October 12, 2023

1. USPS rate filing for Jan 21, 2024

The latest semi-annual rate increase filing occurred late Friday before the three-day federal holiday weekend. It will be the fifth rate increase since Louis DeJoy was appointed as Postmaster General in May 2020. As we previously have reported the average increase will be just under 2%, which is based on 6 months of the Consumer Price Index. We sent our members and sponsors detailed spreadsheets of the rate changes over the weekend.

Four of the market-dominant mail classes had banked rate authority so their total caps are a bit higher than CPI. The big 3 Postal Regulatory Commission add-ons are not available to USPS in January because the agency used them in July.

Total Available Cap Space

The Postal Service chose to raise rates almost up to the full rate authority.

Rate Change Percentages

First-Class Mail is broken down as follows. The keystone choice made by USPS was to raise the forever stamp rate by 2 cents or 3%. The cap math then led to almost everything else in First-Class going up less than 2%.

First-Class Mail Rate Changes

Metered and Automation letters benefitted from the Single-Piece decision.

First-Class Mail First-Ounce Rates – Letters

The meter price serves as a benchmark for the largest volume and revenue rate categories within First-Class Mail (i.e., Automation Letters). The non-machinable surcharge for Letters will increase to 44 cents from 40 cents, while the additional ounce rate will remain at 24 cents.

The Postal Service went easier on Automation letters while their volume declines have been less than Single-Piece. Automation Letters, especially 5-Digit Automation Letters, make up a significant portion of First-Class Mail volume and revenue, and 5-Digit Automation Letters volumes are relatively stable. The 5-Digit Automation Letters rate will increase by 1.8% versus 3% for Single-Piece.

USPS decided it has done enough damage to First-Class Mail Flats which have reached over 100% cost coverage due to large rate increases in recent years as volumes have dropped. It took the foot off the gas and raised Flats less than Letters.

First-Class Mail Flats Rate Increases

In Marketing Mail the trend of raising rates much more for Flats, Parcels, and Carrier Route continued. These products are considered non-compensatory and the only solution the PRC and USPS have come up with is to raise their rates with extreme prejudice.

USPS Marketing Mail Product Rate Hikes

USPS was able to use its entire rate authority for periodicals and hit Within County much harder than Outside County. The agency lamented its inability to add an extra 2% but that is reserved for once a year.

Periodicals Rate Hikes

No rest for the weary

While this average 2% set of rate increases is small compared to recent history, mailers will be socked again in July, with rate hikes in the range of 7% to 10%. That’s because the three PRC add-ons will inflate the rate authority beyond general inflation as measured by the CPI.

Government Executive noted this point in an article yesterday titled “USPS looks to raise rates for fifth time under DeJoy:”

Steve Kearney, executive director of Alliance of Nonprofit Mailers, said the smaller increase now expected in January offers little solace to the Postal Service’s biggest customers. A much larger hike is expected in July 2024, he said, projecting increases between 7% and 10%. He likened the situation, given USPS’ ongoing financial losses and mail volume declines, to the agency finding itself in a hole and continuing to dig.

Of course, this depends on USPS blindly continuing its failed pricing strategy. The Alliance plans to again urge the PRC to reject the rates proposal before it now.

2. OIG audit confirms major problems with Business Reply Mail and recommends solutions

The USPS Office of Inspector General (OIG) today released the results of an audit of Business Reply Mail. BRM is critically important as a financial lifeline for many nonprofits that receive much and in some cases most of their revenue as checks mailed in BRM envelopes. Payments to nonprofits include donations, membership dues, subscriptions, ticket orders, and merchandise purchases. A number of Alliance members participated in the audit.

BRM enables the mailer to provide a convenient pre-addressed envelope and to pay the postage on envelopes that are returned. Unlike stamps, the mailer does not pay postage for unused envelopes.

In general, nonprofit mailers have not been actively trying to encourage their constituents to stop using BRM and checks in the mail as have many for-profit companies. Nonprofit know that significant portions of their supporters, members, and subscribers continue to prefer to send a check in the mail.

The audit found what many nonprofit mailers knew–that USPS has been delaying the return of BRM payments to mailers even after the envelopes were in the destination post offices. The Postal Service has not treated BRM as a priority service even though it is a subset of the profitable single-piece First Class Mail that the agency has been losing since 2006. The audit details lack of staffing, no backup personnel, inadequate training, low priority, and inadequate or completely missing operational reporting of BRM.

The summary of audit findings:

Postal Service mailers and their customers value BRM service, but

processing delays, insufficient data, and incomplete close-out

procedures hinder operational effectiveness and customer satisfaction.

We observed BRM delays for nearly 180,000 pieces with some delayed

over 13 days at eight of 11 facilities. BRM data was also unreliable as

delays were not reported prior to our observations (except at one

facility), related workhours were not recorded at 598 sites nationwide,

and daily processed and unprocessed volumes were not captured in

any system. Finally, required close-out procedures were not consistently

completed at nine facilities, resulting in verification and data risks.

Postal Service officials acknowledged these issues and attributed them

to staffing and service prioritization challenges, and system limitations.

While we recognize those issues, we believe the broader operational

effectiveness problems resulted from insufficient management and

oversight. The Postal Service began corrective actions and initiated a

working group to automate processes and enhance training. Ensuring

sufficient management and oversight and enhancing systems will help

strengthen BRM value for the Postal Service, mailers, and customers,

particularly as untimely processing could delay election mail, nonprofit

donations, or other recipient replies.

The summary of recommendations:

We recommended management develop strategies to ensure sufficient

management and oversight of BRM operations, particularly related to

timely processing, recording accurate BRM data (e.g., delays, volumes,

and workhours), and completing close-out procedures and complete

system enhancements to more effectively track BRM operational data

and establish processes for assessing related performance.

USPS management agreed with the recommendations and already has started a workgroup in the Mailers Technical Advisory Committee in which Alliance members are actively involved. The BRM workgroup recently sent a survey to a number of BRM mailers.

3. OIG study of penalty overtime finds $140 million opportunity

In addition to regular time-and-a-half overtime, postal employees under certain circumstances can qualify for penalty overtime at double time. Of course, it is rate-paying customers who pay the ultimate penalty.

A study released by the OIG on September 27 found that the Postal Service is wasting $140 million annually by mismanaging penalty overtime.

The OIG found: Opportunities exist for the Postal Service to improve penalty overtime management and reduce unauthorized penalty overtime hours. Specifically, facility management and lead clerks did not always properly identify and categorize penalty overtime transactions in the Time and Attendance Collection System, as authorized or unauthorized, by the end of the pay week as required. Additionally, facility management did not always properly document unauthorized penalty overtime hours.

And the OIG recommended: We recommended management

(1) implement consistent oversight procedures to ensure penalty overtime transactions are cleared at each facility;

(2) reiterate policy on the use and clearing of the report categorizing penalty overtime hours as authorized or unauthorized;

(3) reiterate management responsibilities and provide oversight for recording unauthorized penalty overtime hours;

(4) develop and implement a tracking mechanism to monitor unauthorized OT and penalty overtime hours; and

(5) determine the feasibility of updating the form used to submit unauthorized OT requests to differentiate between unauthorized OT categories.

4. OIG finds USPS is not responding well to the surge in mail theft

More than ever before mail is being stolen mainly by using stolen “arrow” keys that open all USPS mailboxes. Then checks are being washed and identities are stolen. Confidence in the security of mail has fallen to a new low.

This is very worrying news to the many nonprofit mailers that rely on checks being sent to them. It has reached the point where the Postal Service itself has warned citizens to not send checks in the mail especially not via blue mailboxes.

In May, USPS and its Inspection Service with a press release launched a program called “Joint Project Safe Delivery initiative focused on reducing letter carrier robberies and mail theft; preventing change of address fraud; defeating counterfeit postage.”

The OIG audit report released on September 28 raises serious concerns about whether the USPS is moving quickly and effectively enough to stem the mail theft epidemic and the loss of confidence in the mail. In the competitive business world, a company faced with such an existential loss of confidence and reputation would move as quickly as possible to fix the problems. But when you are a government monopoly…

The OIG made seven recommendations, most of which sound like management 101:

Recommendation #1 – We recommend the Chief Technology Officer and Executive Vice President, develop a plan to include proposed quantities, projected cost, and actionable milestones to fully deploy the eArrow lock and high security mailbox initiatives, and include measures to assess their effectiveness.

Recommendation #2 – We recommend the Chief Retail and Delivery Officer and Executive Vice President, provide new and acting managers and supervisors training on arrow key policies upon assuming their roles and maintain documentation of training attendance.

Recommendation #3 – We recommend the Chief Retail and Delivery Officer and Executive Vice President, develop an oversight mechanism to hold managers and supervisors accountable for following established arrow key policy and training requirements.

Recommendation #4 – We recommend the Chief Postal Inspector finalize the Mail Theft Strategy that is under development by the end of calendar year 2023.

Recommendation #5 – We recommend the Chief Postal Inspector assess staffing resources available nationwide to support the Mail Theft Program and align resources with their Mail Theft Strategy.

Recommendation #6 – We recommend the Inspector-in-Charge, Criminal Investigations, require postal inspectors to complete the In-Service Basic Mail Theft training within one year of being assigned to a mail theft team.

Recommendation #7 – We recommend the Inspector-in-Charge, CriminalInvestigations, work with the contracting officer to modify the existing contract and 1) define the Mail Theft Analytics Program purpose to improve complaint data quality and usefulness for division personnel, 2) develop internal controls such as guidance and an oversight mechanism, and 3) establish performance metrics to assess the effectiveness of the program.

USPS management disagreed with recommendations 1, 5, 6, and 7. The audit and the response do not inspire confidence in the present state or future of mail.

5. All signs point to a weak peak shipping season and wasteful excess capacity at USPS

The main business goal of the USPS ten-year plan to make the agency the preferred package delivery service and to offset losses in the mail with parcel growth is not panning out as volume and revenue are barely moving. Now experts are predicting a very weak holiday shipping season.

A Wall Street Journal article titled “New This Holiday Season: Discounts on Shipping Packages” described why it’s going to be a weak peak. The most prominent sign is discounting as FedEx and UPS “have been offering discounts and other forms of cost relief to their customers” and USPS skipped the agency’s usual holiday surcharge this year despite massive losses.

“It’s not going to be a good peak. People are spending money on things that we don’t transport,” said Satish Jindel, president of ShipMatrix, which analyzes parcel-shipping data.

ShipMatrix estimates that carriers will deliver 82 million parcels a day during the peak holiday season that starts around Thanksgiving and ends in mid-January. Last year the industry delivered an average of 90 million parcels a day during that period.

It’s looking as though USPS will have lots of unused capacity this peak season even as it is spending billions to grow that capacity. While the agency is accelerating the loss of its flagship mailing services with historic rate hikes, it is failing to grow and profit from the package suite of services despite much promotion of its new Ground Advantage.

In a recent press release, USPS gushed:

USPS has expanded its daily package processing capacity to approximately 70 million – an increase of approximately 10 million over last year’s capacity. Since 2020, the Postal Service has nearly tripled its daily package processing capacity. Increased package processing capacity allows for packages to move through the postal network more quickly and eliminates the need for the leasing of temporary annexes.

If USPS very optimistically were to get one-third of the peak season’s expected 82 million packages per day, it would process 27 million parcels daily. That is using only 39% of the 70 million package capacity Delivering for America has grown to. This means that aside from being a driver of profitable growth, the USPS package strategy so far is a cost albatross around the neck of the agency that also is actively chasing away mail.

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