PRC orders Postal Service to address compliance issues with pricing and service: Flat mail and service performance continue to be top concerns

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Washington, DC – Today, the Postal Regulatory Commission (Commission) released its Annual Compliance Determination (ACD) for fiscal year 2021 assessing the Postal Service’s compliance with rates and service standards. The Commission is required to issue its ACD 90 days after the filing of the Postal Service’s Annual Compliance Report (39 USC Section 3653). This DCO is the first compliance review by the Board following its implementation of new pricing rules for market-dominant products in fiscal year 2021. These rules included new rate authority mechanisms, new requirements for work-sharing rebates and non-compensating products, and several procedural changes.

The main areas of the Commission’s examination, its conclusions, as well as its recommendations and directives, include:

MARKET LEADING RATES AND FEES

Worksharing discounts:
Guided by the principle of Efficient Component Pricing, the Commission’s review of work-sharing rebates focused on increasing the efficiency of pricing. The Commission found six work-sharing discount classes with passthroughs equal to 100% in fiscal year 2021. Six other work-sharing discounts had passthroughs above the 100% threshold, and 63 work sharing with passthroughs below 85%. The Board finds that the 100% work-sharing discounts cannot be changed in any rate adjustment proceedings until the 2022 DCO is issued. The Board further orders the Postal Service to bring these last 69 discounts into compliance for work sharing in the next rate adjustment instance.

Non-compensating products:
The Commission’s assessment of market-dominant non-compensatory products grants additional rate authority to non-compensatory categories and more strictly governs how rate authority is to be used for non-compensatory products in compensatory categories. The Commission finds that there are two non-compensatory categories – Periodicals and Parcel Services, and four non-compensatory products within these categories – In-County Periodicals, Out-of-County Periodicals, Bound Print Parcels (BPM) and Media Mail /library mail. out of compliance. For in-county periodicals and out-of-county periodicals, the Council reiterates that the costs of these products continue to rise despite cost-cutting initiatives and maximizing its pricing power, while unit revenues have remained relatively stable, which has a negative impact on cost coverage. For BPM Parcels, the Commission finds that the postal service has not taken adequate measures to improve cost recovery and orders the postal service to increase the prices of BPM Parcels by at least 2 percentage points above the category average in each rate adjustment affecting the Parcel Services category. through FY2022 ACD. Continued price increases have resulted in better cost coverage for Media Mail/Library Mail, prompting the Commission to strongly recommend that the Postal Service continue above-average price increases in future rate adjustment proceedings.

The Commission finds five non-compensatory products in the compensatory classes – First-Class Mail Flats, USPS Marketing Mail Flats, USPS Marketing Mail Carrier Route, USPS Marketing Mail Parcels, and Money Orders (of the Special Services class) non-compliant. First-Class Mail Flats failed to cover its chargeable costs for the first time. Regarding USPS Marketing Mail Flats, the Commission discusses the product’s continued struggle to cover its chargeable costs despite various prior ACD guidelines.

The Commission finds that all of these products have not covered their allocable costs and orders the Postal Service to increase the prices of these products by at least 2 percentage points above the category average in each proceeding. adjustment to dominant market rates affecting these products through the issuance of the FY2022 ACD, pursuant to 39 CFR Part 3030, Subpart G. With respect to issues that continue to plague the products generally flat (i.e., First-Class Mail Flats, USPS Marketing Mail Flats, and USPS Marketing Mail Carrier Route), the Commission directs the Postal Service to continue to explore and implement opportunities to reduce unit costs, as indicated in Chapter VI.

COMPETITIVE PRODUCTS PRICES AND FEES

The Commission’s examination of competing products shows that the revenues of three products – International Money Transfer Service—Inbound (IMTS—Inbound), International Money Transfer Service—Outbound (IMTS—Outbound) and International Ancillary Services did not cover not chargeable costs and, therefore, did not comply with 39 USC § 3633(a)(2). The Commission orders the Postal Service to take corrective action with respect to these products. The Commission further orders the Postal Service to file quarterly reports on a pilot program, which allows customers to use payroll and company checks to purchase gift cards, including updates on volume and revenues, as well as future plans for the pilot program. All other competing products were compliant.

SERVICE PERFORMANCE

The Board finds that most dominant market products did not meet their service performance goals for fiscal year 2021 and orders the Postal Service to take corrective action to restore service performance for its dominant market products in fiscal year 2022. Notably, fiscal year 2021 was the seventh consecutive year that no First Class Mail product category met its service performance target. Of the 27 market leading products/categories measured, 21 products/categories (over 77%) did not meet their targets in FY21, and some were significantly below the applicable target.

The Commission’s assessment of the Postal Service’s service performance takes into consideration the effects of the COVID-19 pandemic, which has exacerbated pre-existing service performance issues. It further recognizes three key challenges resulting from reduced employee availability from the COVID-19 pandemic, transportation disruptions, and changes in mail mix that affected the Postal Service’s performance in fiscal year 2021. Accordingly, the Commission has developed specific guidelines that are designed to obtain information and data from the Postal Service regarding the effectiveness of the Postal Service’s service performance initiatives and the actions the Postal Service will take to restore service performance. for its market-dominant products in fiscal year 2022.

FLAT SHAPE MAIL

The Commission’s review of issues with flat-form (flat) mail products reveals that the processing and delivery of this class of mail continues to be a problem for the Postal Service despite operational initiatives and reduction efforts. costs. Associated challenges resulted in continued and persistent cost increases, with five out of eight flatform products failing to cover costs in fiscal year 2021. Additionally, no flatform mail product met its performance target of service in fiscal year 2021.

The Commission focused its analysis on five areas: (1) financial performance of apartments, (2) service performance of apartments, (3) impact of operational initiatives and methodological changes on apartments, (4) pinch points that impact apartment operational performance, and (5) fixed unit costs for mail processing, delivery and purchased transportation operations. The Commission makes several recommendations for data collection and analysis regarding current and future Postal Service initiatives designed to reduce apartment costs, improve apartment service performance, and/or improve apartment operations. The fact that in fiscal year 2021, flat form mail products collectively had a cumulative negative contribution of nearly $1.3 billion underscores the urgency and importance of improvement on this issue. .

The Board recommends that the Postal Service continue to estimate and report the additional cost that bundle breakage adds to the processing of apartments.

The Commission directs the Postal Service to implement initiatives to reduce mail handling costs. The Commission further directs the Postal Service to target mail processing facilities that have extreme productivity values ​​(unusually high or low) or missing hours or volume in operations and daily rounding to improve the reporting of these facilities or explain why the provided productivity is accurate for a given facility, mail processing category, fiscal year and quarter.

The Commission recommends that in fiscal year 2022, the Postal Service develop an accurate method to track flat-form mail that is manually processed. Once there is an accurate measurement of these flat mailers, the Postal Service will develop a specific plan to continue to decrease the amount of flat mailers manually processed and achieve a commensurate reduction in mail processing unit costs for manual operations. .

The Postal Service must develop a plan to reduce the costs associated with Allied operations and gain additional information on Allied operations. In addition, the postal service should use the updated version of the cycle time report to generate detailed mail entry point data/reports. The postal service should also indicate the length of the current work cycle for each processing point and the corrective action(s) taken in the event of delays in the processing points.

The Postal Service must develop a plan to reduce the costs associated with the transportation of flat mail in fiscal year 2022. The plan must establish specific, achievable goals to reduce the costs of transporting flat mail.

The Postal Service is to develop a plan in fiscal year 2022 to reduce costs associated with flat-form mail delivery. The plan should establish specific achievable goals that reduce flat mail delivery costs.
The Commission’s full review of the Postal Service’s compliance with rates and service in fiscal year 2021 is available at www.prc.gov, along with related documents filed in this filing.

The Postal Regulatory Commission is an independent federal agency that provides regulatory oversight of the Postal Service to ensure the transparency and accountability of the Postal Service and to foster a vital and efficient universal mail system. The Commission is made up of five commissioners appointed by the president and confirmed by the Senate, each for a six-year term. The President appoints the President. Besides Chair Michael Kubayanda, the other commissioners are Vice Chair Ann Fisher and Commissioners Mark Acton, Ashley Poling and Robert Taub. Follow the PRC on Twitter: @PostalRegulator and LinkedIn.

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