For the first time since the Postal Accountability and Enhancement Act of 2006, USPS has pushed back the implementation of a price increase. While most in the mailing industry will agree that this was a good decision, any delay does have a negative financial impact for USPS. As with any regulatory situation, there were several factors which led to the delay.
The Push for FSSUSPS has struggled to justify the costs of the Flats Sequencing System (FSS) machines, the latest in its automation arsenal. The mailing industry claims that the machines have slowed mail delivery, increased processing costs, and sometimes shredded mail. The postal service claims that part of the reason that FSS has not reached its efficiency goals is that not enough mail has been properly prepared for FSS processing. Much of that concern was addressed in 2014 when FSS preparation became mandatory for most flats destined for FSS zones. But part of processing efficiency is tied to the price for mail processing, and in 2014 pieces in an FSS bundle could have any one of seven prices, and all seven of those prices were also representing non-FSS mail. This made calculations for worksharing discounts difficult, as all pieces prepared for FSS were prepared together in FSS bundles, but had wildly differing rates.
In the 2015 price filing, USPS proposed new prices solely for FSS-prepared mail. This change would help calculate the costs avoided by using those machines. But how those prices were calculated did not sit well with the Postal Regulatory Commission. In addition to the justification of the new FSS prices in general, there were additional requirements tied up with the exigency surcharge calculation. Because USPS is expected to roll back the exigency pricing later this year, the amount of surcharge applied to each rate needs to be calculated carefully. This is straightforward for existing prices. Due to the merging of prices in FSS, USPS needed to explain how they calculated the exigent amount so that it could be rolled back. USPS explained the methodology in the filing, but their reasoning was not enough for the PRC.
Math Errors Postage pricing is not an exact science. While each mail class is subject to the CPI rate cap, within that class each rate cell can be changed a varied amount. USPS adjusts rate cells to encourage certain mail preparations, drive revenue, or to comply with negotiations it has had with the mail industry. Over the years, the industry has negotiated for consistent pricing signals that incentivize mailer behavior that reduces total combined costs, such as drop shipping discounts and comparative nonprofit discounts. Unfortunately, the prices proposed for April 2015 contained errors with both, which were found quickly by the industry.
New PRC Leadership Acting PRC chairman Robert Taub took the reins in December, and has taken a decidedly different tack than his predecessor, Ruth Goldway. Where former chairman Goldway used her knowledge of the industry and the spirit behind USPS proposals to evaluate them, Chairman Taub has adhered strictly to the letter of each law. Rate proposals have had errors with almost every filing, but those in the past were allowed through as long as the math errors were corrected. This year, even if the math had been perfect, it's hard to imagine the new PRC allowing the rate increase with the shaky pricing logic applied. This is also evidenced by the rejection of a Negotiated Service Agreement (NSA) with Discover financial.
Loss of Pricing Expertise USPS has been losing crucial expertise in all departments as employees and contractors retire. This price filing highlighted the difficulties within the pricing department. Many of the math errors were due to misunderstandings about how pricing for different discounts should be applied. Apparent lack of pricing knowledge transfer, coupled with marketing leadership without a long history of postal market knowledge, was likely a big contributor to the initial problems.
USPS has much to learn from the April 26 price filing. Hastily changing prices and mail preparation without due analysis causes churn for both the mailing industry and within USPS itself. Additional problems were caused when mail preparation language was not available until over two weeks after the prices were proposed. Unfortunately the troubles around this release, along with the pervasive issues with the Mailer Scorecard, are eroding industry confidence in the postal service's ability to work cooperatively in this modern environment.
The Push for FSSUSPS has struggled to justify the costs of the Flats Sequencing System (FSS) machines, the latest in its automation arsenal. The mailing industry claims that the machines have slowed mail delivery, increased processing costs, and sometimes shredded mail. The postal service claims that part of the reason that FSS has not reached its efficiency goals is that not enough mail has been properly prepared for FSS processing. Much of that concern was addressed in 2014 when FSS preparation became mandatory for most flats destined for FSS zones. But part of processing efficiency is tied to the price for mail processing, and in 2014 pieces in an FSS bundle could have any one of seven prices, and all seven of those prices were also representing non-FSS mail. This made calculations for worksharing discounts difficult, as all pieces prepared for FSS were prepared together in FSS bundles, but had wildly differing rates.
In the 2015 price filing, USPS proposed new prices solely for FSS-prepared mail. This change would help calculate the costs avoided by using those machines. But how those prices were calculated did not sit well with the Postal Regulatory Commission. In addition to the justification of the new FSS prices in general, there were additional requirements tied up with the exigency surcharge calculation. Because USPS is expected to roll back the exigency pricing later this year, the amount of surcharge applied to each rate needs to be calculated carefully. This is straightforward for existing prices. Due to the merging of prices in FSS, USPS needed to explain how they calculated the exigent amount so that it could be rolled back. USPS explained the methodology in the filing, but their reasoning was not enough for the PRC.
Math Errors Postage pricing is not an exact science. While each mail class is subject to the CPI rate cap, within that class each rate cell can be changed a varied amount. USPS adjusts rate cells to encourage certain mail preparations, drive revenue, or to comply with negotiations it has had with the mail industry. Over the years, the industry has negotiated for consistent pricing signals that incentivize mailer behavior that reduces total combined costs, such as drop shipping discounts and comparative nonprofit discounts. Unfortunately, the prices proposed for April 2015 contained errors with both, which were found quickly by the industry.
New PRC Leadership Acting PRC chairman Robert Taub took the reins in December, and has taken a decidedly different tack than his predecessor, Ruth Goldway. Where former chairman Goldway used her knowledge of the industry and the spirit behind USPS proposals to evaluate them, Chairman Taub has adhered strictly to the letter of each law. Rate proposals have had errors with almost every filing, but those in the past were allowed through as long as the math errors were corrected. This year, even if the math had been perfect, it's hard to imagine the new PRC allowing the rate increase with the shaky pricing logic applied. This is also evidenced by the rejection of a Negotiated Service Agreement (NSA) with Discover financial.
Loss of Pricing Expertise USPS has been losing crucial expertise in all departments as employees and contractors retire. This price filing highlighted the difficulties within the pricing department. Many of the math errors were due to misunderstandings about how pricing for different discounts should be applied. Apparent lack of pricing knowledge transfer, coupled with marketing leadership without a long history of postal market knowledge, was likely a big contributor to the initial problems.
USPS has much to learn from the April 26 price filing. Hastily changing prices and mail preparation without due analysis causes churn for both the mailing industry and within USPS itself. Additional problems were caused when mail preparation language was not available until over two weeks after the prices were proposed. Unfortunately the troubles around this release, along with the pervasive issues with the Mailer Scorecard, are eroding industry confidence in the postal service's ability to work cooperatively in this modern environment.
