March 30, 2016

PRC reports much noncompliance by USPS on service and cost

The 2015 Annual Compliance Determination (ACD) issued this week by the PRC illustrates in stark, detailed terms he main problems facing our postal system. For many of its products, the USPS is unable to deliver the service levels it promises at attributable costs below what it charges. And it has gotten worse even during a period when it has been receiving an above-inflation surcharge from its customers.

The PRC identified:

• 20 of 53 workshare discounts exceeded avoided costs.
• For Periodicals class, the Postal Service failed to report on the cost and contribution impact of worksharing incentives offered for 5-Digit and Carrier Route pre-sortation and progress in improving pricing efficiency. It must within 120 days of issuance of this ACD file a report.
• Seven non-compensatory Market Dominant products: Periodicals In-County, Periodicals Outside County, Standard Flats, Standard Parcels, Media Mail/Library Mail, Inbound Letter Post, and Stamp Fulfillment Services. The first three require a report within 120 days.
• The majority of products failed to meet their service performance targets for FY 2015, including all First-Class Mail products, both Periodicals products, most products in Standard Mail, and Bound Printed Matter Flats. A report on these is due in 120 days.
• The Postal Service’s efforts relating to improving flats products’ service and contribution (profitability) are ongoing and interrelated. The PRC went into extensive detail on the problems with flats cost coverage and requires another report by the USPS within 120 days.

Companies facing the problem of products not fully covering their attributable costs generally try to fix the problem with levers they can pull in three broad categories:

1. The cost of inputs or resources used to deliver the products—operating expenses, capital, and labor.
2. The amount of inputs or resources used to deliver a given number of products, also known as efficiency or productivity.
3. The prices charged customers.

The PRC is raising questions and asking for additional reporting from the USPS so that it can fulfill its regulatory role to determine whether the USPS is doing all it can to use these levers to ensure product costs are covered.