Never a dull moment around the new 4-letter word in the printing and mailing industry—FSS. Yes, it’s actually 3 letters but every time it’s mentioned, an expletive is added!
The latest FSS (Flats Sequencing System) announcement came from the USPS at the National Postal Forum in Nashville a couple weeks ago. It took me this long to write about it because I wanted to avoid adding any of those expletives I mentioned earlier … my blood pressure is back to normal.
The USPS announced that because of open capacity on equipment, it is adding ZIP codes to FSS processing. Let’s dig into this decision and lay out the known facts.
Fact #1 – FSS prices are greater than Carrier Route, but less than 3-Digit and 5-Digit Automation.
Fact #2 – Because of co-mail incentives, Carrier Route now represents the largest percentage of flats (70%+ industry average) being processed by the USPS, so this shift of additional ZIP codes to FSS would mean a significant price increase.
Fact #3 – FSS is more costly to process than Carrier Route prepared mail. The prices would indicate this to anyone with a high school education (Joe Schick – Johnson Creek High School, Class of ’72).
Fact #4 – Carrier Route volume overall has increased from about 40% in 2006 to over 70% today. So whatever volume is shifted to FSS must be processed 2 times (it is a 2-pass process) when it would never have seen a piece of automated equipment as Carrier Route mail. The USPS must save enough on the delivery side to offset that full cost of processing. Is that possible?
Fact #5 – The USPS admitted FSS is a more costly process than Carrier Route prepared mail, or couldn’t prove otherwise as shown in their responses to the Postal Regulatory Commission (PRC) in the Annual Compliance Determination (ACD).
Fact #6 – Volumes of flats continue to decline year over year – amounting to 35% of flats volume since 2007 - which raises some serious questions. What is the magic volume number that would result in operational efficiency? And, can the USPS ever get ahead of the decline to reach the operational efficiencies expected when the $1 billion purchase was made?
Fact #7 – The original plan for ZIPs included in FSS processing was limited in some capacity by the distance from processing (FSS locations) to the delivery units. By adding more ZIPs, the USPS is expanding the radius around FSS locations. That will result in problems meeting delivery service standards, and/or increased transportation costs to meet the service standards. Either way, mailers lose. (See USPS results for Network Rationalization Phase II … increased costs = $60 million+ rather than decreased costs.)
Fact #8 – Despite all the discussions around FSS between the mailing industry and the USPS, we have never seen anything that would give us a warm fuzzy feeling about the ability of FSS to be the low-cost process it was intended to be. It should also be noted that FSS was sold to mailers as a process that would be able to handle any flat that was automation-compatible in 2006 (i.e. up to 6 pounds, 1+ inches thick, flimsies, rigid, poly-bagged, etc.).
Fact #9 – While the USPS is trying to prove a point—or make it look like they are responding to mailers and the PRC in managing the cost of flats—they are disrupting an industry (publishers, catalogers, printers) that has little confidence in anything related to flats strategy. (NOTE: The last Flats Strategy published by the USPS is dated 2008.)
So those are the facts as I know them. And I’ve been working with the USPS on FSS since 2004, and flats in general since the mid-90’s … maybe I’m part of the problem as well!
But getting back to the addition of ZIPs to FSS … after the backlash that ensued when it was announced at the Forum, the USPS has decided to not include the new ZIPs in the labeling lists. That will eliminate the threat of a price increase at this time, since we can continue to prepare the associated volume as Carrier Route and/or 3-Digit and 5-Digit. The USPS will then move the mail behind the scenes to FSS. In the short-term that is a way to resolve the issue, but it makes no sense from a cost perspective. At some point, those ZIPs will have to find their way onto the labeling list and prices will be affected.
Printers, publishers and catalog mailers are working with the USPS on a price fix. We’re suggesting that FSS pricing be the same as, or better than, Carrier Route as promised in 2004. This would probably happen in January as part of the CPI increase. If successful, we won’t care how many ZIPs or how much new volume is added to FSS because it would not impact the prices.
Where’s the blood pressure cuff? Maybe we’ll get this right someday.
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.