Sunday, October 16, 2016

New Postal Rates Will Benefit Some Publishers and Printers

Mail that's been sorted by an FSS machhine.
A quiet boycott by some mailers helped persuade the U.S. Postal Service to change how it charges for publications, catalogs, and other flat mail.

As a result, many mailers will pay lower postage bills next year, printers will earn more money from their co-mail programs, and the USPS is likely to benefit as well.

The USPS announced on Wednesday average rate increases of slightly less than 1% for First-Class, Standard, and Periodicals classes, to take effect on January 22. But some customers, including the most efficient mailers of magazines and catalogs, will apparently see their postage bills drop.

The new rate structure will do away with a change first introduced a year and a half ago – separate Standard and Periodicals rates for ZIP codes served by the Flats Sequencing System. FSS rates are higher than rates for non-FSS pieces that are in carrier-route bundles but lower than other non-FSS rates. There was a logic to the separate FSS rates, but they backfired for the USPS.

“Many mailers who previously paid Carrier Route rates for their FSS volume experienced an above average price increase after the new rates were introduced in May of 2015,” the Postal Service said in explaining the new Standard Class rates.

Rate change led to partial boycott
“Since then, FSS volume has declined faster than the volume in other categories of flat-shaped mail” because catalog companies “have significantly curtailed the number of pieces sent to potential new customers (prospecting pieces) in FSS zones. Additional feedback indicates that other flats mailers may be engaging in similar cost mitigation strategies to avoid sending certain pieces in FSS zones.”

Periodicals mailers have little opportunity to engage in similar FSS-avoidance schemes. But publishers, like cataloguers, were talking of legal action a few months ago to prevent the Postal Service from shifting more ZIP codes to FSS, arguing that would in essence be an illegal rate increase.

The new rates would eliminate that controversy. Standard and Periodicals rates will be identical in FSS and non-FSS ZIP codes, so the USPS can move forward with shifting more areas to FSS without pushback from its customers.

The additional volume is exactly what postal officials say the giant FSS machines need to run efficiently. And by restoring some of the incentives to co-mail, the new rate structure should result in flat mail being presented to the USPS in more efficient packages and closer to the point of delivery.

One  failure, one success
Two major investments have been made this century in reducing the costs of handling and delivering flat mail pieces – USPS’s $1.4-billion Flats Sequencing System and the publication-printing industry’s massive expansion of co-mailing.

The FSS so far has failed. But co-mail – consolidating mail from a variety of customers in a way that reduces both the mailers’ and the Postal Service’s costs – has been a huge success.

Such a success, in fact, that it has undercut the ROI of FSS. Thanks to co-mail, more than 70% of flat Standard and Periodicals mail going to non-FSS zones is in carrier-route bundles, up from less than 50% when FSS was first planned. That means much of the Postal Service’s expected savings from FSS have already been achieved via co-mail.

By reducing the incentives to co-mail, the FSS rates actually undercut what the printers achieved. But the January rate structure will restore and actually enhance the incentives to co-mail.

For example, the Periodicals piece rate for copies that are in carrier-route bundles will not change, but the rate for copies in the next-best category will rise by more than 3%. That means the minimum savings from promoting a copy to carrier route will rise from 9.8 cents to 10.7 cents. Printers that use co-mail and other techniques to bring about such shifts typically get a share of their customers’ postal savings.

For publishers that have a high percentage of copies in carrier-route bundles, the savings from eliminating the FSS rates will outweigh the higher rates for less efficient copies – resulting in lower average postal rates.

The picture for Standard flats, such as catalogs, is more complicated. But again it appears that the incentives to improve mail sortation will be greater and that the most efficient mailers will enjoy lower postal bills.

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