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Remittance Mail Performance UpAn impressive 41% of repeating participants in the prestigious 2010 Spring Phoenix-Hecht Postal Survey saw delivery improvements averaging almost 3.5 hours, while another 28% saw mail time deteriorate an average of 2 hours. The overall average was an improvement of 0.8 hours in delivery time for the time-sensitive remittance industry, based on participating mailers. The remittance industry has been pushing for a certification process to set standards of excellence for postal facilities with regard to the important category of remittance mail. But Phoenix-Hecht observes that despite the fact that this process has taken a back seat to other priorities, the Spring 2010 survey “shows evidence that the homogeneity hoped for by industry is being achieved without formal certification.” According to Phoenix-Hecht, there was more improvement in sites with a 50 or greater national hour average than sites under that level of performance. This “50 hour” standard identifies excellent performance that significantly exceeds USPS standards for First Class Mail. Phoenix-Hecht found 61% of repeating sites met the standard. In the spring survey, 56% of sites that do not meet the 50-hour standard performed better while 26% performed worse. Also, 20 of the 29 cities for which Phoenix-Hecht produces an average met the 50-hour standard. That’s a two-city improvement over the fall 2009 survey. “The strength of remittance mail performance is indicated by the majority of participants in the survey whose nation average is in fact under 50 hours,” the company said. Looking forward the company does not expect remittance mail to be hurt by reductions in processing capacity that come from falling volume. Diagnostic capability for remittance mail is planned for improvement through a Mail History Tracking System stemming from the unique phosphorescent identifier on the back of envelopes at origin. Actually, Phoenix-Hecht sees the biggest danger for remittance mail coming from the Network Distribution Center project that improves ground transportation of mail by combining classes on common transportation. It will mean a greater percentage of remittance mail will move on ground transportation rather than by air. “For privileged mail recipients, particularly wholesale lockbox processors with unique or 'range unique' zip codes, air transported mail tends to beat delivery standards significantly,” the company said. The Network Distribution Center project should take about two more years to complete. The leading mail time survey for the treasury management industry, the Phoenix-Hecht survey was conducted in late April 2010 and measured mail from 170 originating cities into about 100 sites in 29 destination cities. Reprinted with permission. June 28, 2010 edition USPS Makes Official Plan for Five-Day ServiceUSPS says it will save about $40 billion over the next decade if it can move forward quickly with the five-day delivery plan it filed last week with the Postal Regulatory Commission (PRC). A little over a year after Postmaster General Jack Potter first announced at a Senate hearing that USPS wanted the authority to move to five-day delivery if necessary, the idea is now firmly a part of the agency’s plan to rescue itself from a $238 billion cumulative deficit it projects over the next 10 years. Because the plan would have a nationwide impact on service USPS is required to seek an advisory opinion from the PRC and that’s what the March 30 filing asks for. Regardless of the result of what is expected to be a six-month-plus review process by the regulator, USPS cannot go forward without congressional help. The current fiscal year 2011 appropriations bill relating to the Postal Service includes language requiring that delivery of mail “must continue at not less than the 1983 level.” If Congress removes that language USPS said it will give six-months’ notice before implementing elimination of Saturday mail delivery. Sam Pulcrano, the USPS vice president of sustainability who has been spearheading the effort, said industry has indicated that’s enough time to adapt operations and mailing plans. USPS will need about that much time to adapt its own operations and to reprogram 45 different programs involving everything from payroll systems to Full-Service Intelligent Mail. The sooner the program is put in place the better in terms of savings, Pulcrano told reporters last week. It will save an estimated $3.1 billion a year using fiscal year 2009 as a starting point. Using projections for inflation that will impact cost-of-living adjustments among other things, USPS projects that one less delivery day could save as much as $5.2 billion annually by 2020. The vast majority of the savings come from payroll savings for city and rural carriers. Those two categories make up 36,327 of the 39,938 workhours savings estimated for one less delivery day. Pulcrano indicated there is significant wiggle room for USPS to achieve these workhours within its current arrangements with union workers. He noted that a category of about 25,000 “tech-six” employees would not be needed. They cover the off-day for a group of five separate routes for employees who work a five-day week. Attrition will also be a major source of reductions. About 10,000 city carriers leave through attrition each year, for example. Overtime workers, a category that makes up about 8% of the city carriers, as well as special tech workers who can be let go due to automation such as the Flats Sequencing System will also be sources of reductions. USPS expects implementing the program will have some impact on mail erosion, no doubt encouraging some into electronic substitution. USPS is trying to reassure its customers that it will not have difficulties handling mail load after what will now be three days of delivery shutdown when national holidays occur on a Monday or a Friday, but some mailers are skeptical about that. Shippers are also concerned about fewer delivery days around the holidays, with some requesting that USPS consider Saturday delivery between Thanksgiving and Christmas. Based on quantitative market research done by Opinion Research Corp. to look at the impact of five-day delivery on volume, USPS expects to lose $0.2 billion in total annual revenue, based on a FY 2009 test case. USPS is billing the program as a seven-six-five plan: providing seven days of network processing and transportation, six days of service and five days of delivery. The elements are similar to what USPS has previously announced:
Pulcrano said these plans include as many accommodations as USPS could make to address the most common concerns stakeholders had regarding a reduction in delivery days. He acknowledged that no one wants to have to take this step but that the prospects for volume declines moving forward mean delivery of fewer pieces of mail, and fewer high-contribution pieces – namely First Class Mail – to at least 1 million additional delivery points per year create an unworkable equation for the Postal Service. Reprinted with permission. April 5, 2010 edition Plan Shows USPS Can’t Meet Obligations by Fiscal Year EndA 7.4% reduction in workhours will be the driver of $3.8 billion in cost savings for the Postal Service in fiscal year 2010 but that leaves a projected net loss of $7.8 billion, according to the agency’s fiscal year 2010 Integrated Financial Plan (IFP). USPS said plainly that if the actual results in FY 2010 approximate its plan it will not have enough cash to meet its obligations in October 2010 – specifically a $5.5 billion scheduled payment into the trust fund for prepaying retiree health benefits – and throughout FY 2011. USPS said that its IFP reflects payment of all obligations but it may not be able to make all of those payments. Liquidity is a key concern for the Postal Service. It entered the fiscal year with $4.1 billion in cash surplus in addition to $3 billion in borrowing authority. By the end of the fiscal year USPS forecasts it will have only $200 million in cash and a $13.2 billion debt. Liquidity would be about $6 billion – one month’s operating costs –until Sept. 30, when the $5.5 billion trust fund payment comes due. Under the forecast, as USPS enters FY 2011, it will have only the $200 million cash on hand and the ability to borrow another $1.8 billion (it will then have reached its maximum total borrowing authority of $15 billion). This will provide just $2 billion in liquidity. That is barely enough to cover the $1.9 billion payroll due on the first day of the year, USPS said. Congress granted USPS $4 billion in legislative relief from the prepayment schedule for FY 2009, but made no provision for this fiscal year. The Postal Service has made it clear that it will be educating Congress on the need for longer term relief from this heavy requirement as well as authority to reduce its delivery days from six to five. Consistent with what postal officials have been saying over the past few weeks, the plan looks to the beginnings of a slow economic recovery to start in the second quarter of FY 2010, based on economic assumptions provided by IHS Global Insight Inc., the Postal Service’s economic forecaster. But experience suggests that mail volume lags economic recovery from a recession by about six months. That is expected to hold true this fiscal year as well, suggesting that positive economic change may not yield much in the way of positive volume and revenue in FY 2010. That economic reality, teamed with the ongoing electronic substitution, will cause volume to be off by 6.2% in FY 2010, compared with FY 2009, the IFP assumes. The biggest expected decline is an 8.9% drop in package services, a mix of parcels, books and heavy weight advertising. Next is First Class. USPS forecasts a 7.9% decline here, reflecting the sluggish economy and the move from personal postal correspondence to email and to online bill payment. Standard Mail has grown in market share in recent years but it is also affected by the economy. Standard Mail is expected to decline by 4.6%, but that’s significantly less than the actual 16.5% decline that occurred in FY 2009. Finally, Periodicals are expected to see a 5.9% decline, which is not as sharp a drop as the 7.6% decline experienced in FY 2009. In its ongoing effort to offset these volume and revenue losses USPS will try to come close to the 8.4% reduction in workhours in FY 2009 with its targeted reduction of 7.4%, or 93 million workhours. USPS has indicated initial reductions were easier to come by through combinations of realignment of carrier routes, hiring freezes and incentives for early retirement. Reprinted with permission. December 14, 2009 edition Volume Drop Surpasses Presidential Commission’s ‘Grim’ ForecastThe 2003 presidential commission that addressed the challenges facing the Postal Service was worried about the threat that electronic commerce and technology posed to USPS and to hard-copy correspondence. It was so concerned that the commission predicted a “grim” 15-year financial outlook for the Postal Service. In fact, the reality has been worse than grim. Volumes and revenues in the past few years have sunk below the levels the President’s Commission on the United States Postal Service predicted for 2017 – eight years from now. The commission expected a volume decline of more than 27 billion pieces, it just didn’t think it would happen in one year. It predicted it would take 10 years, from 2007 until 2017, for volume to drop 27 billion pieces to 182 billion pieces. Instead, USPS will see a volume decline of about that much this year alone. The commission states up front that “projecting future mail volumes is an inexact science.” It’s made all the harder when no one anticipates a lingering recession stemming from the collapse of the housing market and the financial services industry – two traditionally mail-intensive industries. The presidential commission predicted that operating revenue would grow slightly each year, but expenses would outpace revenues at some point after 2007. In actuality, the USPS’ year-end statement for FY 2009 (which ended Sept. 30) will likely show that operating revenue declined over the previous year by more than $6 billion. Operating revenue was the same in 2007 and 2008 (about $75 billion) despite rate increases in May of both those years of about 3% and 4% respectively. Expenses in 2009 are likely to be about 3% less than in 2008 – something the presidential commission did not anticipate. While the presidential commission’s volume forecast was off the mark, its larger points remain valid. It said, “Without significant modernization, the Postal Service will have three choices: dramatically roll back service, seek a rate increase of unprecedented scale, or fall even further into debt, potentially requiring a significant taxpayer bailout. “Clearly, the public interest is better served by a strategy that aims instead to root out the substantial inefficiencies and other unnecessary costs apparent throughout the institution today in order to produce a far more efficient and capable 21 st century Postal Service,” it said. Many postal insiders expect Congress will reconsider postal reform in the next year or two. With only a one-year break on its pre-funding payment to the Retiree Health Benefits Fund, Congress might have to tackle this issue again in the future. Further, stakeholders understand that the legislative relief on the payment schedule is only a temporary solution. USPS has argued that structural changes are needed and the Government Accountability Office (GAO) also urged a structural change when it put USPS on its high-risk list this past summer. GAO is hard at work on its study of a new business model for the Postal Service, which it is expected to release in March 2010. This report should serve as the springboard for a policy debate on what a new Postal Service should look like. Reprinted with permission. October 5, 2009 edition Five-Day Delivery Debate ContinuesFrom the opening day of the National Postal Forum to the end, postal officials made it clear that structural change, including possibly a reduction in the number of delivery days, is something the industry is going to have to look at together. Although the dramatic decline in volume is largely attributed to the economy, the consensus is that when the economy improves volume may not completely rebound. So USPS says it needs to start the conversation now with Congress, which would need to authorize the change in delivery days, and with mailers. Deputy Postmaster General and Chief Operating Officer Patrick Donahoe said the Postal Service needs to sit down with industry and start talking about what to do to create a new model. The old model worked well until 2000, but then the revenue per piece per delivery stop started to decline. Today, Donahoe told reporters May 19, there are about 150 million delivery points and that number will continue to grow while the number of pieces at each stop continues to drop. Donahoe said the Postal Service doesn’t want to make additional changes that affect service but structural change will be needed down the line. Donahoe said that there is much discussion about closing processing plants and the agency has studies going on to close mail processing facilities. But the reality is that the majority of the costs are in the delivery of mail, he said. He said that 30% of all postage by dollar volume comes from alternatives to post offices, whether it’s APCs, purchases at the grocery story or Click-N-Ship. There’s a big opportunity for savings there, he said. Right now mailers seem pretty well lined up against the change. For example Netflix, a hugeFirst Class mailer, objects to eliminating a delivery day, particularly Saturday, because so many people like to get their movies in the mail for Saturday evening viewing. And John Campo, vice president for postal relations with Pitney Bowes, said reducing the number of delivery days would dilute the value of the product. Campo said there are a number of other steps the Postal Service can take to shore up its financial situation. He said the agency should revisit its workrules with labor to reduce costs and incentives should be offered for early retirement such as retraining opportunities for postal workers to enter new jobs outside USPS. He added that more can be done to close processing plants and rationalize the network. Reprinted with permission. June 1, 2009 edition USPS Pushes for Financial ReliefUSPS officials are continuing their all-out push for industry support in gaining passage of legislation that would provide about $2 billion in relief to the ailing Postal Service this fiscal year. The general expectation is that the agency will have a $6.5 billion loss at the end of the fiscal year, which includes a cash loss of $6 billion and a noncash or depreciation loss of $500 million. Meeting with reporters May 19, Chief Financial Officer Joseph Corbett explained how the agency can make up this shortfall. USPS started the year with $1.4 billion that it can carry forward and will borrow the maximum amount allowable: $3 billion. That leaves a $1.6 billion cash shortfall. That’s where the push for enactment of H.R. 22 comes in. The legislation would allow the Postal Service to make its FY 2009 retiree health benefit payments to current retirees out of the retiree health benefits fund. That payment is about $2 billion this year. The legislation has a majority of co-sponsorship support in the House and similar legislation will soon be introduced in the Senate. As a separate matter, USPS must, by law, prefund its retiree health benefits fund at a rate Corbett said goes beyond anything in the private sector (see chart). The problem is that under the budget system the Congressional Budget Office uses to determine what programs cost, paying current health benefits from the Postal Service’s benefit fund would “score” and that scoring would have to be made up by a cut somewhere else. Postmaster General Jack Potter has met with the Congressional Budget Office and supporters on Capitol Hill have also been meeting with the White House budget arm to try to work out a compromise. The hope is that if there is a groundswell of support from Congress, the Congressional Budget Office will revisit how it calculates this proposal. The legislation had been scheduled for markup in the House Subcommittee on Federal Workforce, Postal Service and District of Columbia, but it was delayed due to the scoring issue. Subcommittee Chairman Stephen Lynch, D-MA, issued a statement saying the subcommittee needs to wait until the budget office fully scores the legislation. “However, I can assure the Postal Service and the American public that once we return from next week’s recess and have heard back from the CBO, this Subcommittee intends to mark-up the measure at the first available opportunity.”
Reprinted with permission. June 1, 2009 edition System Consolidation Key to Cost CuttingA major consolidation and reworking of the 21 Bulk Mail Centers (BMCs) into Network Distribution Centers (NDCs) is the latest plan to optimize the centers in a time of declining volume and an ongoing trend toward mail introduction deeper into the postal system. Speaking at last week’s Mailers’ Technical Advisory Committee (MTAC) meeting, Bill Galligan, USPS senior vice president of operations, said USPS had been moving forward with a plan to contract out its BMC network but when volume dropped the agency decided it makes the most sense to restructure. He acknowledged there is little detail on the plan at this time but said the agency has to move forward to eliminate excess capacity. Galligan said machines in the 21 BMCs are losing run time because there isn’t sufficient product to put in them. The changes being proposed will also provide reduced benefits from workhours. Under the plan 10 BMCs would be relegated to destination functions and all of their outgoing functions would be consolidated in a next tier bulk mail center. BMC and Surface Transfer Centers containerization and dispatch plans would be combined to eliminate redundant networks and improve use of transportation. Induction of originating products will be aligned into a single ground network. USPS plans to implement a first phase of the approach in the Northeast as early as April. Meanwhile, USPS is moving forward with the political minefield of the area mail processing (AMP) reviews for facility closures. Galligan said after being on hold for about a year the agency can move forward and is looking at consolidations of 30-40 plants. He said he expects this to come with enormous political consequences and “not-in-my-backyard” campaigns as politicians fight to keep facilities and jobs in their districts. “But it’s necessary to do. We cannot have that excess capacity in our system,” he said. USPS is also moving ahead with its dramatic route adjustment process, which involves eliminating 2,500 routes in the January-March timeframe. Galligan said it could impact as many as 30 million delivery points. Presort and carrier route mail will be impacted so he urged mailers to be closely involved in updating address information. The implementation schedule for route changes will be available on the RIBBS website. Galligan said USPS has aggressively moved forward to remodel equipment runs for its 6,000 barcode sorters and other equipment. This has allowed for a massive manpower adjustment in which about 4,000 employees have moved from the day shift to the night shift. Reprinted with permission. February 23, 2009 edition Unprecedented Volume Decline Drives LossThe largest decline in volume in Postal Service history , 4.5%, was the leading factor in a year-end loss of $2.8 billion for the agency. And the immediate future is not much brighter. Speaking at the Nov. 13 Board of Governors meeting, CFO and Executive Vice President Glen Walker emphasized that no economic recovery is anticipated in fiscal year 2009. Volume, which declined by 9.5 billion pieces in FY 2008, is expected to drop 8 billion pieces this year. And rising inflation in 2008 will mean increases in wages and benefits. He emphasized that the volatile economy makes projections difficult. A stunning example is fuel costs. The recent decline in fuel prices after months of skyrocketing prices has been welcome relief to the Postal Service, with its enormous fleet of vehicles, but much like consumers in general, the Postal Service can’t count on the low prices to continue in this time of uncertainty. Postmaster General Jack Potter said that if extraordinary steps aren’t taken, the Postal Service could be looking at a loss of $9 billion in FY 2009. Those steps include seeking help from Congress to reduce the financial impact of prepayments of retiree health benefits, a 100 million workhour reduction (USPS reduced workhours by 50 million in FY 2008); and a $4 billion reduction in costs, which is nearly double the impressive $2.2 billion in cost reductions in FY 2008. USPS is also freezing all officer and executive pay, a move that impacts about 750 individuals. Despite the unprecedented decline in volume, revenue was nearly flat because of the May price increases. Volume was down in all classes except for the relatively small international mail category. First Class Mail saw a 4.8% decline, Standard Mail was down 4.3%, and Periodicals down 2.2%. All together the mailing services group saw volume of 201.1 billion pieces, a 4.5% decline. Shipping services volume was 1.6 billion pieces, a 3.3% decline Reprinted with permission. November 17, 2008 edition Postal Accountability and Enhancement Act (Summary of Key Provisions)Escrow FundAbolishes the escrow requirement and replaces it with a requirement to pre-fund retiree health benefits; outlines a 10-year payment stream. Returns to the Treasury Deparment the obligation for retiree benefits of postal employees that are attributable to their military service. The funds already designated for escrow and any over-funding of the Postal Service’s Civil Service Retirement System liability will be transferred to the new Health Benefits Trust Fund, to begin pre-funding retiree health benefits. Modern Rate RegulationRenames the Postal Rate Commission the Postal Regulatory Commission (PRC) and gives the PRC broad new regulatory powers. Divides postal products into market-dominant and competitive categories. Market dominant products are: The PRC has 18 months to develop new regulations for both groups of products. In developing its market-dominant product regulations, the PRC must take into account 9 objectives – such as maximizing incentives to reduce costs and increase efficiency, creating predictability and rate stability and maintaining high quality service standards – as well as 13 factors. Among the factors to be taken into account are “the value of the mail service actually provided each class or type of mail service to both the sender and the recipient, including but not limited to the collection, mode of transportation and priority of delivery” as well as “the requirement that each class of mail or type of mail service bear the direct and indirect postal costs attributable to each class or type of mail service through reliably identified causal relationships plus that portion of all other costs of the Postal Service reasonably assignable to such class or type.” Increases in market-dominant product rates will be tied to a Consumer Price Index-based price cap; the cap is applied at the class level. The Postal Service is permitted to round rates and fees to the nearest whole integer so long as the effect does not cause the overall rate increase for any class to exceed the CPI. The Postal Service may use any unused rate adjustment authority for any of the five years following the year this authority occurred. Increases in competitive products are not capped; the Board of Governors will set rates under rules developed by the PRC that ensure they cover attributable costs and make a contribution to institutional costs. Competitive products listed in the law are: Ten years after the enactment of the bill, the PRC will revisit the market-dominant rate system and revise it to achieve the objectives and the factors contained in the bill. The Postal Service has 12 months from the date of enactment to file one last rate case under current rules. Exigency language was included whereby the PRC will set procedures so that rates may be adjusted on an expedited basis due to either extraordinary or exceptional circumstances, provided that the PRC determines, after notice and opportunity for public hearing and comment, within 90 days of the USPS request, that this adjustment is reasonable, equitable and necessary. Workshare DiscountsLanguage on workshare discounts defines them as rate discounts provided to mailers for the presorting, prebarcoding, handling or transportation of mail. Workshare discounts cannot exceed the cost the Postal Service avoids as a result of worksharing. Financial Reporting The Postal Service must comply, beginning in 2010, with certain provisions of Sarbanes-Oxley. An accounting system must be developed to allow the Postal Service to separate the assets and liabilities of the market-dominant and competitive product lines. The competitive product line will be required to pay a proxy for a Federal income tax to the market-dominant product fund (proxy because as a federal agency the Postal Service is exempt from such taxes). Service StandardsThe Postal Service is required to establish a set of service standards for its market-dominant products within 12 months. The Postal Service must then develop an annual plan, which it will submit to Congress, to meet the service standards. Network RealignmentThe law urges the Postal Service to expeditiously move forward in its network streamlining effort and keep unions, management associations, and local elected officials informed as an essential part of this effort and abide by any procedural requirements in labor bargaining agreements. The Postal Service plan should include a description of the long-term vision of the Postal Service for rationalizing its infrastructure and workforce as well as how this vision will be implemented. Each year the Postal Service is to report on how postal decisions have impacted this network rationalization plan. Reprinted with permission. January 1, 2007 edition Annual subscriptions to Business Mailers Review can be ordered from: Sedgwick Publishing Company 301.528.0011 |
