In October, USPS released the price and structure changes for both market dominant and competitive products. If approved by the Postal Regulatory Commission (PRC), the changes will go into effect on January 22, 2017. By reading through the lines, we can deduce some interesting new directions from the Postal Service.

Pricing Overview: Winners and Losers

Prices for “market dominant” mail classes like First-Class and Standard Mail can only be raised up to the Consumer Price Index (CPI) cap, along with any unused cap authority from previous price increases. As such, the prices for these mail classes will increase an average of around 0.8%. This amount may seem insignificant, but with USPS operating costs rising, every bit counts.

For First-Class Mail, the big losers are mailers sending flats or retail-priced letters. The price of a stamp is back up to 49 cents, while the cost for residual single-piece mail will drop a half cent. Volume mailers will also be able to send letters up to 3.5 ounces at the one-ounce rate. For First-Class Mail, volume mailers appear to be the clear winners.

Standard Mail will be rebranded to “Marketing Mail” in an attempt to modernize this product. This name change will have a long implementation period but will start with the postage statement. Prices for high-density/saturation and carrier route flats will be going down, while all other rates will be raising slightly. The maximum weight for flats paying piece rates will increase from 3.3 ounces to four ounces.

Another interesting item in the filing is how drop ship discounts are calculated. According to a recent workshare analysis, these discounts were much higher than the efficiencies gained by USPS. Mailers who deposit their mail at DSCF and DNDC locations will see their discounts shrink a bit, and they will continue to see this discount shrink in the subsequent price changes until it is in line with postal efficiencies.

FSS Pricing Structure Change

FSS has been an ongoing struggle for USPS. The Flats Sequencing System, introduced in 2008, promised efficiencies for processing and delivery of flats, but at a huge cost. Early reports of damaged mail pieces and longer delivery times did not help industry adoption. FSS preparation was mandated for FSS zones in 2014, but mailers could pay the same price they had without FSS preparation.

In 2015, USPS established specific prices for flats destined for FSS zones. This new price was much higher for mailers who had enough volume or saturation to get Carrier Route rates, but lower than most other rates. Many mailers saw this as a de facto price increase, and threatened to use other delivery methods for FSS areas. Some Standard mailers reduced their mailings to FSS zones as well.

In 2017, FSS pieces will revert back to the original prices, giving larger volume mailers some relief. USPS noted that volume to FSS zones was disproportionately lower after the 2015 prices were enacted. This change could drive up volume going to FSS locations, along with incenting co-mail preparation in FSS zones. The Postal Service wants to add more ZIP Codes to FSS processing, so this change will likely enable that without much industry pushback.

USPS Listening to Industry?

Throughout the rate filing, USPS noted mailing trends and mailer feedback on specific mailing products, which indicates that postal leadership are listening to what mailers are saying with words or dollars. But most interesting for me was how early USPS posted this information for industry review. While the official filings were in mid-October, mailers started getting key insights into the changes as early as March. At the 2016 National Postal Forum, most, if not all, of these changes were proposed, and USPS kept the dialogue going throughout the summer. In an unprecedented move, they posted the changes, complete with Domestic Mail Manual (DMM) edits and postage statements, weeks before the language was officially posted to the PRC. This helped vendors and mailers to analyze and critique the changes early, likely avoiding the usual last-minute panic over the holidays as clarifications are released. Overall, the initial handling of this rate case has been very positive.