The Postal Service was given new pricing and product freedoms with the passage of the Postal Accountability and Enhancement Act of 2006 (PAEA). Seven years after the passage, the Postal Service has yet to use these freedoms to their advantage.

The current mail classification scheme is out-of-touch with the Postal Service's long-term operational needs. Stemming largely from the practice of lumping together mail that has vastly different cost and operational characteristics into classes, the Postal Service has imposed a pricing structure that uses a concept of infrastructure cost-sharing, and imposes proportionally large costs on relatively less costly mail, potentially impacting both overall demand and operational efficiency.

Modifying the framework for defining mail classes is a natural step in modernizing the mail system. Products should reflect how the USPS processes mail and move away from a class-based system that has no bearing on the actual processing, transportation, or delivery of mail. Shape influences how a piece gets processed and handled within the postal network. This, then, affects how much it costs the USPS to produce and ultimately to price the service.

The major differences within operations are how the mail is processed, when and where the piece is accepted, and the service standards associated with the specific category of mail. The Postal Service should capitalize on its newfound freedoms by moving from a class-based product offering to a shape-based product offering. The USPS would set service standards not based on class or deferability but by entry location. The deeper in the network a piece the quicker the service.

The Intelligent Mail Barcode

The Postal Service would create an "a la carte" special services offering through the suite of Intelligent Mail barcodes that would provide the mailing industry with offerings like sealed against inspection, return service, forwarding service, etc. These a la carte offerings would allow pieces to maintain security features if needed while enabling a more streamlined approach to how mail is handled.

For example, if a letter contained a bank statement and the mailer wanted 1-3 day service, it would be entered at a facility that met those service standards and prepared in a manner that would meet all associated presort and destination entry requirements. Its IMb would contain the coding that enabled sealed against inspection and automatic forwarding if the recipient's address had changed. If the mailer wanted or needed return services, it could indicate which services were desired all within the IMb. The mailer would pay for these special service offerings in the a la carte menu. The Postal Service would charge an appropriate per piece charge based on the value within the marketplace.

Transition to Class-Based System

Today, the Postal Service offers an array of products that ultimately deliver a piece of mail from point A to point B. Mailers pick that which best fits their mailing needs, i.e., letter, flat, or package. Mailers also choose a class of mail (First-Class, Standard, Periodicals, or Package Services) based on rules and regulations established by the Postal Service and service performance commitments. Additional services also are available to mailers that occur pre- or post-delivery.

The kinds of mail services that are provided today could easily be accommodated within a revised, shape-based mail class system. For instance, the defining characteristics of First-Class Mail are its priority of delivery, its associated mail services (forwarding, address correction, return), and its sealing against inspection. These could easily be accommodated within a shaped based Letter service, the additional services either needed (sealed against inspection) or wanted (address correction) would be purchased through the IMb a la carte offerings. The same would be true for a shape based Flats and Packages service.

The Postal Service could take it a step further with the addition of Business Services within a shaped based Letter service where they can cluster together value-added services in the a la carte menu to offer segments of customers like financial institutions.

The shaped based system would be segmented by shape, presort, and entry location. Here is just a simple example for Letters.
Each location has existing rules and preparatory requirements that could be maintained to provide consistency as transition occurs within the industry. Service standards are established by entry location today and would be maintained to ensure continuous predictability of delivery. Mailers and Mail Service Providers would then make mailing decisions based on the postal price per entry location versus the cost of presorting and transporting mail to get to a deeper dropship location.

Accompanying this price chart would be the a la carte menu for value-added services that mailers would want or need to purchase based on the contents of its mailpiece. These value-added services would enable the Postal Service to support the needs of the marketplace while maintaining competitive prices.

Benefits of a Shaped-Based System

The simplification of product offering would be a major benefit of a shaped based system. The Postal Service would have fewer actual mail products, but more value-based offerings that would meet the needs of the changing marketplace.

Mailer-applied intelligent mail barcodes, once required on all mailpieces for automation discounts, would allow the USPS to track and trace all mail, monitor the cost and efficiency of mail through all stages of processing and distribution, and identify the actual costs associated with each mail type (class) in a manner that is superior to cost measurement techniques in the past. This would enable the Postal Service to pursue bottom-up costing while helping the industry maintain a lowest combined cost structure.

The current price cap would be maintained, benefitting the industry with predictable and reliable prices. When you set the classes to have more homogeneous cost and handling characteristics, and when you determine costs using the intelligent mail system, you define your costs more precisely and unambiguously. This permits you to price mail to ensure profitability. As long as you strive to keep postal costs within inflationary bounds, the prices you set should always be sufficient to ensure your fiscal viability. And the Postal Service now seems committed to addressing costs in a manner that will ensure they remain within inflationary bounds. Consequently, living within a class-based, inflationary cap should be no problem at all.

As the mailing industry adjusted to the new shaped-based product offering, the Postal Service would see over time that this would reduce upstream mail-related operations and postal costs. Mail Service Providers would be able to consolidate more volume for deeper dropship locations because more mail would qualify under shape based rules instead of class based rules and regulations.

Jessica Dauer Lowrance is Executive Vice President, Association for Postal Commerce. You can contact her at 703.524.0096 or