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Postal Affairs Update, June 4, 2021

June 4, 2021

The USPS filed for mid-year rate increases, using just about all of their new authority plus available CPI. The U.S. House of Representatives and Senate will each vote on postal reform bills to ease financial burdens. Meanwhile, labor shortages and higher mail volume than expected in May have hurt delivery performance.

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:

USPS rate increases

Earlier this year, the Postal Regulatory Commission (PRC) gave the USPS broader pricing authority. Rate increases are no longer capped at the Consumer Price Index (CPI), largely due to ongoing financial losses.

The mailing industry hoped that Postmaster General Louis DeJoy and the Board of Governors would exercise restraint, tying any changes to real monetary need. Unfortunately, they’ve chosen to use the full authority to increase rates despite positive signs for their own finances, which are exceeding expectations.

Their actions ignore the needs of their biggest customers, business mailers that market to their customers via the Postal Service — which is critical as the nation’s economy continues to recover from the impacts of the pandemic. As we see in the mail volume data below, marketing mail has increased over 25%.

The USPS should encourage this mail recovery and support it. However, increasing rates results in mailers having to respond to a new costs structure. The timing of this August 29 increase adds to the challenge for mailers, as a mid-year increase comes long after they’ve established their marketing budgets.

Meanwhile, the U.S. House of Representatives Oversight and Reform Committee has approved a bill that will go to the floor for a vote. This bipartisan bill has broad support that will among other reforms take billions in pre-funded retirement expenses off the USPS books annually, while also reducing health care costs for the Postal Service in the years to come. This legislation will help to put the USPS on a path to financial sustainability and give them the tools to moderate the size of rate increases moving forward. The Senate will vote on a similar bill, and the Postal Service could quickly be in a much more solid financial position.

Rather than wait for this necessary and long overdue relief, PMG DeJoy and the Governors are opting for a short-sighted approach that does not reflect the nation’s economic realities. This would put the Postal Service back in a tenuous financial position and cause a ripple effect felt across the U.S. economy. It will impact every U.S. household as they open their mailboxes each day to find less mail and slower delivery times for the critical mail they depend on.

Quad’s Postal Affairs team is unpacking the proposed numbers and will make recommendations for clients who might need to adjust campaign plans. We’ll have a full understanding of the rate increase nuances within the next two weeks

You can get more details on rate increases by watching our recent webinar on-demand. Quad’s Executive Director of Postal Solutions Jeff Henke and Postal Affairs Director Bob Schimek give an overview of how the proposed rates affect customers, and address many of the questions we’ve heard from customers.

Delivery performance

Although the USPS is moving Letters well, Flat mail remains a concern. Delays continue in some locations due to higher mail volume for May than in past years, a labor shortage in some USPS facilities and increased parcel volume.

Philadelphia PA, Baltimore MD, Memphis TN, Richmond VA and St Louis MO are struggling to process Flats in a timely manner. First Class mail is moving fairly well.

June is traditionally a month of low volume with mail moving through the USPS very quickly. That might not be the case this year, though, as volume will likely remain higher than normal and the USPS could continue to face labor-related delays.

Raw materials and fuel shortages

The February 2021 Texas weather issues 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. This affected their ability to replenish the supply chain even after weather returned to normal.

Quad’s main concern has been monitoring the supply chain and doing everything we can to procure additional resources for these raw materials. We continue to be hopeful that supply will be back by mid-summer and will communicate updates as the situation evolves.

The industry is also experiencing challenges due to last month’s Colonial Pipeline cyberattack. At this point, our customers will see an increase in their fuel surcharge costs. But capacity is not limited right now due to this hack.

However, supply chains have been severely impacted by other factors. And this cyberattack comes on the heels of the CVSA’s annual Truck Inspection Week which disrupted truck capacity across North America. As such, any diesel shortages will have a wide-ranging capacity issues.

Postal volume

Mail Volume for the week ending May 29, compared to this time last year

  • Total Mail Volume: Up 41%
  • Packages: Down 14.5%
  • Single Piece: Up 7.9%
  • Presort First Class: Up 20.4%
  • Marketing Mail: Up 56%
  • Periodicals: Down 0.6%