Washington Report

Keeping Members Informed About Regulatory Issues

Contents
June 2000

POSTAL ISSUES

We have a large number of "Understanding the USPS Rate Case" still available free of charge. The 40-page booklet was jointly produced by The DMA, Experian, and R.R. Donnelley & Sons Company, and covers all classes of mail. It includes sections on industry issues, distribution/transportation, deliverability monitoring, address accuracy and improved delivery, address quality incentives, cost coverages and average increases by class and subclass, and "The Incredible Shrinking Automation Discounts." There is also a 12-page section of rate charts.

To obtain copies, contact Scott Speer at 202-861-2420 or sspeer@the-dma.org.

UPDATE ON POSTAL RATE CASE SEMINARS

As we have for past rate cases, The DMA will present a series of seminars to help mailers understand the current rate case. Although exact dates have not been set, the seminars will be held during the first two weeks of September in New York, Washington, DC, Boston, Chicago, and Los Angeles. Those who attend will get a follow-up report as soon as the decision is issued in November. We will keep you posted.

DMA CONTINUES LAST DITCH EFFORT TO ACHIEVE POSTAL REFORM

The DMA has arranged a series of meetings between members of the Coalition for Postal Reform and appropriate members of the House Government Committee and their staffs to urge the passage of H.R. 22. The meetings will continue as long as there is still a chance for a vote on postal reform.

The DMA has also sent a letter from the Coalition to members of the House Government Reform Committee, as well as a similar letter from The DMA alone. The text of the Coalition letter follows:

"We are writing to express our strong support for the passage of postal reform legislation by the Committee on Government Reform.

Since its approval by the Subcommittee on the Postal Service, H.R. 22 has undergone significant revision. In particular, provisions establishing a Private Law Corporation have been dropped in response to strong concerns expressed by postal competitors. The revised bill also contains language assuring the maintenance of lower rates of postage for nonprofit organizations. We urge your vote for this revised version of H.R. 22

A financially healthy and efficient Postal Service is vital to the businesses, organizations and consumers that we represent. It is essential that we provide the Postal Service with the regulatory reform which is necessary to allow it to compete in a communications market radically different than it was just a few years ago and which will undergo even greater change in the near future.

H.R. 22 represents a balanced approach that will help modernize the legislative and regulatory environment that surrounds the Postal Service, which cannot survive far into the 21st century with its hands tied. Major diversions from the First-Class mail stream are already eating at the foundation of postal business, especially the increase in online transactions, as dramatized by the recent General Accounting Office report, which projected declines in First-Class volume by the year 2003.

Passage of H.R. 22 is essential for the continued existence of the Postal Service and for those consumers and businesses that will continue to rely on the Postal Service for the universal delivery of messages and goods. H.R. 22 gives the Postal Service the business flexibility it needs to survive, while at the same time strengthening the oversight functions of the Postal Rate Commission (renamed the Postal Regulatory Commission) to prevent the Postal Service from using its status as both a government agency and a monopoly to compete unfairly against private businesses.

Some opponents have painted a negative picture of postal reform as pitting the power of big government against private enterprise. Nothing could be further from the truth. A major segment of America's business community is supporting H.R. 22 as the only way we can continue to have healthy and viable competition in the communications and delivery markets.

We urge you to support H.R. 22 when it comes before the Government Reform Committee for approval."

The members of the Coalition for Postal Reform are:

ADVO, Inc.
Alliance of Nonprofit Mailers
American Express
Association of Nonprofit Mailers
Association of Postal Commerce
Direct Marketing Association
Envelope Manufacturers Association of America
CMF Transportation
E-Stamp, Inc.
Magazine Publishers of America
Mail Advertising Services Association
Mail Order Association of America
National Association of Letter Carriers of the United States of America
National Association of Postal Supervisors
National Association of Postmasters of the U.S.
National Association of Rural Letter Carriers
National Federation of Nonprofits
National League of Postmasters of the U.S.
National Newspaper Association
Parcel Shippers Association
Pitney Bowes, Inc.
R.R. Donnelley, Inc.
Rodale Press

We urge you to contact your own senators and representatives and ask them to support postal reform. Feel free to adapt our letter to your specific situation, mentioning how lack of postal reform will adversely affect your business.

USPS PLANS OCR UPGRADE

At its June meeting, the USPS Board of Governors approved funding for upgrades that will increase read rates by as much as 8 percent over the next year for all letter mail processed by Optical Character Reader equipment, ultimately saving the Postal Service $64 million a year by reducing the need for Remote Encoding Centers.

The Postal Service's letter automation program is built on barcoding mail and then using those barcodes to automate the processing of mail. About 60 percent of letter mail received by the Postal Service already has barcodes on it. The remaining mail must be barcoded using automation equipment. The most efficient method is to use Multi-line Optical Character Readers which barcode mail on-line as the mail is sorted.

The Remote Bar Coding System barcodes mail that multi-line equipment cannot encode. This system works by lifting the address image of a non-readable mail piece and then passing the image on to a remote computer reader that attempts to resolve it. Images unreadable by the remote computer reader are sent on to a Remote Encoding Center where they are manually keyed.

Recent improvements have focused on increasing "read" rates in the off-line remote computer reader recognition system. The goal of the new upgrades is to resolve images on-line that must currently be manually keyed in a Remote Encoding Center. Most improvements are expected to come from letters with typed or printed addresses since the majority of the mail handled by the Optical Character Readers falls into this category.

REVIEW OF POSTAL AUTOMATION PROGRAM

The announcement of the OCR upgrade (preceding story) included the following survey of the Postal Service's entire automation program, which we include for your information.

The Postal Service's drive to automate the processing of mail is fueled by three factors: volume growth expected to reach 216 billion pieces by the end of 2004; the need to make accurate and timely deliveries for America's growing population; and commitment to keep postage rate increases at or below the rate of inflation.

BARCODES

The postal automation program is based on using barcodes to sort the mail. Barcodes on mail serve the same purpose as the more familiar barcodes on grocery items, except the codes represent addresses rather than product identification codes. Barcodes on mail identify the delivery point; that is, the house, business, or building where the mail is to be delivered.

In March 1993, Postal Service equipment and large volume customers began applying 11-digit barcodes that allow barcode sorters to sort mail into delivery point sequence (DPS) -- the order in which letter carriers deliver the mail. This significantly reduces a carrier's in-office time. The Postal Service expects to save $2 billion annually in carrier costs when letter automation is fully implemented.

LETTERS

Currently, 89 percent of letter mail (First-Class and Standard A) is barcoded under the letter automation program. Today, about 58 percent of letters are prebarcoded by large volume mailers, encouraged by rate discounts. The remaining barcodes are generated by Multiline Optical Character Readers (MLOCRs) and by remote barcoding technology.

Automation equipment that applies a barcode on the face of an envelope or reads a barcode applied by a customer can process letters at a cost of $5.30 per thousand. Manually sorted letters cost about $47 per thousand to process.

Barcoded letter mail volume was over 120 billion pieces in 1999 and is expected to rise to 129 billion pieces by the end of 2000.

FLATS

In 1999, the Postal Service delivered over 51 billion flats. Today about 57 percent of flat mail (oversized letters, magazines, newspapers) is processed at postal plants. This unwieldy mail volume accounts for a disproportionately high percentage of total workload because it is labor- intensive to handle and process. The other 43 percent is presorted to individual carrier routes by large volume mailers.

MATERIAL HANDLING

With the automation of letter and flat sortation well underway, the next major area is the movement of this mail within the plant. The automation of mail handling significantly reduces costs and increases efficiency.

The Tray Management System (TMS) is a state-of-the-art intelligent material handling system used to support letter and flat mail operations in processing plants. In 1999, the Postal Service continued deployment of TMS at existing and new facilities and now have 14 operational systems with installation work underway at another 13 sites. Projections call for a total of 28 operational TMSs by the end of 2000. The Tray Management System: moves the mail to each machine when the machine is ready for it; takes the mail away when the machine has processed it; stores the mail until the next operation is ready for it; and then moves the mail there.

ROBOTIC TECHNOLOGY

Robotic technology is in various stages of development and deployment. As of April 2000, the Postal Service deployed 73 of the 100 Phase I pedestal-style robotic handling systems used for loading letter mail trays into containers for dispatch. During 2000, deployment of an additional 100 robots, called Robotics Containerization Systems, which automatically sort letter trays and flat tubs into containers or onto a pallet for dispatch will be deployed.

Eventually, robots will induct the mail into the automated handling systems within the plant; move mail from TMS onto the sortation equipment; move mail from the sortation equipment into TMS; and take finished mail from TMS and load it into outgoing containers.

INFORMATION PLATFORM

The Information Platform will link systems together to create the capability for the electronic exchange of real time information between customers and the Postal Service, among postal facilities, and within postal operations. The goals of the information platform are to: make it easier for customers to do business with the Postal Service; make the mail visible throughout our processes for customers and operations; provide real-time information to support better decisions that improve resource management; and implement an activity-based costing system.

The platform will leverage the Postal Service's investments in automated mail sorting technology and in information technology infrastructure to capture data about mail and resource usage and share it throughout the postal system and with our customers.

REMOTE BARCODING SYSTEM

The Remote Barcoding System (RBCS) incorporates the latest technology to provide barcoding for script mail or mail that cannot be read by the optical character reader (OCR). RBCS allows virtually all machinable mail to be processed in a barcoded mailstream.

RBCS consists of five major components: the input subsystem (ISS), the image processing subsystem (IPSS), the output subsystem (OSS), remote computer reading (RCR), and the remote encoding centers (RECs).

An ISS-modified multiline optical character reader (MLOCR) or advanced facer/-canceler at the processing and distribution center (P&DC) captures a video image of each mailpiece and sprays an identification tag on the back of the mailpiece. If the image is unresolved or only partially resolved, it is transmitted to the RCR unit. The RCR uses address recognition technology similar to that of the MLOCR except that RCR has more time to determine the ZIP Code information. If RCR is successful, the ZIP Code result and its corresponding ID code are then sent directly to the decision storage unit (DSU).

Images not read by RCR are transmitted to the Remote Encoding Center (REC) via communication circuits. Under control of the image processing unit (IPU) at the REC, the video images are displayed on video terminals. Operators input data from the address information on the video screen that allows the computer system to determine the ZIP Code information. The ZIP Code result and corresponding ID codes are then transmitted back to the DSU at the P&DC.

Once a ZIP Code result is transmitted to the DSU, the mailpiece is processed on an OSS-modified barcode sorter (BCS). The OSS BCS reads the ID code on the back of the mailpiece, queries the DSU for the ZIP Code information for that ID code, and sprays the proper barcode on the front of the mailpiece. The BCS then sorts the mailpiece. The mailpiece, which now has a barcode applied, can subsequently be sorted using barcode sorters, keeping the mail in the automated mailstream.

Deployment of RBCS was completed in 1997 with 250 Processing & Distribution Centers supported by 55 RECs. Approximately 25 billion images are processed annually through RBCS. As OCR technology continues to improve, the workload in the RECs continues to diminish. Due to this reduction in workload in the RECs, there is no longer a need to maintain the original network of 55 RECs. The Postal Service is in the process of closing 28 RECs and consolidating the remaining workload into the other 27 RECs.

USPS AGREES TO CLASSIFY CALENDARS AS "BOUND PRINTED MATTER"

The least expensive postage rate for calendar shipments weighing one pound or more is the Bound Printed Matter rate. BPM must comprise editorial or promotional material, be securely bound, consist of sheets 90% of which contain printing, not be personal correspondence, and not be stationery. Most people would therefore conclude that a typical bound wall calendar - picture on the top, calendar on the bottom - would qualify for BPM rates, but not the Postal Service, until this month.

In its updated Customer Support Ruling #PS-232, the USPS acknowledges that calendars often take different forms, can contain text or pictures, and can also provide blank space for writing notes. Now, "as a rule of thumb, calendar-type material, of which 50% or more of the pages contain textual/editorial/picture, is deemed eligible for BPM rates."

The Support Ruling separately mentions "hybrid" pieces combining book and calendar material, such as appointment books with textual material and blank spaces for note-taking. Such pieces "will not be considered calendars if the separate text/pictorial pages consist of at least 30% of the pages in the piece."

While mailers welcome the more liberal interpretation of the Domestic Mail Manual, they still may encounter acceptance problems in the field, since Business Mail Acceptance literature available to postal acceptance clerks (updated in January 1999) flatly states that "calendars, notepads, appointment books, etc., do not qualify as BPM." To avoid the problem, mailers who encounter BPM eligibility problems with their calendars should be armed with Customer Support Ruling PS-232!

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