Postal regulation vs. mailer incentives

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The postal reform legislation passed by Congress in the early morning 
hours this past December provides the U.S. Postal Service with many 
opportunities. But it is going to have to change its methods of 
operation to realize those opportunities.
Senior postal management is well aware of the need for change. 
Perhaps the biggest obstacle will be at postal headquarters itself. 
For an organization that was highly regulated and often responded to 
opportunities by issuing its own detailed regulations, deregulation, 
albeit as modest as it will be, will not be accepted easily.
Often the biggest stimulus for change can be a small group within an 
organization. In the postal service's case, that group may well be 
those charged with the responsibility for working with the mailing 
industry to develop negotiated service agreements (NSAs).
This group, within the marketing department, has proposed to the 
Postal Rate Commission five different NSAs. The Commission, renamed 
by the reform legislation as the Postal Regulatory Commission, 
approved them.
The first four of these NSAs, all with large financial institutions, 
provided additional postage discounts for First Class volume 
guarantees, provided that certain address correction processing 
improvements were made. A major change was made with a NSA with 
Bookspan, a direct marketer of books, and other products. That NSA 
provided volume discounts for increases in solicitation mailings 
without any requirement for USPS cost savings.
The most recent NSA, filed on Feb. 7 with the Postal Regulatory 
Commission, is based purely on cost savings, with no requirement for 
volume guarantees. The proposed NSA is between the postal service and 
Bank of America, one of the country's largest mailers.
Indeed, in fiscal year 2006, Bank of America mailed approximately 1.4 
billion pieces of First Class and 1.9 billion pieces of Standard 
Mail. These volumes would probably put the bank's annual postage bill 
in excess of $800 million, more than enough to get the attention of 
senior postal and bank management. This NSA is an attempt by the 
bank's postal team to reap benefits from their ongoing efforts to 
improve the postal quality of their mailings.
Let's take a look at the bank's NSA proposal. The NSA will provide 
postage savings based on specific measurable improvements to the 
postal service's processing of the bank's mail. Items to be measured 
include:
• First Class and Standard mail processing throughput
• Reduced forwarding and return mail rates for First Class
• Reduced undeliverable as addressed rates for Standard
The approximate magnitudes of the postage savings possible are:
• For improved mail processing throughput, up to $0.005 per piece
• For reduced First Class returned mail, up to $0.006 per piece
• For reduced First Class Mail forwarding, up to $0.0015 per piece
• For reduced undeliverable as addressed Standard Mail, up to $0.0017 
per piece
To reach their objectives of enhanced address quality, mail tracking 
and throughput, the bank will be required to print an advanced bar 
code on its outgoing mail, and make internal changes to the bank's 
address quality methods. The bank's postage discount opportunities 
are obviously just a portion of the savings that the postal service 
will realize.
I'm all in favor of this NSA. I trust, after an appropriate review, 
the Postal Regulatory Commission will approve it. My issue with this 
NSA and the earlier ones is that they have not yet had an impact on 
the rate-making process at large.
One of the selling points of NSAs to the mailing industry was that 
they would act as a test vehicle to determine if they might be 
applicable to the larger community of mailers. We have now had NSAs 
for almost four years.
Address quality in one form or another is an underpinning of almost 
all of them. But we've yet to see address quality, in the form of 
reduced returned mail or mail forwarded, introduced into the rate-
making discount structure. It has not even been introduced in the 
form of a "shell classification." That classification would require 
the postal service to track the financial benefits of improved 
address quality, so that future address quality discounts could be 
based on quantified savings.
The postal service's strategy to reduce costs incurred because of 
incorrectly addressed mail is based on a strategy of education, 
incentive and regulation. However, the strategy seems heavily 
weighted in favor of regulation. It's time to follow the NSA lead and 
offer incentives for address quality to a broader universe of mailers.

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