The Postal Service has not introduced a new sale or incentive program since October 1, 2009.  Although a “winter” sale was discussed with various mailing groups, nothing was offered or taken before the Commission as we enter the winter season.  The winter sale has turned into a spring sale, with only vague ideas being shared.

The Postal Service has said the winter, now spring sale will copy what was done over the summer.  The summer sale included a 30 percent rebate on all Standard Mail letters and flats above a customer-specific threshold. In the Annual Compliance Report (ACR), the USPS said that it expects to file its final report with the Commission by late January.  So far preliminary results have been positive for the Postal Service:

• 800 mailers participated
• 902 million pieces over volume thresholds
• $65 million in rebates on postage of $143 million
• 530 pieces were incremental, while the remainder are considered “anyhow” volume (372 million)
• $55 million in new revenue

The ACR did not mention what the Postal Service earned as contribution or profit on this particular sale, but hopefully the final report will show the USPS earning a profit. This will help make the case to the regulator for future sales or incentive programs.

In looking ahead to a future program, the ACR provides some insight to what direction USPS may want to take. The Postal Service is mandated by PAEA “. . . to provide, within 90 days after the end of each fiscal year, a variety of data on “costs, revenues, rates, and quality of service” in order to “demonstrate that all products during such [fiscal] year complied with all applicable requirements of [title 39].”

If the spring program follows the summer sale, it will center on Standard Mail.  It will be difficult, based on the new cost data in the ACR, for the Postal Service to justify including some Standard Mail product categories, such as flats and parcels.  The summer sale did include Standard Mail flats; even though they were below cost (unit revenue per piece does not cover unit cost per piece) from the 2008 ACR.  The Chairman of the Commission did ask the Postal Service to estimate its cost coverage for incremental volume during the sale. In its response, the Postal Service broke down the attribute cost into short term and long term attributable cost on the incremental volume anticipated from the sale.  The USPS was able to show positive cost coverage on all Standard Mail letters and flats for the sale.

From the figures in the 2009 ACR, the Postal Service is facing the same cost issues but for more products if they expand the sale to other Standard Mail categories.  The 2009 ACR shows Standard Mail flats having 82.2 percent cost coverage or losing $0.08 per piece and Parcels/NFMS having 75.2 percent cost coverage or losing $0.306 per piece. In the 2008 ACR, Standard Mail flats had 94.1 percent cost coverage or lost $0.023 per piece and Parcels/NFMs had 79.6 percent cost coverage or lost $0.227 per piece. For the incremental cost analysis done for the summer sale, the Postal Service showed 101 percent cost coverage on Standard Mail flats.

One option for the Postal Service and its spring program is to provide a smaller rebate than the 30 percent previously offered to remain above short term attributable cost.  Another option is allow mailers to access the rebates throughout the year instead of receiving a lump sum check at the end of the sale.  This will enable the Postal Service to guarantee that the rebates are spent on postage and not used as a cost reduction to participating companies’ bottom line.  A third option is to allow mailers to use the entire rebate at one time, enabling them to have a “free mailing” at any time throughout the year. The rebate would be used on what the Postal Service / Commission calls “anyhow volume” but would have been earned through incremental volume growth during the spring program.

A final recommendation would be for both the Postal Service and the Commission to move away from anyhow volume discussions.  If the economy begins to turn around, any postal incentive will be maximized if enough lead time is given for a company to respond, rebates are attractive, and how the company can access them on the back end. To determine through a mathematical formula without working with the participating company that a particular piece would have been mailed anyway is presumptuous.  This would make it seem as though the Postal Service and the Commission know more about the mailings of a company than the folks making the decisions.

Regardless of what the spring program may look like, the Postal Service if they want to maximize volume response needs to get the information into the hands of the mailers as soon as possible. Although PAEA mandates only 45 days for a price change, most companies have already begun or are done making their spring mailing plans.  The Postal Service needs to start getting the word out on what a potential sale or incentive program would entail, what products would be included, and the size of the rebate.

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