The following is a postal perspective by Experian Vice President for Postal Affairs Joe Lubenow. The views expressed are the author's and do not necessary reflect the official views or policies of PostCom.
Leaving aside the possibility of legislative postal reform with all its many variations, there are just two contending strategies for how the Postal Service can muddle through the next decade without the imminent crisis that many predict. The nature of the imminent crisis is held by many to be an Internet-related volume decline, initially focused on First Class transactions. By others it is held to be, in part or in whole, a failure to meet efficiency expectations in terms of costs or delivery.
The first strategy, which we call Theory One, is to re-engineer the processing backbone of the USPS. In the case of Standard mail, this means to transform the bulk mail centers, sectional center facilities, and other processing plants with faster sorting equipment, automatic induction, automatic sweeping, delivery point sequencing and robotics. The result will be that with much less labor, the age of automation can truly begin. This has to work not just for letters, but also for flats and parcels. If it succeeds, the Postal Service would want mail to be directed either to an origin facility or to the facility closest to the destination that has the proper equipment for the bar code sorting and delivery point sequencing. Certainly this facility will not be the DDU. There are far too many, and they have space limitations among other constraints. The Postal Service would want barcoded mail, not necessarily presequenced, within specified physical dimensions, and delivered in many cases to the SCF.
The second strategy, Theory Two, is to bypass as much of the USPS processing network as possible and deliver large quantities of mail to the DDU. Here mail would undergo minimal processing and, without staging or other delays, be delivered forthwith. This has been called the "last mile" strategy. It still relies on the carrier to play a unique role that competing services might find hard to match, but it lessens the need for and dependence on the automated mega-facility. This strategy is applicable for carrier route sorted mail. But it is compatible with automation in that mailer or postal barcodes could still be used on small machines to organize the mail for delivery. These machines might be more collators than sorters, with a small number of output separations. They could accept sequenced inputs from mailers, drop shipped or sent from upstream plants, or sequenced inputs created at the plants.
The USPS has not decided and would have difficulty deciding between these two strategies. But inadvertently or not, the rate case proposals provide mailers with signals that sooner or later are acted on by industry. What signals does the R2000-1 case send to the mailers? We think the signals are fairly clear, and that notwithstanding a lack of consensus in postal management, they point to Theory Two.
The evidence for this contention includes the drop shipping piece rate discounts for Periodicals, which create opportunities for some Periodicals to be drop shipped that had been economically infeasible. The zone spread for Periodicals is also deeper. It also includes the increase in Standard drop shipping discounts. While it is true that the lowered passthrough percentage lessens the potential increase, at the same time that fact shows that there is additional room for growth in these work sharing opportunities. Further, the Standard DDU discount is increased by a larger amount. It includes the new rate structure in bound printed matter, which favors SCF entry and allows for DDU, though local zone is abolished.
What could have been done to make this signal clearer and stronger? For First Class mail, an industry proposal for drop shipping, which was endorsed by industry associations such as the Association for Postal Commerce, was not included in the case. In any event, this concept has its detractors as well as its proponents. For Standard, all mail considered by the USPS to be best processed at the DDU, regardless of whether it was carrier route mail or not, should be given an incentive to get there. Even if the definitions of what should be processed where do change over time, the incentive should be based on what is best in a relatively dynamic sense. For Package Services, aside from drop shipping incentives, additional ancillary services useful to the recipient, beyond Delivery Confirmation, would be helpful.
Can we place all our chips on Theory Two? Clearly not. If large quantities of mail end up bypassing the processing plants, it will relieve a strain on these facilities, even if they are not expanded and populated with robots. But it will still be essential to strengthen the processing backbone through automation with a parallel information structure that is open to the perusal of those with a legitimate interest in the matter. If the Postal Service could clearly articulate its strategy on these issues, maintain its focus during implementation, and keep its ducks in line, including when rate cases are filed, it just might muddle through.