Postal, Paper, Logistics Updates, December 3, 2021

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Changes are coming to USPS pricing, its Board of Governors and the Postal Regulatory Commission. High paper prices continue due to such factors as transportation costs and inflation. Freight capacity and prices were especially challenging over Thanksgiving, which will continue following Cyber Monday.

Quad is a significant mailing industry partner, printer and transportation services provider — we’re uniquely positioned to provide accurate information on topics related to postal, paper and logistics. Our goal is to provide clarity and share best practices so our clients can more confidently address the latest developments. These are especially challenging times for our industry. Contact your Quad representative if you have any questions or concerns — they’ll ask our in-house experts to investigate and provide answers to all.

Here are key developments since our last update:

Postal Updates

USPS 2022 price changes

While the Competitive price changes scheduled to take effect on January 9, 2022, won’t directly affect Quad mailings, we are watching two Market Dominant-related items that are going on simultaneously.

First up, the Postal Service filed a request to make Plus One a permanent product, transitioning from its current Market Test. The request to make it a permanent product was made shortly after it filed to extend the test through September 30, 2022.

An extension makes sense given that much of the Market Test took place during the pandemic. Throughout 2020, those markets that might use Saturation mailers — especially restaurants and home services — were hit especially hard.

Per the USPS, “The purpose of this Market Test is to encourage USPS Marketing Mail Saturation Letter marriage mailers to add a Plus One card to existing and/or new mailings to increase advertising reach and to drive customer response rates. Marriage Mail is a form of direct mail that ‘marries’ or combines advertisements such as coupons or sales notices from multiple companies in one mail package to share the cost of mailing.”

The Association for Postal Commerce (PostCom) notes in PRC comments that the request for an extension complies with all requirements. It adds that the USPS is providing all documentation to show revenue as a result of the Plus One Market Test Program. It remains unclear why the USPS would file requests to make Plus One a permanent product and to extend the test at the same time.

Along with that, the postage calculation change for Periodicals pending authorization will use a percentage factor. We understand why the USPS wants to simplify the calculation process. However, matching between Periodicals prices and titles at the appropriate First Class or Marketing mail rates is difficult to maintain and not always accurate — equivalent prices do not always exist.

In fact, there are hundreds of possible combinations to determine pricing depending on preparation of the pending Periodical. This makes the process extremely complex and nearly impossible to simplify without creating winners and losers.

The proposed new rule intends to simplify the process using existing Periodical prices and a factor derived from the average Periodical price and the average Marketing or First Class mail price. However, the proposed procedure that comes with the new rule presents uncertainty. Some asked during the comment period whether this constitutes a price change. The Postal Service has yet to supply a satisfactory answer.

USPS publishes 2022 Integrated Financial Plan (IFP)

The USPS filed its 2022 Integrated Financial Plan with the Postal Regulatory Commission, which projects a $8.4 billion loss in the next fiscal year. At the same time, it acknowledges that 2021’s net loss of $4.9 billion was much better than its projection of being $9.7 billion in the red.

The ongoing rate increases for postal customers are supposed to reflect an extraordinarily hard time for the USPS. Now it comes to light that they framed those increases up with a projected loss that was double the reality of its situation.

No doubt its next fiscal year will be tough — 2022 will hit USPS customers hard, too. Per its IFP, the Postal Service projects a $0.4 billion increase in revenue, though controllable expenses will grow by $2.1 billion. Leadership plans to cut 18 million workhours, but inflation will increase compensation and benefits by $0.8 billion.

Note that the IFP states that total mail and package volume is projected to decline by 3.8% from the previous year — 4.9 billion pieces. Perhaps the USPS should focus on improving service and keeping postage affordable rather than cutting costs and raising rates to alienate its largest customer base.

Postal Regulatory Commission down to four commissioners

Michael M. Kubayanda’s term as PRC Commissioner expired one year ago, and rules state that he can no longer serve in that role despite no successor being confirmed. The “holdover year” came to an end on November 22 without the U.S. Senate confirming Kubayanda, even though President Biden re-nominated him. The PRC announced that Vice Chairwoman Ashley E. Poling will assume the agency’s administrative responsibilities, effective immediately. However, this means the Postal Regulatory Commission is down to four members until the U.S. Senate acts in its best interest.

Board of Governors replacements to come

BOG Governor John M. Barger’s term expires on December 8 and Chairman Ron A. Bloom’s holdover year will expire on the same day. Both were appointed by President Trump, and President Biden has nominated Daniel Mark Tangherlini and Derek Kan to replace them as Governors. If confirmed by the U.S. Senate, these nominations will reshape the BOG, with five of the nine seats held by Biden appointees. We wait to see who will become the new Chair on December 8, and if changes affect Louis DeJoy’s position as USPS CEO and Postmaster General.

Congressional legislation

Congress continues to work on the appropriations bills and funding the government long term. Right now, all mailers can assist with advancing legislation to curb postage increases. The more Congress hears about troubling aspects of the USPS’s plan, the more likely they are to push hard for changes with the Postmaster General and the Board of Governors. Please consider taking a few minutes to fill out a short form on this page, which will automatically message your Members of Congress. Or you can text MAIL to 52886. The process is a simple, extremely effective and efficient way to let Congress know your thoughts and tell your story about how important an affordable USPS is to you.

The time is now to let Congress know that you support requiring the PRC to take another look at the rates and the improved financial position of the Postal Service. Congress can help our industry and the over 7 million jobs we support. The more Congress hears from those in our industry the more likely we will be successful in getting the PRC to review these new higher rates. If you do contact your representatives, please make sure Quad is aware of your support for this legislation.

USPS delivery performance

The USPS performed well through mid-November. However we have seen some slowing in the processing of Flat mail, especially in a few locations: Cheyenne WY, Chicago IL, Kansas City MO, Miami FL and West Palm Beach FL. Flats Sequencing System (FSS) mail specifically is showing a longer, flatter in-home curve in recent weeks. We usually see big delays with FSS mail the two weeks after Thanksgiving when volume is at peak and the FSS machines cannot handle all the product for designated zip codes. We expect to again see this slowing. We are also on alert for slow processing in December due to USPS focus on parcels. in 2020, there was a significant drop in service beginning on December 1. We will be closely watching for a similar situation this year.

USPS volume

  • Total Mail Volume: Down 0.9%*
  • Package Volume: Down 5.4%
  • Single Piece: Down 6%
  • Presort First Class: Up 2.1%
  • Marketing Mail: Up 9.9%
  • Periodicals: Down 6.4%

*When call attendees pointed out that the numbers don’t really align, the USPS agreed — but stated that this is the nature of the flash volume reporting

Paper Market Updates

Supply chain disruptions, transportation network challenges and various reasons for downtime at mills added stress to the already limited paper market. Coated freesheet inventories were low to begin with and haven’t been able to keep up with further shortages caused by plants going offline. Coated groundwood on the west coast will be impacted by disruptions at Paper Excellence (Catalyst). Demand in the U.S. on top of issues with international shipping have caused printing & writing paper and newsprint exports to decline significantly.

The notable items below will affect supply and prices in the coming months.

  • Extremely low newsprint inventories on top of trucking shortages have led to a widely backed $25 per metric ton (45gsm) price increase across the board.
  • Norpac, White Birch and Resolute will all increase prices for high brightness uncoated groundwood by $50/ton on December 15. Prices for uncoated SC grades and uncoated freesheet grades have also increased since November, as mills continue to fight cost inflation and paper shortages.
  • Coated paper prices have increased since November. We wait to see if prices remain at this level into next year, though industry analysts are predicting further price increases in 2022.

Logistics Network Update

Thanksgiving week was especially challenging and rates were very high, as expected. We remain hopeful that those will come down to where they were at least two weeks ago — still high, but not unreasonably so.

The LTL market continues to present the same challenges we’ve been navigating with slow/delayed service averaging at least 2-3 days longer than published transit. The Rail market continues to have bottlenecks and jams, especially out west with the continued influx of cargo at the ports.

For now, we believe the biggest concern we’re already seeing this week is small package volumes growing with Cyber Monday. We’re aware that Fed Ex is having problems making all of its normal pickups with this push for online purchases.

As always, your Quad representative will work diligently to find you the lowest rates with the most efficient transportation available.