won’t be using any additional pricing adders since I believe those are indexed to a trailing twelve months. But if you roll forward to July of 2023, you could see another 4.5% CPI-U base plus 2% in pricing adders, and then an additional 2% for non-compensatory prices. So, add it all together and July of 2023 could see another 8.5% increase just like was saw this month.

PMG DeJoy said at NPF that he thought the USPS would be in a financially stable situation by 2024. Let’s hope that the bright side of this high inflation is an accelerated pace to that goal. Let’s just hope, though, that there is still enough mail volume left to presort!

Finally, as I wrap up today’s podcast, I’d like to remind our listeners that BCC Software is once again hosting our Information Exchange in Rochester, NY. This user conference is always an excellent venue to shares ideas, learn about the product roadmap in great detail, and let your voice be heard with how we can better serve our customers and help grow your business. This is not a sales event in any shape or form, and in fact is really more of an opportunity for our Product Managers to hear firsthand from our customers how we can help make the solutions better. There is still time to join us, so please visit https://ieuserconference.com/ to register.

And I also want to let you know about an upcoming webinar you should hear about soon. On July 28, I am going to present Mitigating the Great Resignation with Automated Workflows. This is a workshop I presented during NPF that seemed well received and I wanted to present it to a broader audience. During the presentation I will share some success stories of customers that used COVID as a pause of opportunity to enhance their automated workflows. I also share some tips on how to attract and retain key personnel to keep your mailing operation running smoothly and to be future ready for a dramatically changing postal landscape.

Folks, I want to thank you for listening to today’s podcast, and if you’d like to learn more about mail tracking, or how to better automate your mailing workflows, please visit us at BCC Software.com or give us a call. As always, we’d like to know “How can we help?” Thank you for listening to the podcast, and have a great day!