Bipartisan Postal Reform Points the Way Toward a Sustainable USPS  

Picture1And now for some good news.

In a rare moment of bipartisan cooperation in the US Congress, the House Committee on Oversight and Government Reform recently passed two bills aimed at overhauling the operations and finances of the United States Postal Service (USPS).

H.R. 5714, the Postal Service Reform Act of 2016, will reform retiree health care benefit funding, reform pension funding , include a Medicare part B premium transition for newly enrolling Postal Service annuitants and family members, transition to more efficient and secure mail delivery, and establish competitive, market-dominant mail rates.

H.R. 5707, the Postal Service Financial Improvement Act of 2016, would amend Title 5, United States Code, and direct the Secretary of the Treasury to invest 25% of the currently available portions of the Postal Service Retiree Health Benefits Fund (RHBF) into index funds.

The bills seem to reverse provisions of the infamous 2006 Postal Accountability and Enhancement Act (PAEA) which legally mandated tens of billions of dollars in annual pre-payments to the RHBF against projected future obligations, which resulted in huge annual losses to the USPS, significantly reduced cash flow, and impaired the management of day-to-day operations. For more depth on the PAEA, see this MailBlogx post from 2013.

If successful in achieving the desired outcomes, H.R. 5714 and 5707 will address three big issues that have severely threatened the sustainability of the USPS in recent years: 1) lack of revenue, 2) inefficiency, and 3) the overwhelming burden of financial obligations to future retirees.

Fingers crossed.

 

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USPS Files for Price Change to Improve Products, Promotions

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Click the photo for more information on the available price cap.

Yesterday, the Postal Regulatory Commission (PRC) received paperwork from the USPS requesting a market dominant price change based on the Consumer Price Index (CPI).

As a reminder, the CPI cap authority is 1.966%.  A helpful tool on the PRC’s website states that the Commission “determines the price cap for any 12-month period by calculating the ratio of two 12-month CPI-U averages that are 12 months apart, subtracting one, and expressing the value as a percentage.”

Information on the PRC’s website notes there will be annual “regular and predictable price changes.”

“On January 27, 2013, the Postal Service implemented a price increase on all market-dominant classes equal, on average, to the applicable price cap limitation.  The Postal Service expects that, in each subsequent year, price changes for all of the market-dominant classes will equal, on average, the price cap limitation applicable in that year,” the homepage states.

Information on the average change in CPI can be found on the PRC’s website.  Information from November 2014 indicated that the 1.966% available price cap for First-Class Mail, Standard Mail, Periodicals, Package Services, and Special Services is from the 1.685% price cap currently available plus an interim unused rate adjustment authority of 0.281%.

A press release issued by the Postal Customer Council stated that “key elements” of this CPI case include the following:

  • Above average price increases to address PRC concerns about underwater products
  • Special Services simplification to reduce redundancy and improve customer ease of use
  • Introduction of a separate Flats Sequencing System (FSS) pricing structure for Standard Mail and Periodicals
  • Introduction of Carrier Route bundle and container pricing for non-FSS flats for Standard Mail and Periodicals
  • Include four promotions (Earned Value Reply Mail, Color Transpromo, Emerging Technologies, Mail Drives Mobile)

If approved by the PRC, this price change will generate $0.9 billion annually and would go into effect in late April of 2015.

More information on the CPI can be found here.

2014 USPS Fiscal Year Recap: Services Increase, Revenue Decreases

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Shipping and Package Services Revenue increased 9.1 percent in 2014 while First-Class and Standard Mail volume decreased by 2.2 billion and 495 million pieces, respectively.

While Shipping and Package Services Revenue increased 9.1 percent this year, the USPS indicated that “legislative burdens and constraints” contributed to an overall 5.5 billion dollar loss in 2014.

In a press release issued today, the USPS reported a $569 million increase in operating revenue from Shipping and Package Services.  Additionally, the organization indicated that increased pricing introduced last January contributed positive revenue.

As a reminder, overall debt loss was $5 billion in 2013.  In 2014, the USPS was affected by many of the same legislative fees that contributed to its 2013 losses.  (Please note: Fiscal year 2014 was October 1st, 2013 to September 20th, 2014.)

“Excluding a one-time adjustment to revenue of $1.3 billion in 2013 resulting from a change in accounting estimate for Forever stamps, 2014 operating revenue would have increased by $1.9 billion,” today’s press release stated.

The required Health Benefit Fund contribution of $5.7 billion was another fee that significantly contributed to 2014 losses.  The USPS also added that $1.2 billion was spent in “non-cash worker’s compensation expense, consisting of $485 million released to changes in interest rates and $697 million of other non-cash worker’s compensation expenses.”

On Monday, the USPS announced a cyber-security breach that compromised postal data; they do not believe fiscal data was compromised or altered in this breach.

Information released today also compared several changes from 2013 to 2014:

  • Total mail volume was 155.4 billion pieces compared to 158.2 billion pieces a year ago, a decrease of 2.8 billion pieces or 1.8 percent.
  • First-Class Mail and Standard Mail volume decreased by 2.2 billion and 495 million pieces, respectively.
  • Operating expenses were $73.2 billion in 2014 compared to $72.1 billion in 2013

An adjustment to required delivery frequency, the authority to expand products and services, integration of the Health Benefit Program to Medicare, and reforming the workers compensation program are several legislative requirements the USPS stated are key to increasing and maintaining positive revenue.

More information is available on the USPS website.  More information on the data breach can be seen here.

USPS Releases Third Quarter Financial Information

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USPS financial woes continue with an overall third quarter loss of approximately $2 billion.  These woes are expected to continue as the USPS is not expected to meet their $5.7 billion prefunding payment for retiree health benefits.

On Monday, a press release from the United States Postal Service stated that revenue from Shipping and Packaging Services increased 6.6 percent and Standard Mail rose 5.5 percent in the third quarter.  Postal increases initiated in January have contributed to a total revenue increase of $424 million this year.

“Revenue continues to improve as a result of the Postal Service’s January mail price increase, successful sales and marketing initiatives, and continued success in growing the package business. Total operating revenue of $16.5 billion increased by $327 million, or 2.0 percent, compared to the same period last year,” the release stated.

Despite overall increases in packaging and mail revenue, the USPS had a $2 billion loss in the third quarter.  Additional financial woes are still expected to hit the USPS late next month when the organization is expected to make a $5.7 billion prefunding payment for retiree health benefits.  In the press release, Chief Financial Officer and Executive Vice President Joseph Corbett stated that the USPS will be unable to make the payment by the expected date of September 30th.  Last April, we reported how this prefunding is affecting the USPS’ overall finances.

As a reminder, the price increase instated in January by the Postal Regulatory Commission is not expected to be permanent.  This specific increase was ruled as a surcharge until $3.2 billion in “incremental revenue” is collected.  This is predicted to happen in the second half of 2015.

As a reminder, the USPS reported a quarter two loss of $1.9 billion.  First-Class Mail declined 4.1 percent and Shipping and Packaging increased eight percent in quarter two.  Detailed financial information on the USPS is available here.  More information on the CPI-based price cap is available on the Postal Regulatory Commission’s website.

Additional Mid-Year Promotions Available for Mailers, Marketers

Starting this month, additional mid-year promotions will be available to encourage businesses to utilize USPS shipping products and technologies.  These promotions are available for Standard and/or First-Class Mail products.

In February, we covered the Branded Color Mobile Technology Promotion, the Earned Value Reply Mail Promotion, and the Premium Advertising Promotion.  These various promotions encouraged marketers to utilize technology in their direct mail campaigns and offered several price reduction incentives for utilizing the service(s).

Starting June 15th, customers can register for the “Color Print in First-Class Mail Transactions Program,” intended to encourage customers to use color ink on bills and statements.  First Class Mail presorts and automation letters sent in IMb full-service mailings can take advantage of this 2 percent per mail piece offer.  Registration ends December 31st; the promotion for those who have registered begins August 1st.

Registration for the “Emerging Technology Featuring Near Field Communication Promotion” also starts June 15th.

“Near field communication is a form of communication between devices such as smartphones, tablets or items embedded with NFC chips, tags or similar technology,” the USPS RIBBS website states.  “Standard NFC technology generally consists of embedding a small chip or other form of technology into a carrier (mail piece or other item) that can be recognized by an NFC enabled mobile device. The interaction is initiated by touching the mobile device on the NFC embedded item or by placing the mobile device within 1-2 inches of the NFC embedded item.”

The registration period for this promotion ends September 30th; the promotion period is August 1st – September 30th.  For further explanation about NFC communication, view the video below.

To view the complete 2014 promotions calendar, visit the RIBBS website.

Update: New Intelligent Mail Package Barcode (IMpb) Requirement Delayed

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Sample IMpb barcode from MailPro newsletter Volumber 4 Number 5.

On Wednesday, the Postal Service announced revisions to the Domestic Mail Manual (DMM), which will require a transmission of electronic documentation for each Intelligent Mail package barcode (IMpb) on all commercial parcels.  This will include piece-level address or zip code information.

According to the Federal Register (Vol. 78, No. 243), this new electronic requirement will help enhance operations.  Barcodes will be scanned through processing equipment and Intelligent Mail scanning devices.

“Full implementation of the Postal Service’s package strategy relies on the availability of piece-level information provided through the use of IMpb,” the Federal Register stated.

With the exception of standard mail parcels, the USPS requires that all commercial parcels have an IMpb.  As a reminder, mailing standards require that each piece sent with an IMpb must use a unique tracking barcode and must include an electronic Shipping Services File ((SSP (Version 1.6).  Each piece must also include the correct destination delivery address or zip code for each record in the SSP file.

According to the Federal Register release, the SSP file is currently required to assist in the routing processes and processes to enable package distribution “without scheme-trained employees.”  A document on the USPS RIBBS website outlines how the SSP is currently assisting with the IMpb process.  This process can be viewed on page 11.

While the USPS announced that the new electronic standard for all IMpb mail pieces will go into effect on January 26, 2014, this has been delayed until further notice.  Once initiated, those who do not comply with the standard will be charged 20 cents per mail piece.  For more information on this delay, visit here.

Should the USPS Go Public?

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Royal Mail went public on October 15.

On October 15, Royal Mail went public at about $5.30 a share.  Will Ashworth, reporter for InvestorPlace, suggests that the USPS can learn from this strategy.

In an article written today, Ashworth highlights the pros and cons of the USPS going public.  One pro he suggests is that an IPO would allow the Post Office to focus on services that are profitable, such as package delivery. Another pro is that the overall value of the USPS could be as high as $30 billion (including debt).  Ashworth points out that this cost is four times the worth of Royal Mail.

BBC UK reported that the decision was made to privatize Royal Mail because they need “access to private capital in order to grow and compete.”  Internet shopping has been more important to Royal Mail’s strategy than letter delivery.

As highlighted in MailBlogx, some terms of the five-year business plan depend on assistance from Congress.  Ashworth lists this as a con – he adds that the Saturday debacle is just one example that shows how Congress would inhibit investors from making money.  Another con he suggests is the mandated 100% pre-funding of pensions and health-benefits, which even the federal government and Fortune 500 companies are not required to do.  This must cease to have an IPO.

CNN also covered the Royal Mail announcement.  Workers at Royal Mail will receive 10 percent of the shares.  The rest will be offered to institutional investors and the public.  The Communication Worker Union opposes the sale over pay and job security.