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Postal Affairs Update, April 1, 2021

April 1, 2021

The Postal Service set a target date to file for its mid-year rate increases. The Postal Regulatory Commission admonished the USPS for substandard service even as it completed a necessary step for the additional rate authority. The 10-Year Strategy signals how delivery performance could change. These topics and more in an update packed with important new information for mailers.

Quad’s Postal Affairs team remains committed to keeping you up to date and informed. As a significant mailing industry partner, we are in a unique position to provide clear and accurate information regarding the state of the USPS and suggest best practices during this time. Please notify the Quad Postal Affairs team if you become aware of any changes, questions or something new related to how the USPS is conducting business. We will investigate and update all. Please send inquiries to the Quad Postal Affairs Distribution list (Postal Affairs – Team) or ask your Quad representative.

Here are key developments since our last update:

Mid-year price increases

Earlier this week, the USPS indicated that it plans to file for above-inflation rate increases on or about May 28, 2021. If this is the case, new postage prices would be implemented 90 days later, around Labor Day.

We await an official announcement regarding the filing date. With that target date in mind, Quad is planning a webinar when details become clear to help our clients understand how to respond to the new rates. As we previously reported, the courts take their summer break during August. The earliest they would hear arguments against the rate increases is September. We wouldn’t get their decision on whether to allow rate increases for two to three months after they took effect. Even if the courts rule in mailers’ favor, there would be no refund for what we pay in the interim.

The May 28 date appeared in a USPS filing that asks the PRC for a waiver on a requirement to increase the discount for First-Class Letters 5-Digit Automation from 3 cents to 3.5 cents. The PRC directs the Postal Service to stay within a minimum and maximum amount of workshare passthrough. For the First Class 5-digit Presort rate, the USPS has been keeping more than the maximum amount of the workshare savings and not passing that back to the mailing industry in the form of a discounted rate. The PRC has determined that the Postal Service would have to drop the rate by half a cent to be compliant — and the USPS filed for the exception to fight this.

Postal Regulatory Commission – Annual Compliance Determination

The PRC admonished the Postal Service in its Annual Compliance Determination (ACD) for failure to meet Service Standards. This Postal Accountability and Enforcement Act (PAEA) requires this report to determine the extent to which the USPS has complied with rate and service provisions.

With the USPS losing money, no one is surprised there were a number of products and classes that did not cover their costs. It’s notable that the ACD examines the Postal Service’s 2020 fiscal year, which ends on September 30. Therefore the PRC’s admonishment for service standard failure doesn’t even reflect the disastrous service experience during the peak mailing season. No doubt we’ll see more of the same in the 2021 ACD. This year’s determination does set forth additional reporting requirements designed to encourage improvement.

The most important milestone with the 2020 ACD is that it completes the next step in the USPS being able to use the additional rate authority granted by the PRC. We expect the PRC to issue a separate order on those calculations in the near future.

Delivery performance

According to Quad tracking, Letter mail is moving better than it has since before the pandemic. Flat mail has also improved, especially in the past two weeks.

Our mail was over 90% in-home by the end of the target window last week for both Letters and Flats. We hope that severe transportation issues are behind us so mail hits that level consistently — we averaged 94% by the end of the 4-day in-home target before the pandemic.

This past week, no facility was delayed in processing Letter mail. Very few were delayed in processing Flats. However Baltimore, Philadelphia, Richmond and St. Louis have averaged less than 70% of the mail in-home by Service Standard for the past 10-14 weeks.
Looking ahead, we see from the Postal Service’s new 10-year strategy that they likely already implemented the changes to Service Standards detailed in the plan months ago. It’s possible they were forced to do so due to lack of air transport available. Under the plan’s new Standards, the expectation is that 70% of the mail will be in-home by Day 3 after it’s dropped, 90% by Day 4 and 100% by Day 5.

Since January, we have seen an average of just 60% by Day 3, 80% by Day 4 and 89% by Day 5. In the last two weeks the USPS has actually hit the ‘new’ Service Standards. But as we’ve noted previously, these are below the current stated Standards. The Postal Service is lowering the bar instead of improving to meet the minimum expectations they’ve historically adhered to.

Materials shortages

The February 2021 Texas weather issues have severely impacted availability and cost for both transportation and chemical intermediates coming out of the Gulf Coast region. The already stressed raw materials supply chain has become extremely tight, with several suppliers exercising force majeure.

The main base feedstocks of ethylene and propylene are foundational chemicals for adhesives, UV coatings, lithographic fountain solutions and silicones. Below-freezing temperatures severely impacted the chemical plants producing these building-block intermediates. As of today, these plants still aren’t running at a capacity to replenish the supply chain.

The near-term outlook is unclear at this time. Our main concern is availability of these raw materials for the remainder of 2021. We’re monitoring this situation closely and will follow up with clients as needed while the supply chain situation evolves.

Postal volume

  • Mail Volume for the week ending March 20, compared to last year
  • Total Mail: Down 6%
  • Packages: Up 29.5%
  • Single Piece: Down 4.3%
  • Presort First Class: Down 16.5% (census mailing occurred SPLY)
  • Marketing Mail: Up 2.7%
  • Periodicals: Down 32%