Washington Report

Keeping Members Informed About Regulatory Issues

Contents
October 2000

POSTAL ISSUES

PRC WILL RELEASE RATE CASE DECISION NOVEMBER 13TH

The Postal Rate Commission will announce its Recommended Decision on the rate case November 13th, and we will pass the information on to you immediately. We expect the Board of Governors to act on the decision at their December 4th meeting, and the most likely date for implementation is January 7, 2001.

NONPROFIT RATE RELIEF BILL PASSED

In the nick of time, both the House and the Senate have passed the necessary legislation to prevent nonprofit postal rates from rising above commercial rates, which would have been unavoidable under the existing Revenue Forgone Reform Act, and the bill has been signed by the President.

INTERNATIONAL POSTAL SERVICES THREAT

As we notified you last Friday, United Parcel Service has been trying to get an amendment added to one of the remaining appropriations bills that would be extremely harmful to the Postal Service's ability to provide international mail service. The proposed amendment, sponsored by Roy Blunt (R-7-MO), has not been attached to any bills yet, but as long as Congress remains in session, anything could happen, and The DMA is monitoring the situation closely.

You can still call, fax, and/or e-mail your senators and representatives to express your strong opposition to the Roy Blunt international mail proposal.

If you are unsure how to reach your Senator or Representative, go to http://www.house.gov/writerep/ and http://www.senate.gov/contacting/index_by_state.cfm.

If you have any questions, contact Dick Barton (rbarton@the-dma.org or 202-861-2416).

BAD FINANCIAL NEWS FROM THE USPS

The Postal Service has announced that it expects to lose $480 million dollars in Fiscal Year 2001, which started in late September, in addition to the FY 2000 loss of $300 million, according to the October 23rd issue of Federal Times. A loss during the first year of higher rates would be extremely unusual, and two years of red ink after four or five years of profitable operation represents an alarming trend. The loss could be even larger if the Postal Rate Commission recommends lower postage rates than the USPS requested or if the labor negotiations now under way result in a greater increase in labor costs than postal management is anticipating.

Other contributing factors to the Postal Service's financial problems, according to sources quoted in the Federal Times article, include rising workers' compensation payments, higher health benefit costs, and a growing debt load. In addition, the annual increase in the number of new addresses (which necessitates hiring 4,800 new letter carriers every year) is not matched by increased volume to cover the cost.

Some observers are starting to predict another rate case as early as 2001, which would result in new rates in early 2002, only a year after the upcoming rate increase.

A related bad sign is the Postal Service's decision to delete from its five-year strategic plan the goal of keeping rate increases below the rate of inflation (see MTAC highlights below).

GAO REPORT ON USPS FUTURE CAUSE FOR CONCERN

At the House postal oversight hearing held last month, the General Accounting Office released a sobering report on the challenges facing the postal service, entitled "U.S. Postal Service: Sustained Attention to Challenges Remains Critical." Excerpts from the report summary:

The Postal Service faces an uncertain future. Although the Service has slightly improved its overnight First-class Mail delivery performance this year, improved productivity, and implemented cost-cutting measures, it has encountered increasing financial difficulties as mail volumes have grown more slowly than expected and as postal costs have been difficult to restrain. The Service has reported that it faces significant threats from electronic substitution and is planning for declining mail volumes, especially in First-class Mail, in the coming years....[a]lthough it is difficult to predict the timing and magnitude of further mail volume diversion and potential financial consequences....

A key oversight issue for the Service, Congress, and the American people is whether the Service is heading for financial shortfalls that could, in the long run, hinder its ability to carry out its mission of providing affordable universal postal services that bind the nation together....

Several continuing challenges facing the Service include improving productivity, controlling costs, enhancing revenues, and improving labor-management relations. Long-term increases in productivity will be essential for the Service's future success....[USPS] productivity [has] increased...only 1.5 percent over the past decade. Questions for continued oversight include how and when the Service expects to achieve breakthrough productivity. Another issue is whether the Service, unions, and management associations will be able to find common ground to address long-standing problems in the workplace that may impede the Service's ability to improve its productivity.

GAO also has continued concern about the quality and transparency of the Service's performance information....

The full 27-page report can be downloaded from the GAO web site (http://www.gao.gov/, go to "GAO Reports").

PMG ANNOUNCES NEW OFFICER APPOINTMENTS

Postmaster General William J. Henderson has announced the following new senior management appointments:

Jack Potter is moving up from the position of Senior Vice President, Operations, to replace Clarence Lewis as Chief Operating Officer and Executive Vice President.

Richard J. Strasser, Jr., acting Chief Financial Officer and Executive Vice President since May, has been appointed to the position permanently.

Donna M. Peak has been named Vice President, Finance, Controller. She previously served as manager, Compensation, Employee Resource Management, and has been serving in an acting capacity as Vice President, Finance, Controller, since May.

Michele C. Purton has been named Treasurer, Vice President, Finance. For the past year, Purton represented the Postal Service in Stanford University's Sloan Fellow's program as a Postal Career Executive Service executive-in-training.

Paul Vogel is assuming the duties of Vice President, Network Operations Management. He has been serving in an acting capacity since April. Vogel's most recent permanent assignment was Manager, Operations Support, Great Lakes Area.

Allen R. Kane is assuming a new role as Senior Vice President, Future Business Design. He was formerly Chief Marketing Officer.

John Nolan, Deputy Postmaster General, is assuming additional responsibilities as Chief Marketing Officer.

CHANGE IN BRM CARD THICKNESS REQUIREMENT

As of January 10, 2001, business reply mail (BRM) permit holders must comply with a new standard of minimum thickness for BRM cards. This change was part of the R97-1 omnibus rate case and was previously announced in the July 14, 1998, Federal Register and the November 12, 1998, Postal Bulletin. A two-year transition period, beginning January 10, 1999, was allowed for full compliance. The new standards can be found in Domestic Mail Manual (DMM) S922.5.0, which can be accessed at the Postal Explorer Web site (http://pe.usps.gov/).

Effective January 10, 2001, prebarcoded BRM pieces that measure greater than 4 1/4 inches by 6 inches must meet the minimum thickness requirement of 0.009 inch. According to the USPS, this brings standards for prebarcoded BRM cards into alignment with standards for all automation cards (see DMM C810.2.1).

This requirement ensures that prebarcoded BRM pieces will be sturdy enough to be successfully processed on automation equipment and minimizes the potential for damaged pieces. Engineering studies have shown that cards 4 1/4 inches by 6 inches by 0.007 inch can be successfully processed on automation equipment. However, pieces larger than 4 1/4 inches by 6 inches must be at least 0.009 inch thick to be successfully processed.

This thickness requirement applies only to prebarcoded oversized postcards. Mailers have the option of saving money by using a smaller card (3 1/2 inches by 5 inches up to 4 1/4 inches by 6 inches by 0.007 inch), which would be returned at the First-Class Mail card rates ($0.20, or $0.18 for qualified business reply mail (QBRM)), whereas oversized cards (greater than 4 1/4 by 6 inches) are returned at the First-Class Mail letter rate ($0.33, or $0.30 for QBRM).

If BRM permit holders authorized for QBRM change from letter rate (oversized cards) to card rate (smaller cards), they must re-apply for QBRM authorization using PS Form 6805, Qualified Business Reply Mail (QBRM) Application, and get a new ZIP+4 barcode for the card rate pieces. PS Form 6805 is available on the USPS Web site (http://www.usps.com/).

STANDARD MAIL DELIVERY WINDOWS

The USPS has published delivery guidelines to help mailers estimate how long it will take mail to be delivered. Delivery times depend on the level of presortation, the mail container used, and the type of drop-ship destination, as follows:

As usual, the USPS accompanied this information with the statement that "[t]hese guidelines do not imply any promise or guarantee."

The Postal Service has announced several significant enhancements for its premier international expedited service: doubling the nationwide retail availability of the service, adding package delivery to what had been a "documents only" service, and changing the name to Global Express Guaranteed (GXG). This service was formerly known as Priority Mail Global Guaranteed (PMGG). PMGG was launched through a strategic alliance with DHL Worldwide Express, Inc., in April 1999.

GXG is now a permanent service (provided by the Postal Service in cooperation with DHL) offering date certain delivery to more than 200 countries and territories worldwide, including China. The Postal Service handles GXG domestically with DHL providing international transport and delivery. GXG is now available at about 20,000 post offices nationwide.

GXG packages will be manifested as they enter the DHL system to expedite commercial customs clearance and enhance the delivery guarantees. The USPS announcement noted that GXG service still offers the lowest published rates in the market.

The September 18^th issue of Postal World offered six useful and practical tips to reduce bundle breakage, which are reprinted with permission in abbreviated form below.

Generally, stay away from sacked packages and instead opt for bundles on pallets whenever possible to prevent your packages from breaking apart and causing your mail to be delayed, damaged, or even destroyed.

Sacked Periodical/Standard (A) packages break apart 17.5% of the time compared to only 1.1% of the time when the periodicals are packaged on palletized bundles, according to the results of a series of examinations over a year by the Mailers Technical Advisory Committee's Package Integrity Work Group. Worse, when sacked pieces alone were tested recently, they broke over 50% of the time-whether they were secured with string, rubber bands, straps and/or plastic wrap, according to results released at the most recent National Postal Forum. Here are 6 tips to prevent breakage:

1. Go with minimum weight pallets: Cut sacking to the bone by using software modeling to create the maximum number of pallets. Use the lowest weight per pallet that USPS allows-250 lbs. More pallets generally mean fewer sacks by knocking down residual.

2. Don't skimp, use quality twine or strapping. If pieces are light and flexible, envelop the package with high-grade stretch/shrink wrap and make sure the bundle is fully covered - don't leave "bulls-eye" open ends. The idea is to create as tight and secure a package as possible.

3. Don't build bundles over 20 lbs. Even when the regs allow you to do it, don't. They're far more likely to break and overweight bundles bog down USPS Small Parcel and Bundle Sorters (SPBCs), thus delaying delivery.

4. Visit your local P&DC and/or BMC, especially when you know your mail is being processed, so you can see which kinds of bundles fall apart.

5. Don't build tall bundles if you can avoid them: During the most recent staged test, bundles of 1"-2" had higher rates of integrity than 4"-6" tall bundles.

6. Use counter-stacking. When you have pieces that are thicker at one end alternate stacking to keep the stack as level as possible. This helps maintain a tight bundle by evening the tension of securing materials.

Postal World can be reached at 301-287-2204 or ucg.com, and publisher Marcus Smith can be reached at 301-287-2204 or msmith@ucg.com.

Postal World (301-287-2700 or ucg.com) reports that a federal judge has ruled in favor of Emery Worldwide in its contract dispute with the Postal Service, and as a result, the USPS could be out millions of dollars in additional payments to Emery.

Emery Worldwide has been operating both a dedicated air network and a special group of Priority Mail Processing Centers for the Postal Service, but the two parties have been arguing over Emery's interpretation of their contract's provisions on pricing for transportation and processing of Priority Mail for Fiscal Years 1999 and 2000. The USPS had until October 12^th to comply with the judge's ruling. The judge did not favor dissolving the contract, which Emery wanted, but ordered the two parties to continue meeting to resolve the issues.

Meeting in Washington, D. C., earlier this month, the Mailers Technical Advisory Council discussed a wide variety of important issues. The highlights below were provided by Jon Mulford, The DMA's postal consultant.

1. Informing Mailers Of Irregularities In Mail Preparation

   The Mail Irregularity Feedback Work Group will develop methods to inform mailers when USPS field personnel encounter mail preparation errors undetected when the mail was accepted. Currently, about 85 to 90% of the overall problem arises from broken bundles, prepared in sacks.

   The key hurdle for the USPS is identifying the owner of the mail, especially if an independent lettershop prepared the mail. Also, the USPS hasn't yet decided which of its departments would transmit the notifications.

   In response to a question, the USPS said that there was a possibility that the system could be used to assess postage penalties against mailers if the mail hadn't been prepared properly.

2. Usps May Lose Money In FY 2001; Removes From 5-Year Plan The Goal Of Keeping Rate Increases Under The Rate Of Inflation

   The USPS expects to report a loss of $100 to $150 million, in FY 2000, just ended. Looking ahead, despite only a minor change in expected volume, a rate increase due in January, 2001, and a 2.15% increase in both Total Factor and Labor Productivity in FY 2000, the USPS is forecasting a slight loss in its fiscal year ending September 30, 2001.

   The gloomy forecast reflects the uncertainty from upcoming union negotiations, as well as an anticipated 10% increase in workmen's compensation costs. Responding to a question, the acting chief financial officer, Richard Strasser, said that the possible filing of a rate case in 2001 would depend in part on the outcome of the labor negotiations.

   In a related development, the USPS has quietly removed from its five-year strategic plan the goal of keeping rate increases below the rate of inflation: a break from longstanding tradition that doesn't bode well for holding down future rate increases.

3. Standard (A) Delivery Performance, Fall Mailing Season

   The USPS considers the period from October 7 to November 17 as the peak mailing season; October 21 to 27 should see the heaviest weekly volume. The USPS goal is to perform better than it did in the same period last year, a goal which, so far, has been met.

   The USPS has improved its communications with the field and is using the Inspection Service to help in observing mail processing conditions. Mailers are advised to routinely check the processing status of various postal facilities: information which is regularly posted on the Web.

4. Electronic Address Corrections

   The ACS workgroup is midway through a test in which all undeliverable mail that warrants an address notification, or forwarding, is sent to a CFS (forwarding) unit: a step which should improve the overall accuracy of the process by transferring decisions from local delivery personnel to postal employees with more experience with "nixies." The group also is considering reducing the 20-odd reasons for nondelivery to a half dozen or less, as well as establishing a new endorsement which provides more specific instructions to delivery personnel.

   The biggest current problem is providing mailers who subscribe to the ACS service with address information by hard copy, at 50 cents each, instead of electronically for 20 cents: an error costly to both mailers and the USPS.

5. Designing Error-Free Business Reply Mail

   The USPS expects to provide mailers with the ability to design Business Reply Mail formats over the Internet, with the knowledge that the format of the final design will comply with postal specifications. The service, scheduled to begin next February, will allow the mailer to print the format, which can then be sent directly to the printer of the mail pieces.

6. Delays In Processing Business Reply Mail

   The USPS has found that business reply mail has a far poorer record in meeting service commitments than does courtesy reply mail. In examining how mail was processed in a Baltimore facility, USPS personnel found that slower BRM processing resulted both from the use of inefficient procedures and from the accounting functions needed to calculate the postage due.

7. Assessing Postage Penalties After The Mail Has Been Accepted

   Two USPS programs, "MQA" and "SAVE," both have the same goal: reducing the incidence of improperly prepared mail. Both programs could result in requiring the mailer either to pay a higher postage rate or to re-work the mail.

   So far, of 1,182 mailings inspected under the MQA procedure, 637 had error rates of less than 1%; 185 had an error rate of over 10%. For now, mailers are notified of errors found. However, on January 1, 2001, the USPS says it will begin to assess postage penalties.

   The problem is complicated by the fact that the lettershop preparing the mail may not have control over the computer program that produced the output. While most mailers support the goal of reducing errors, many are apprehensive about the fairness of proposed USPS methods.

8. The "Information Platform"

   The USPS described two relatively new programs to aid internal managers:

   DOIS, or Delivery Operations Information System, will be deployed to delivery units with at least ten carrier routes and will allow postal managers to equalize the workloads of the letter carriers. Pilot tests have been successfully completed in six districts around the country.

   SAMS, or Surface/Air Management System, replaces an older system which assigns mail to aircraft or surface routes. A pilot test begins this month; deployment of the system is scheduled to begin next March.

9. DSAS

   "No-shows" increased to 30% in September; the USPS doesn't know exactly why, but possible reasons range from inclement weather to mailers deliberately overbooking in anticipation of delays due to the heavy mailing season. The USPS plans to rate mailer performance in living up to their appointment obligations, in a manner similar to "frequent flyer" levels: a "platinum" mailer, for instance, would be given preference in making appointments at times most convenient for him.

10. Using Planet Codes To Track Delivery Of The Mail

All bar code sorters in USPS processing plants now can read the Planet code; sorters in delivery units and most flats sorting machines will be upgraded to read the codes by the end of 2000.

The Planet code is a variation of the Postnet barcode that can be printed on mail pieces. Using the Web, mailers can retrieve data indicating when the USPS' sorting machines processed the mail piece, thereby gaining insights into how long it took to deliver the piece.

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