Joe Schick
Director of Postal Affairs

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USPS ... Price Your Way to Prosperity

Saturday 5/15/2010

Let’s make it clear that we do appreciate not having to deal with any postal price increase in 2010. But truth be told, the USPS would not have been able to raise prices in 2010 anyway since CPI-U was negative.

Let’s also make it clear that any price increase in 2011 will be difficult for mailers to absorb. A price increase above CPI-U as will be proposed in the upcoming USPS exigent filing would be unjust, possibly not lawful and will put the brakes on any positive momentum (albeit small) that we’re finally starting to experience. So what’s the Postal Service to do? If Congress would do the right thing and correct the USPS’s pre-payment schedule for retiree heath care as well as returning the reported overpayment of pension funds ($75 billion is the number) to the USPS, we wouldn’t be talking about an exigent price increase. The Postal Service would have enough money to run the business while making their needed changes to ensure viability for the long term. I know that the mailing industry is doing its part to try and make that happen.

In the meantime, there is a way to use pricing in a positive way to drive business and revenue while supporting processing, distribution and delivery efficiencies. That’s not a simple proposition, but up until now the Postal Service seems content to use simple fixes where complexity may be a better strategy. To their credit, the USPS did implement postal sales in the last year that resulted in small but positive growth in volume and revenue. Despite that, they have publicly stated the Summer Sale in 2010 will be the last targeted timeframe event. Instead, they would like to create ongoing pricing initiatives.

My suggestion would be to create what I will call a “hybrid” price for the most efficient mail. That doesn’t mean eliminating the current rate structures. My goal is to:

1) Provide an opportunity for our customers to further reduce postal costs.

2) Provide the Postal Service with mail that is most efficient to process and deliver based on cost coverage data.

3) Eliminate/reduce volumes of mail in categories that are inefficient for the Postal Service to process and deliver based on cost coverage data.

4) Further incent mail preparation that plays into the strengths of processes and technologies already supported by Quad and other Mail Service Providers (MSPs).…comail, copalletization, commingling and dropship.

5) Continue to strive for a “lowest combined cost” model.

How would I do that? We’re led to believe by the USPS that for flat mail, carrier route is still, at this time, the most efficient presort to handle. We also know that mail prepared on SCF level pallets and entered (dropshipped) at the SCF is very efficient. So if those are true statements, why not create a single price that is dependent on all those characteristics (carrier route bundles on an SCF pallet dropshipped to the SCF) and is priced lower than the corresponding current workshare discounts?

What would happen if this was implemented? MSPs would see more utilization of processes like comail that are already in place, and those that have not invested in that equipment or technology would see an increased ROI, allowing them to justify the decision to offer those services. More providers offering the services make it available to a larger audience of mailers, eliminating the argument that only the big guys can do it. By reducing postal costs, customers would have more spend and be able to increase volumes. The Postal Service would be processing more mail that is cheaper to process and would realize greater volumes and overall revenue. And this model can be easily transitioned to FSS when pricing and mail prep changes are implemented in the future. Could it be applied to letters? Why not? Even though letter mail is much more automated than flats today and carrier route would not be in play, I would think there could be an opportunity to use similar logic.

Is there an easy way to make this happen? Given the costing and pricing formulas the USPS uses in crafting their rate structures, probably not. But that shouldn’t be a reason to not consider this suggestion. It’s not new. I proposed this to the USPS Mailing & Shipping Services group and the PMG prior to the 2009 Summer Sale (more than a year ago), but the lack of response means one of two things: I really come up with stupid ideas that don’t justify a response (I can see my friends and colleagues heads nodding!), or this doesn’t fit in the “how can we come up with the next Netflix idea without doing any work” category. I wish someone from the Postal Service would at least tell me which it is so I can focus on making it happen, or I can start thinking about the next stupid idea.