Postal regulation vs. mailer incentives
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,
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
• 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
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
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.