Let’s get caught up on the latest USPS price change.
As everyone is probably aware, the USPS has proposed, and the Postal Regulatory Commission (PRC) has approved new prices for Market Dominant products and Shipping Services for 2017. The actual date of implementation will be January 22. There is good news for many mailers as Market Dominant prices only increase on average about 1%. (And it should be noted, that the only price change in 2016 was the elimination of the 4.3% exigent increase which was expected by everyone it seems, except the Postal Service.) The average increase for Shipping Services is about 4%. However, as with all price changes there are winners and losers. The devil is in the details.
Before going into detail, I think it’s important to applaud the Postal Service for their handling and management of this price change process. There was embarrassment coming out of the 2015 price change as the proposal was remanded a couple times by the PRC. The resulting increases and reaction by mailers was surprising to the USPS as a result of minimal communication with mailers during the process. Thankfully, that all changed in the last 12-18 months as the USPS started preparing for their next CPI price change. Sharon Owens, VP Costing & Pricing, and Steve Monteith, VP Marketing, along with their staffs began listening sessions soon after the 2015 price implementation. Regular meetings were held with mail owners, Mail Service Providers and industry associations. The USPS was very open with their timeline for implementation, and continued the ongoing discussions throughout this year. Transparency was key, and except for the actual prices, we were all aware of the intended changes to pricing structures across all classes of mail. There were no surprises!
First Class Mail
For First Class Mail, the Forever Stamp is once again 49 cents. So everyone who invested in stamp futures at 47 cents when exigent went away will be laughing all the way to the bank on January 22 … profits will be HUGE!
Overall, First Class Mail increases are in line with CPI. But for business mailers, presort prices will generally be lower. For those mailers that benefitted from the 2nd ounce free (same price as 1 ounce) which was implemented a couple years ago, there is more good news. After floating the idea of a 3rd ounce free as well, the Postal Service settled on going all the way to 3.5 ounces. That lines up with the maximum weight for an automated letter.
Standard Mail (which will now become USPS Marketing Mail … more on that later) winners are predominantly flats mailers, specifically those that have larger carrier route volumes destinating in Flats Sequencing System (FSS) zones as well as larger volumes weighing between 3.3 and 4 ounces. Generally, that mail will realize decreases in postage. Why?
Because the USPS essentially reversed the price structure put in place in 2015 which created FSS pricing and non-FSS pricing, resulting in much higher than expected increases for many efficient mailers, while at the same time creating major disruption and added cost to comailing processes. That pricing structure benefitted 5- and 3-digit volumes moving into FSS, but penalized carrier route volumes. The opposite will happen in 2017 with the new (old) pricing structure as carrier route value will be the same regardless of how the USPS is processing it. But while the pricing structure changes, mail preparation essentially stays the same since FSS processing is not going away anytime soon … only the reference to anything FSS in the price charts.
As far as the weight impact, after suggestions and encouragement from us and others, the USPS has changed the piece/pound break point from 3.3 to 4 ounces. That should allow catalogers the opportunity to add pages and/or use heavier basis weight paper, and will reduce the price going forward for volumes that are in that weight category. We anticipate it will also lead to better machinability for what is now considered a “flimsy” flat. It should be noted that as mailpieces in any presort category (including carrier route) exceed the piece/pound breakpoint, particularly at or above ½ pound, prices will be increasing at a greater percentage … in some cases by as much as 9%.
Standard Mail losers unfortunately, can be found in the letter mail category where reductions in dropship discounts contribute to a higher percentages of increase than for flats (lower discounts = higher prices). On the plus side, the maximum weight for automated mail moves to 3.5 ounces (not applicable to booklets/slim jims which remains 3 ounces).
Unlike the 2015 price change, the overall variance in percentage of change is much narrower, averaging about -3% to +6%. And as I mentioned earlier, Standard Mail will be changing to USPS Marketing Mail. This is happening despite pushback from the mailing industry. The change was briefly mentioned in passing by the USPS earlier this year, but no discussion took place with mailers to understand the implications. Since all of what mails as Standard Mail today is technically not “Marketing Mail” (i.e. – Special Interest Publications), there were concerns from that segment of the industry. There was also concern by direct mailers that the new name could change the mindset of the consumer, and lessen response. Despite those concerns, the USPS has stated that they will go ahead with the change and allow 18 months to transition all documentation and indicia verbiage.
There is no change in the price for Detached Address Labels (DALs).
Periodical mailers will experience minimal change in the pricing structure other than the aforementioned FSS pricing with Standard Mail. The overall average price increase is in line with CPI. The results are very similar relative to volumes of carrier route within FSS zones … the greater the volume, the lower the percent of increase and the possibility of decreased prices. And like Standard Mail, the overall variance of decrease to increase is much less than it was in 2015. The difference with Periodicals comes in a price structure that has piece, bundle and container components, and with it, the added complexity in determining the actual impact of the price change.
There is no change in the price for Ride-Alongs.
Nonprofit Standard Mail and Periodicals will see similar results from the price changes.
The USPS is trying to drive more flats to bypass bundle processing in all mail classes. So they have increased the incentive for 5-Digit Carrier Route Pallets (all bundles must be carrier route within a 5-digit area). Volumes to that 5-digit, and the weight of the mailpiece are the primary determinants as to whether those pallets, if not already being produced, can be built at lower weights or through an additional process. And if so, is there enough discount to offset the added production and transportation/logistics cost. More work and analysis need to be done to make those decisions.
Bound Printed Matter
Bound Printed Matter (BPM) price increases have been in line with CPI in the past, and that has not changed in this current pricing proposal for flats or parcels. As with all other classes, pricing for flats reverts back to pre-FSS price structures. There had been some discussion about merging BPM flats into Marketing Mail, and increasing the maximum weight for this “new” class to 20 ounces. BPM parcels would then most likely move into Shipping Services (Competitive Product). Additionally, we were suggesting that BPM should be included in the multi-class co-mail option that currently only applies to Standard Mail and Periodicals. Both ideas were tabled for 2017, but further discussion will continue with a possible target of 2018.
As with all price changes, I’ll add our regular disclaimer. An analysis of every mailing is needed to determine the actual impact as there are numerous variables that come into play. There is no average mailing, and no two mailings are alike.
This is one of the more palatable and common sense price changes we’ve experienced in some time. I’d suggest taking advantage of the opportunities presented in 2017. It could be the calm before the storm … more on that to come.
Joe Schick, Quad/Graphics’ Vice President of Postal Affairs is an advocate for mailers and the print industry and works closely with the USPS and Congress to achieve effective postal reform. Stay tuned for more postal news.