Monday, August 31, 2015

Standard Mail Flats: Ending the Controversy Without Fixing the Problem

The long-standing controversy over the U.S. Postal Service’s money-losing “Standard Flats” mail is apparently being tamped down in true Washington fashion – not by raising prices, cutting costs, or solving a problem, but by changing a definition.
Flat mail that was sorted on an FSS machine.

By USPS accounting, Standard Flats have been losing money for years, leading to charges that the agency is unfairly subsidizing certain mailers. Last year, the USPS supposedly spent more than 49 cents while earning barely 40 cents on the sub-class’s average mail piece, partly because of a suspiciously large 9% increase in per-piece costs.

But a few days ago, postal officials told the Postal Regulatory Commission that the mail-processing portion of Standard Flats costs will decline by nearly 4 cents because of new requirements regarding mail that is sorted by the Flats Sequencing System.

“Mail destinating in FSS zones . . . that had previously qualified for Standard Mail Carrier Route rates migrated to FSS rates in the Standard Mail Flats product,” the USPS explained. Translation: What had been called Standard Flats hasn’t become more efficient; it’s just that the definition of Standard Flats has been broadened to include lower-cost mail that is sorted on the huge FSS machines.

Because of the FSS change, “roughly 20 percent of Standard Mail Carrier Route flats shifted into the Standard Mail Flats product,” the USPS wrote. “The migrated mail would tend to have different cost causing characteristics than the existing Standard Mail Flats, as the migrated Standard Mail Carrier Route mail tends to come from higher density mailings with more finely presorted containers.”

Undercharging and overcharging
The mail that “migrated” from the highly profitable Standard Mail Carrier Route sub-class, which now constitutes perhaps a quarter of Standard Flats, is also likely to have lower delivery costs than traditional Standard Flats. And, given the Postal Service’s tendency to overcharge for low-cost mail (such as pieces that are sorted into carrier-route bundles) and undercharge for high-cost mail, the FSS pieces are likely to be profitable for the USPS and therefore to help Standard Flats profitability.

Coupled with the USPS-PRC agreement that Standard Flats undergo higher-than-inflation rate increases the next couple of years, Standard Flats could be on its way to breakeven status.

A note of explanation is in order for neophytes who expect postal rates to be logical: You might assume that “Standard Mail Flats” means all advertising or marketing mail that is too large to be an envelope too flat to be a parcel – such as catalogs, flyers, and non-subscriber publications. But it actually is only the portion of such mail that isn’t sorted into carrier-route bundles, which require a minimum of 10 pieces per bundle.

A typical Standard Class mailing of flat pieces contains a mix of both carrier-route and non-carrier-route pieces. So the references to “subsidies” are off base. The real issue is that the same mailers are paying too much for carrier-route mail and not enough for non-carrier-route, non-FSS mail.

Changing the definition of Standard Flats does nothing to solve this fundamental problem. In fact, by bringing Standard Flats closer to breakeven, it will reduce pressure on the Postal Service to make the needed adjustments in postal rates.

Both mailers and the Postal Service would benefit if postal rates provided greater incentives for Standard mailers to shift more flat-shaped mail into carrier-route bundles, which can be accomplished via co-mail, address-list management, add-a-name, and other techniques.

Related articles:

  • Why Offer 30% Discounts on a Money-Losing Product? 
  • A Decade of Postal Mismanagement Is Costing Publishers and Catalogs 
  • USPS Cost Cutting Ain't Cuttin' It, Mailers Group Says 

    Anonymous said...

    Any insights regarding Verso's recent slashing of coated paper production? There are jitters all throughout the timber industry here in Maine. It seems no mill is safe anymore.

    D. Eadward Tree said...

    Your question is of course not relevant to this article. But it's still a good one, so I'll answer anyway. As I predicted in May,, the huge spread between U.S. and European coated-paper prices couldn't last for long. Though the geniuses on Wall Street seem surprised, it didn't take a rocket scientist to realize that the strong dollar, coupled with declining demand for coated paper, would spell trouble for U.S. mills. The only surprise is that Verso/NewPage seems to be doing all of the capacity cutting, rather than the pain being spread among other U.S. mills.

    Anonymous said...

    What does this mean long term for comail strategies at publication print facilities? I am still wondering why the recent RRD split annoucement did not keep comail operations with the Publications group, and thinking these postal moves may have something to do with it. Your thoughts?

    Anonymous said...

    Thanks for your reply. It seems that outside of Sappi, the rest of the coated mills in Maine are too antiquated to survive under this situation.

    D. Eadward Tree said...

    On the co-mail question, the rules and rates for FSS preparation still provide incentives for co-mail. What's not clear to me yet are how great those incentives are and whether co-mail operations have been able to optimize FSS-prep mail. As for non-FSS mail, if postal rates were more reflective of USPS's costs (that is, much higher for non-carrier route and a bit lower for carrier route), mailers would have a greater incentive to co-mail and to do other things to shift more mail into carrier-route bundles.

    As for the RRD break-up, it's true that "logistics" will not be part of the company that will do publication printing. But I haven't seen any specifics indicating whether co-mail falls under that "logistics" umbrella. I think presort, co-mail, co-binding, and selective binding all belong with one company; that company should be the printer, not the trucking operation.

    Robert Mitchell said...

    You say "that the definition of Standard Flats has been broadened to include lower-cost mail that is sorted on the huge FSS machines." But "Standard Flats" has never been defined in terms of its cost or the particular machine used to process it. It seems simply to be non-saturation, non-high-density, non-carrier-route flats, with limitations on the size of the mailing and the size of pieces, and with preparation requirements. If the preparation requirements are met, candidate carrier route pieces have always been eligible to be sent as standard flats.

    D. Eadward Tree said...

    To Robert Mitchell (a leading authority on U.S. postal rates): I don't disagree. But for the Postal Service's cost analyses, Standard Flats refers to flat mail that is not saturation, high-density, or carrier route. The dichotomy is confusing: Standard Flats are unprofitable, but flat pieces that are sent Standard Class are profitable on average (because the losses on "Standard Flats" are more than recouped on the more finely sorted mail). In contrast, for Periodicals there is no such dichotomy, but there is still confusion: Again, the big problem is the losses on poorly sorted mail, but because everything is lumped together all the reports say that the entire class is unprofitable.