PSA Report
October 3, 2013
PSA Seminar
A Look Into the Future for Parcels
October 3, 2013, PSA Seminar Report
Page 2
A Quick Look into the Past on Parcel Select
Sandy Glick, SLS Consulting, presented a look into the past on the evolution of the
Parcel Select product and how far things have come in the past 20 years with the
product.
The problem from 1970 to 1990 was substantial Parcel Post volume declines, which
were an indication that customers were valuing the service less and less. Between
1970 and 1990, parcel post volume declined from around 600 million pieces to about
100 million pieces. Glick noted that in 1997 Steve Zwieg (now PSA chairman)
predicted that by establishing DDU/DSCF discounts, the product in the future would
have lower overall costs, better overall service and become a more competitive
offering. This prediction turned out to be correct.
In February 1991, the DBMC discount was established in Parcel Post and volume
started to increase. In January 1999, the DDU/DSCF discounts were established
and volume continued to increase. From the 7% annualized volume decreases seen
between 1970 and 1990, starting in 1990 with the destination entry discounts, an
annual growth rate around 6.6% began. Glick noted that less data are available
since enactment of the Postal Accountability and Enhancement Act (PAEA) in 2006,
but clearly the trend has continued.
Glick noted that while the volume started to grow with the introduction of the DBMC
discount, it was not until the introduction of the DDU discount that there was an
increase in the USPS’ profitability from the product. During the DBMC period, the
USPS still experienced losses (1991-1998 saw a roughly $41 million loss). From
1999-2011, however, during the DDU discount era, the USPS saw a $110 million
average annual profit from Parcel Post. Therefore, it took about 10 years after the
DBMC discount was introduced for the product to become profitable and a lot of hard
work over that time, Glick said.
October 3, 2013, PSA Seminar Report
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One of the major pieces of that hard work started in 2000, Glick noted. It began with
a letter from PSA to the USPS on what needed to happen to make the Parcel Select
product a success. That letter addressed the need for published service standards,
targets for achieving those standards, a measurement system, and accountability.
Interestingly, the letter resulted from a call from Postmaster General (then-COO)
Patrick Donahoe to PSA EVP Pierce Myers.
The USPS and industry worked through the Mailers Technical Advisory Committee
(MTAC) with Jim Cochrane at USPS helping to make things happen. In 2001, the
standards were introduced – 1 day from the DDU, 2 days from the DSCF and 3 days
from the DBMC. MTAC Workgroup 82 worked on Parcel Delivery Performance
Measurement effectiveness. The USPS worked to establish goals for parcel delivery
performance, a measuring system, improved delivery unit performance and
affordable, user-friendly delivery confirmation.
In 2002, another victory was achieved when the Postal Regulatory Commission
(PRC) opinion in its R2001-1 opinion approved the bundling of Delivery Confirmation
with Parcel Select. Between 2002 and 2005, the delivery standards were
announced, a manager of service performance improvement (Bob Fisher) was
appointed, the USPS data warehouse was configured and technical issues were
resolved.
It was a long process, Glick said, and an interesting story of a new product that took
15 years to develop. It was dying in 1990, but now is flourishing and is one of the
USPS’ great success stories.
October 3, 2013, PSA Seminar Report
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Slicing and Dicing the Parcel Delivery Market
Mark Schoeman, President, the Colography Group, gave an overview of the parcel
delivery market and recent trends. Colography Group was founded in 1983, and
is a proven leader in the field of fact-based expedited transportation research and
consulting, Schoeman said.
The firm has collected and amassed a large amount of data, and has interviewed
more than 500,000 businesses since its inception, in a statistically representative
matter that produces empirical information about the transportation market.
Schoeman said that the methods developed and used by the Colography Group
are arguably the industry’s most robust set of data on the shipping market. In any
given year, he reported, the group’s statistical confidence levels are greater than
90%, as validated by academic institutions.
Competitive Shipping Market. In the competitive shipping market, Schoeman
reported, there has been growth since calendar year 2010. He noted that the overnight air market, which was underwater in 2008, is bumping along and somewhat
flat, not really coming back. The reason is price, he said, because in many cases
shippers are finding ground services are just as good. In talking to shippers,
consumers, and businesses, he said, the finding is that this marketplace when shipping overnight with that type of product is for time sensitive product where the need
is not necessarily day-specific, but more time of day specific.
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2/3 Day Market Trends. In the 2/3-day market (USPS Priority Mail, First-Class Mail
packages, UPS/FedEx 2/3-day services), significant growth has been seen since
2010, Schoeman reported. If you include USPS First-Class package service, there
was a nearly 21% increase from 2010 to 2011 and even not counting that volume,
there was still 2.2% growth, so other products in that space are seeing growth as
well.
The 2-day market includes ground services which can provide the same transit time
at a much lower cost. The feedback coming from shippers, Schoeman said, is that
the important of reliability in the ground market is huge. It was important before, but
is even more important now because of shifting product from air into ground services
and the perception that it needs to get there. Performance is paramount, he said.
The ground services in the 2/3-day market have done fairly well, Schoeman reported,
with a 21-22% spike in CY 2012, predominantly due to Parcel Select lightweight
volume, which has seen good growth. Packages are getting much lighter in this
space, he reported, and shifts into this area is being seen. Looking at the total
market volume in this space by weight, 54% of parcels weighed 10 pounds or less
in CY 2007, and 68% weighed 10 pounds or less in CY 2012*. The 1-10 pound
market has been growing and doing very well, Schoeman said.
Business-Originated Volume Trends. In looking at the total market growth for
business-originated volume, Schoeman reported that the market is growing at a
better pace than in years past, and B2B is growing faster than B2C. In CY 2012,
65% of the business-originated market was B2B and 35% was B2C. Business is
about 96% of the originators in shipping, he said, so even though there may be
lack-luster growth in the business market, that does not mean businesses are not
shipping at all. Between CY 2007 and CY 2012, B2B experienced -2% growth and
B2C saw 51% growth. The phenomenal growth of the B2C is attributed to changes
in the market, different fulfillment, changes in distribution, etc., Schoeman said.
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In response to question from a PSA member, Schoeman said that the group’s data
includes shipments under 70 pounds. He also acknowledged that some of the
growth in certain categories could be due to the more recent inclusion of First-Class
Mail packages and Parcel Select as competitive services*. But even not counting
that, he said, there is still healthy growth.
Ground Market Distance Trends. In looking at the ground market, Schoeman
reported that most ground volume destinates within 350 miles of its origin and the
trend of the distance between origin and destination getting shorter is continuing in
the ground market. He noted that UPS/FedEx ground packages are still the lion’s
share of the ground market, though Parcel Select is growing. He attributed the
shortening of distance between origin and destination partly to the implementation of
more local retail distribution centers (e.g., Walmart, Amazon).
Schoeman noted that in
terms of carrier service
commitments, FedEx has
done a good job the last
several years in relocating
some ground points/hub
facilities and producing
new ones in certain
locations, which has given
them the ability to move
product in its surface
transportation network and
achieve 2/3-day service;
UPS still maintains a good
position; and the USPS’
Priority Mail is starting to
provide more visibility and the
service commitment of day specific,
which is getting some attention in
the marketplace. He noted that
none of the carriers publishes their
performance, however.
October 3, 2013, PSA Seminar Report
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Product Growth Trends. In looking at specific carrier product growth trends in the
competitive shipping market, Schoeman reported that between CY 2008 and CY
2012, Priority Mail Express (formerly Express Mail) has seen a 5-year average
of -5.7% growth; Priority Mail has seen a -1.3% 5-year average growth; FCM
Package Service has seen a 95.6% growth*; Parcel Select has seen a 52.2%
growth*; PRS has seen a 40.6% growth*; top USPS competitors air service has seen
a -0.7% growth; and top USPS competitors ground service has seen a 1.0% growth.
The USPS’ CY 2012 distribution of its 2.5 billion piece volume between shipping
products is 18% FCM package, 46% Parcel Select, 33% Priority Mail, 1% Priority
Mail Express and 2% PRC. The USPS’ market share is growing, Schoeman said,
with the 2.5 billion pieces representing about 25% of the total carrier share market.
[*Note: It should be noted that some of the time periods presented on the Colography
Group’s data/charts include USPS Parcel Select/FCM packages, and some do not.
The information reflects the competitive market, so Parcel Select data is included
only after the product became a competitive service.]
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UPS/FedEx Consumer Developments. Looking at UPS and FedEx consumer
developments, Schoeman noted that UPS/FedEx are faced with a changing market
and the need to serve the residential/household consumer. To that end, both have
announced delivery web portals where consumers can go online for packages
shipped from merchants and schedule/decide the delivery terms. The services are
getting more sophisticated, he said, and more people are signing up. While the
volume is not large yet, the services are becoming popular. There is more growth
in B2C and consumers making more active decisions on how they want those
deliveries.
UPS reported that during the second quarter of 2013, on average 17.5% of packages
that would have been delivered by the post office were redirected to package delivery
drivers. Customers wanted something beyond what they would get from Parcel
Select. UPS is offering MyChoice, and FedEx is offering Delivery Manager,
Schoeman said, both of which provide consumers the flexibility and convenience to
choose how, when and/or where they want their packages delivered. Using these
services, the customer (consignee) can elect to receive a pre-delivery notification of
incoming packages (by email, text, phone) and make choices/decisions on the
delivery – some of which are free, some come with an additional fee, and some are
part of a subscription. Customers also can upgrade from one service to another for
expedited delivery for a fee.
Schoeman said when the cost per package is increased through fees/subscriptions,
it helps the shipper with its yield and is easier for the carrier to make residential
delivery without as much density. In response to the question of whether this type
October 3, 2013, PSA Seminar Report
Page 9
of offering is causing any tension between carriers/recipients and merchants,
Schoeman said not at this time. Not all merchants know the recipient is set up for
such a service with the carrier, it is not part of the shopping cart experience. From
the recipient’s standpoint, if the shipping is “free,” they are more willing to pay a fee
to upgrade their delivery.
The UPS MyChoice service was introduced in October 2012, and the FedEx upgrade
service was introduced in March 2013.
Merchant E-Commerce Developments. Schoeman reported that the customer
experience is being treated as a brand, not a channel within a brand. There are
many companies looking into linking inventory together. Restoration Hardware, for
example, where the salesperson has a computer tablet and if an item is out of stock
in the store, they can locate it at another store or distribution center and get it to that
store or the customer’s home, with the price remaining static. Others have implemented, or are exploring the concept, such as Staples, DSW, Best Buy, Nordstrom,
hhgregg, Urban Outfitters, Sephora, and JoAnn Fabrics. This technique allows them
to compete with online merchants such as Amazon, Schoeman said, and is also
increasing B2B shipping a bit through the need to get product back into store
inventories.
Commercial Carrier Rate Changes. Schoeman noted that market demand
changes also can have an impact on how commercial carrier rates change. He
reviewed FedEx recently-announced standard rates for 2014, and noted that there
are more to come as well as rate changes from UPS. Standard overnight is
increasing more than Priority overnight (straight average), he noted. Some of the
changes are predicated on what is happening in the market as carriers manage
their revenue per shipment.
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Other Information. In response to a PSA member question of whether Colography
Group is tracking trends with same day delivery, Schoeman said it is being tracked
and some growth is being seen. But when you talk with recipients, he noted, and ask
if they want same day delivery, they will say yes, but if you ask if they will pay more,
they say no. So the market is not demanding same day product and willing to pay
for it. There is some desire, but the growth itself is predicated more on changes in
distribution cycles versus consumer demand and willingness to pay.
In response to the question of the need for Saturday delivery and consumer reaction
to the USPS’ 5-day delivery concept, Schoeman said Colography Group has looked
at some of that. On the package side, there is some need and demand from
consumers that want Saturday delivery, he said, and that is one more event for
customers to control in terms of being home for shipments.
In response to the question of whether any growth is being seen in forwarded
shipments, Schoeman says there is growth but it unclear whether it is from the
technology options allowing customers to re-direct delivery, or real moves.
Lastly, in response to the question of whether Colography Group has studied the
impact of delivery mode changes, Schoeman said he can’t share that information.
[*Note: It should be noted that some of the time periods presented on the Colography
Group’s data/charts include USPS Parcel Select/FCM packages, and some do not.
The information reflects the competitive market, so Parcel Select data is included
only after the product became a competitive service.]
International B2C – The Future is Now
Craig Reed, Vice President of Global eCommerce, Pitney Bowes, presented an
update on international shipping and cross-border eCommerce developments.
For many years, Reed said, global eCommerce was
broken promise. The promise was you could buy
anything from anywhere, but the reality was border
friction resulting in high shipping costs, fees and
other issues.
Historically, exorbitant shipping fees, no international
shipping option, or additional fees/duty when the
piece is delivered, have plagued cross-border
eCommerce. Recently, however, some of the crossborder problems are being addressed and
opportunities are opening up, Reed reported.
a
“For many years, global eCommerce
has been a broken promise. The
promise was you could buy anything
from anywhere, but the reality was
border friction, high shipping costs,
fees and other issues.”
Craig Reed,
Vice President of Global eCommerce
Pitney Bowes
October 3, 2013, PSA Seminar Report
Page 11
While cross-border eCommerce solutions have taken some while to get going, those
opportunities have exploded in the last 3-5 years, he said.
International buyers are no different than domestic buyers in that they want low
shipping costs, cost certainty, fast shipping times and parcel visibility, Reed reported.
But the reality has been high shipping fees (or hidden costs), delivery delays, parcel
tracking issues, complex customers documentation requirements, import/export
restrictions, carrier restrictions and customer service issues. Sellers need the same
process for international shipping as for domestic shipping, with low complexity and
no uncertainty.
Import/export compliance is complex and getting moreso over time, Reed said, with
the governments becoming more careful about what you can export and how and
what you can import and how. Even between posts, there is more obligation now in
terms of sharing information as to what is being imported/exported.
The broken promise is what Pitney Bowes and others have set out to solve, Reed
said. It is a problem worth solving, he said, based on the size of the cross-border
ecommerce parcel shipping market size, not to mention that it likely is understated
and does not reflect the upside of solving the broken promise. He said the market is
estimated to be about $33 billion this year compared to about a $5.4 billion domestic
market. Cross-border parcels are about 2.2 billion and conservatively estimated to
grow to about 3.5 billion. The pie is growing, Reed said, with a lot of brand new
customers being seen. He said he thinks the market will grow significantly.
Most of the businesses that started doing cross-border shipping are in the apparel
industry because it is an expensive service to start and they could absorb the costs
in their profit margins. Apparel brands also tend to be trans-national and attractive.
But that has been changing lately, Reed reported, with a trend toward collectible
and unique items driving demand (e.g. eBay).
In looking at the top 11 geographies for U.S. retailers by retail spending, the largest
generally is Canada, followed by English-speaking countries (e.g., Australia, UK, EU,
etc.). Those are key markets to do well in, then you can expand, Reed said.
Online retail sales show increases in developing markets with significant growth rates
(e.g., Brazil, India, China, Russia), but those are difficult markets to get into, Reed
said. Some are very protective, some have prohibitive duty charges, and some have
very complex and rapidly changing import/export rules.
What are the choices for merchants? Use a PMI service and hope for the best on
the other end; develop expertise inhouse to manage; build a supply chain? None are
really feasible for big retailers. There is huge opportunity for an industry to help solve
these issues.
October 3, 2013, PSA Seminar Report
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Pitney Bowes and others are looking at cross-border trends, including global demand
increasing across the board; developing countries becoming more important; merchants wanting to own the customer relationship; and import/export rules remaining
complex and dynamic.
Reed shared some ecommerce trend projections and in response to the question of
how much ecommerce revenue is generated domestically versus cross-border, he
said that depends on things such as population density, disposable income, etc.
As more people get online and there is population density and disposable income,
companies can put together a pick-pack operation that works. Industries develop
naturally in countries that have those capabilities, he said. Domestic markets
developing are likely to drive demand from other countries.
In response to questions, Reed said the average transaction cost is $150 for crossborder versus $75-80 domestically and from a weight standpoint, most cross-border
products are in the 5-10 pound range.
Types of International Technologies. For payment, necessary technologies for international
solutions include dynamic currency conversion, international payment processing and fraud identification. “International solutions need to include
technologies for dynamic currency
For shipping, technologies must address calculating
conversion, international payment
landed costs, international shipping options, import/
processing, fraud identification,
export management, and address standardization.
Language translation is also needed. Reed said that calculating landed shipping costs and
options, import/export management,
those companies doing well are those putting all
address standardization and language
these things together in terms of tools/services.
translation.”
The first part of the evolution of the market was just
getting the parcel there, shipping it and letting the
buyer figure out the costs when it gets there, and
Reed said lots of big companies are still doing this.
Customers get hit with charges later, however, which
results in a bad buyer experience and a negative
way to start a customer relationship.
Craig Reed,
Vice President of Global eCommerce
Pitney Bowes
Merchants are starting to take on some of the solutions, such as payment through
providers or hiring out language translation, Reed said, but there is still opportunity to
provide service in terms of shipping and import/export management, as well as
address standardization – which are areas merchants are usually not able to manage
easily.
Reed said that in Pitney’s experience, cross-border buyers usually purchase in these
top 10 categories (but he noted the mix is changing as more products become avail-
October 3, 2013, PSA Seminar Report
Page 13
able, and apparel retailers have been the early adopters so their markets are more
developed): apparel, footwear, leather, jewelry, electronics, home goods, clocks/
watches, carpet/fabrics, computers, cosmetics. Growth is being seen in collectible
product markets and products unique to a market, Reed said.
In a survey of 10,000 buyers in the United Kingdom, Canada and Australia, respondents were asked what would discourage them from completing a purchase once
they are near checkout, and the results indicated that shipping costs remain critically
important to the value proposition. Successful retailers tend to drop the cost burden
experienced by the buyer versus passing on all the costs. In the survey, 67% said
they did not complete the purchase because of additional fees at delivery; 77%
because of high shipping costs; 34% because of delivery taking too long; 39%
because of language translation difficulty; 32% because of bad return policies;
34% because of payment difficulties; and 37% said pricing was not in their currency.
“Telling people what they would pay in advance is critical,” Reed said. He also noted
that “welcoming people in the door” matters. International signage matters, he said,
noting a direct correlation to international signage and international revenues. In
addition, total landed cost transparency matters in that duty/tax charges must be
clear, as well as shipping charges being clear.
Reed said international ecommerce preparation is being driven by third party APIs,
applications and services that expose products to customers in a way that makes
sense to them. Pitney has built APIs that perform a lot of the export/import management, address standardization, etc. and has recently launched a global shipping
program with eBay. The process is described in the eBay community, and it allows
an eBay seller to list items, enable service to price transactions for cross-border, then
the seller ships to a domestic distribution center where it is aggregated and sent on,
with shipping/tracking information provided to the buyer on eBay.
For eBay, the biggest concern is the export/import compliance piece, Reed said,
and the fact that they don’t have to think about it and build those operations because
someone else can take care of it all, is a game changer. He said large merchants
want to use it on eBay and there is a lot of interest because of the ability to deal
with all the requirements and not worry about it. Part of the API is a classification
engine, Reed said, because the first step in any international transaction is classifying the item the customer is attempting to order/ship and that is not always easy in
ecommerce context. Pitney’s API uses artificial intelligence to classify items and as
more transactions happen, it learns more classifications and its accuracy increases.
Once the nature of the items is understood, Reed explained, it needs to be determined whether it can be shipped internationally before an order is placed. The API
has real-time prohibited goods screening, leveraging the classification engine out-
October 3, 2013, PSA Seminar Report
Page 14
puts, and identifies goods that may violate import/export rules, carrier restrictions, or
dangerous goods classifications during the item listing process on eBay.
Guaranteed landed costs are the intersection of accurate classification and a deep
understanding of the underlying costs to ship goods to the destination country. The
Pitney eBay API combines the output from the classification engine with predictive
analytics models that leverage historical transaction data. Regardless of what software algorithms may predict, Reed said, certainty is required to ensure compliance
with import/export law. This feedback loop makes the system smarter over time and
reduces the overall transaction cost, he said.
Lastly, shipping/handling services must meet the key
buyer requirements of low costs, fast shipping and
parcel visibility, and the seller requirements of
simplicity and consistency with domestic processes,
“Shipping/handling services must meet
Reed noted.
In response to questions about roles for the USPS
and other posts, Reed said posts could work
together on issues like the ways duties/taxes are
collected/enforced. Inter-postal cooperation has to
be linked, he said, because the original problems
trying to be solved can’t be ignored and you can’t
just solve a piece of it. But if a process is put together that uses the posts to solve the issues, there
is lots of business opportunity there. Reed said he
is a big believer in cooperation and partnerships
and there are lots of opportunities to solve these
issues. “The danger is when everyone tries to play
every role,” he said.
the key buyer requirements of low costs,
fast shipping and parcel visibility, and
the seller requirements of simplicity and
consistency with domestic processes.”
Craig Reed,
Vice President of Global eCommerce
Pitney Bowes
In terms of what posts can do, there can be high shipping costs on high price items
but there needs to be a guarantee of cost and visibility. Some posts are very good,
Reed said, some are not. The sooner there is an infrastructure built up, the sooner
the post can get to a high standard.
In response to a PSA member question about how customer service works with the
Pitney eBay tool, Reed said that ecommerce is all about “WISMO” (Where is My
Order?), and there needs to be data to answer that. For Pitney, they try to forestall
some of the issues by setting the right expectations, meeting them, and providing
online access to answer questions to issues don’t end up with a customer service
rep, but there still have to be staff phones to answer.
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Expectations differ from country to country in terms of delivery time frames, one PSA
member commented, asking how to deal with the wide range of expectations. Reed
said for Pitney’s API, windows are set based on reasonable time frames with a high
level of confidence. If delivery falls outside expectations, the customer probably
won’t order. The issue is more falling outside the expectations versus not having the
right expectation in the first place. It’s also a matter of hitting the price points in terms
of balancing cost and benefit.
Another PSA member commented that there is a perception among businesses that
do a lot of international that shipments that go through the USPS may have a lower
likelihood of assessment and, if that is true, how can the lack of visibility be reconciled. Reed said it is true to some extent that USPS may have a lower likelihood of
assessment, and it is an active area of work with the posts. Canada and the UK are
pretty good at collecting, he noted, but further out some countries have lower probability of collecting.
[Note: Reed said that most of the data presented in his slides is a couple of years old
because of the rapidly changing marketplace.]
Building a World Class Package Platform
Lauren Zalewski, USPS Parcel Platform group, presented an update on the Postal
Service’s World Class Package Platform initiative. Zalewski noted that this initiative
is part of the overarching USPS DRIVE (Delivering Results, Innovation, Value and
Efficiency) initiative sponsored by the Postmaster General and USPS Executive
Leadership Team (ELT), which encompasses very important programs. Starting last
January, when the Postmaster General and Chief Operating Officer asked for an
initiative dedicated to building package growth and ensuring the USPS has the right
infrastructure to support that growth, the World Class Package Platform initiative
begun.
October 3, 2013, PSA Seminar Report
The objective of the initiative is to “build a World
Class Package Platform that dominates the market
by establishing a package processing and delivery
network that supports package growth, delivery
expectations, and an enhanced customer experience.” Zalewski said that the USPS is planning into
the future, looking at where it wants to be 15-25
years from now in the parcel business. Letters and
flats are continuing to decline, she noted, and the
USPS is looking at where it thinks those volumes will
level out, where it sees package growth going and
what it needs to do to support that environment.
There are 8 key activities that support the World
Class Package Platform objective, which Zalewski
reviewed (see below). The USPS embarked on
planning for the initiative last January, developed 7
roadmaps and built out plans for each. She said the
USPS has made progress over the past Fiscal Year,
and has realized that the plan needs to be more
robust, so things are being added to it, like sales
plans. The USPS currently is developing those
plans for FY14 - FY17, she said, but noted that these
are ongoing initiatives that the USPS will build on.
Page 16
“The USPS is planning into the future,
looking at where it wants to be 15-25
years from now in the parcel business.
Letters and flats are continuing to
decline, and the USPS is looking at
where it thinks those volumes will level
out, where it sees package growth going
and what it needs to do to support that
environment.”
Lauren Zalewski
USPS Parcel Platform Group
World Class Package Platform Key Activities:
1. Establish package products and services that meet customer demands and increase market share
2. Define and implement most efficient and affordable package processing and delivery network for domestic and international packages
3. Align distribution and delivery operating plan with customers needs
4. Build requirements for enhanced technology and equipment to support growth
5. Develop and implement package delivery optimization plan
6. Provide simplified onboarding and flexible payment solutions
7. Improve the customer package pickup experience
8. Achieve 100% Package Visibility
In addition, there are separate plans that support the overall objective, which
Zalewski discussed as follows.
Integrated Package Network Plan. USPS leader: David Williams, Vice President of
Network Operations. Objective: Define and implement an efficient and cost effective
package network that supports package growth while achieving service expectations.
October 3, 2013, PSA Seminar Report
Page 17
Key activities:
1. Improve network capacity and facility space optimization
2. Ensure automated processing capabilities meets projected growth while minimizing processing costs
3. Refine transportation networks to support established service standards while
minimizing costs
4. Align package processing operating plan with future delivery needs
5. Establish standardized distribution concept plan to improve network efficiencies
Zalewski noted that the USPS moved 22 pieces of package processing equipment in
FY 2013 and has a dozen more moves scheduled through FY14 to properly align the
equipment. Once the USPS baselines and properly aligns the equipment, it will look
at where growth is occurring and what it needs in terms of next generation package
sorting equipment. Zalewski said the USPS already knows its next generation solution will need to have a small footprint with lots of separations and high throughput.
The USPS is also looking at how best to leverage its NDC facilities, Zalewski said.
Many process Priority Mail today, she noted, but the USPS wants to leverage those
facilities wherever possible. Customers are wanting packages delivered later in the
day, but carriers need to be off the street before dark, so the USPS is looking at how
to address the issues in the most efficient manner. Zalewski said her role in the
organization is to standardize mail processing operations, using as many lean
processes as possible and being as efficient as possible to reduce cycle time and
start pushing the envelope on clearance times by being more efficient.
Product Development Plan. USPS leader: Gary Reblin, USPS Vice President of
New Products and Innovation. Objective: Close competitive gaps to level the playing field and build a competitive advantage by targeting solutions across all shipper
sizes. Key activities:
1.
2.
3.
4.
5.
Package Simplification day-specific and Priority Mail Insurance Enhancements
Improve package pickup options
Improve manifesting and labeling solutions across shipper sizes
Launch real-time tracking service with customer visibility portal
Test and launch innovative products for e-commerce delivery
Zalewski noted that Karen Key, USPS Manager of x, also is working closely on this
part of the plan. She said that the USPS has strong solutions around carrier pick up
and large solutions for plant level agreements, but is looking at how to improve with
the small to mid-size customers in terms of pick up options.
Package Delivery Optimization Plan. USPS leader: Ed Phelan, Vice President of
Delivery and Post Office Operations. Objective: Build a World Class Package
October 3, 2013, PSA Seminar Report
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Platform by building a delivery network that supports package growth, delivery
expectations, and enhanced customer experience. Key activities:
1. Perform tests for proofs of concept/pilots for new package services and products
2. Evaluate the current state of the package delivery system
3. Develop strategy for Saturday (in a 5-Day environment) and Sunday package
delivery
4. Create requirements for enhanced technology and equipment to support the
package delivery strategies
5. Assess the feasibility and risks associated with shifting delivery times
Zalewski said that the USPS wants to continue Saturday package delivery as well as
offer Sunday delivery in some markets, and is looking at how best to support that.
Dynamic routing is key, she said, and the USPS is looking at how to leverage it not
just for package delivery on Saturdays/Sundays but how to integrate it into every day
Delivery Unit operations. The USPS does not always go to every house every day,
she said, and is looking at how to use the massive data now available to build dynamic routes for carriers. Enhanced technology requirements are needed to support
that effort.
On the vehicle side, the USPS’ Long Life Vehicles (LLVs) are reaching end of life and
the USPS needs to purchase new vehicles, but is looking to design them for the
package growth it expects in packages, supporting easy/efficient loading of packages. The USPS may also explore different types of carrier vehicles, for instance a
different vehicle design for dedicated parcel delivery routes.
Next Generation Equipment. USPS leader: Mike Amato, Vice President of Engineering Systems. Objective: Provide cost effective technology to support a competitive package product offering to improve service, increase efficiency and grow revenue. Key activities:
1. Define current state
-Processing and Distribution Center Capability
-Network Distribution Center Capability
-Delivery/Retail Unit Equipment
-Carrier Equipment
-Vehicle
2. Define future state based on output of the product development plan
3. Identify gaps
4. Establish equipment development plans
October 3, 2013, PSA Seminar Report
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International Package Processing Plan. USPS leader: Giselle Valera, Vice
President of Global Business. Objective: Build an international processing plan that
supports service expectations of our customers while providing the capacity required
to support both inbound and outbound international parcel products and increases in
revenue. Key activities:
1.
1. Determine current international network capacity, quality and performance
capabilities and constraints
2. Develop Gap analysis based on interdependent strategic roadmaps and projects
requirements concerning capacity, quality, and performance
3. Develop plan for a world-class international package processing infrastructure
that meets future demand while maintaining maximum cost efficiency
Zalewski said that the USPS is looking at the infrastructure and network for its
international parcel operations as well as its domestic operations. It is evaluating
the number, location, and equipment needs of its International Service Center (ISC)
facilities.
Improve the Customer Pick-Up Experience. USPS leader: Kelly Sigmon, Vice
President of Retail Channel Operations. Objective: Customer-centric, accessible,
secure, and convenient package delivery and return solutions that speeds up receipt
of the package, improves cost efficiency, and supports parcel growth. Key activities:
1.
2.
3.
4.
Reduce Failed First Attempts
If attempt fails, improve the package pick-up experience
Expand customer access and control with convenient and secure options
Enable convenient returns
October 3, 2013, PSA Seminar Report
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Achieve 100% Package Visibility. USPS leader: Jim Cochrane, Vice President of
Product Information. Objective: Introduce new technology and innovation to provide
World Class Visibility for all packages and increase the number of scanning events.
Key activities:
1.
2.
3.
4.
5.
Deploy policies, procedures & technology to barcode all packages
Deploy technology to achieve 100% scan performance
Capture and use address information on all packages
Upgrade infrastructure to support the increase in # of scanning events
Deploy reporting and analytics capabilities to achieve operational and customer
benefits of increased visibility
PSA members told Zalewski that the USPS needs to be careful that its changes in
processes and rules around package visibility (e.g., IMpb) do not add costs to
mailers. There needs to be a balance and the USPS pricing group needs to work
more closely with the operations and product information groups to ensure that
initiatives are integrated and don’t cause shippers to make investments in one place
and then add on costs.
Other. In response to PSA member questions, Zalewski said that the USPS is looking at consumer choice programs like those being offered by UPS and FedEx. She
said the USPS is looking at market research and solutions when holes or gaps are
identified. The USPS continues to work through MTAC, she said, to obtain industry
feedback, as well as meeting with individual customers.
Zalewski said the USPS also wants to embrace the parcel returns business and is
looking at it from the product platform side. The USPS wants to be the carrier going
out and the return solution coming back, she said, so it is looking at its infrastructure
needs to support that from the mail processing and delivery sides.
Pricing Update
Sandy Glick, SLS Consulting, provided an update on pricing developments, reporting
that the USPS last week filed two price increase requests for Market Dominant
products. The changes don’t apply to Competitive Products, he noted, but said that
prices for those products will likely be announced in November, at least 60 days
before the USPS plans to implement it, which is likely to be January 26, 2014, the
same as for the Market Dominant price changes.
One filing made by the USPS last week was for a normal CPI-cap price increase for
market-dominant products averaging 1.6%. The other combines that increase with
an additional 4.3% average exigent price increase, totaling about 6% average
increase. Both price changes are applied generally on an across-the-board basis,
October 3, 2013, PSA Seminar Report
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but there are outliers where the percentage change is not the average, such as
First-Class Mail retail parcels.
If the PRC does not approve the exigency price increase, the USPS would still need
to have the CPI increase filing as a back-up, thus the two separate filings. The
USPS’ Board of Governors in approving the exigency filing said that if postal reform
was enacted and they felt comfortable, the USPS could just implement the CPI
increase instead of the combined CPI/exigency increase.
The PRC has 45 days to decide on the CPI increase, and in the past it generally has
approved those requests from the USPS with little change. The PRC has 90 days to
approve, adjust, or reject the exigency case, so that decision is expected around
Christmas. The USPS has to show extraordinary circumstances in order for the PRC
to approve an exigency price increase request, as well as other criteria. The USPS
is citing the recession of 2007-2009 as the extraordinary circumstance, and the PRC
in the USPS’ previous exigency request had said the recession qualified as an
exigency circumstance, and had provided a roadmap for the USPS to determine the
impact and then request an amount up to that impact. The USPS has estimated that
the recession cost it $6.6 billion in FY2012, but it is only requesting $1.8 billion in its
current exigency price increase request.
Glick said it is unknown how the PRC will proceed
on the exigency request, but he recommends
that when budgeting for 2014, businesses should
budget assuming it will be approved with the understanding that it could be adjusted or rejected. He
recommended using a 6% budget increase with an
implementation date of January 26, 2014.
In response to PSA member questions about what
impact the current government shutdown could have
on the PRC’s work, Glick said that based on
comments from PRC Commissioner Robert Taub at
the PSA event yesterday, if the government is only
shutdown 2-3 days, the PRC likely wouldn’t extend
the 90 days deadline, but if the government is shut
down 2-3 weeks, the PRC may have to extend the
process. It is too early to tell at this point, he noted,
but if the shutdown continues toward the end of
October, the PRC will likely have to adjust its
schedule.
“When budgeting for 2014, businesses
should budget assuming the USPS’
exigency price increase will be
approved with the understanding that it
could be adjusted or rejected.
Businesses should budget for a 6%
increase with an implementation date of
January 26, 2014.”
Sandy Glick
SLS Consulting
In response to the PSA member question of whether the $6 billion the USPS
estimated it lost due to the recession includes Competitive Services products as well,
October 3, 2013, PSA Seminar Report
Page 22
Glick said since there is no price cap on the Competitive side, the USPS can raise
those rates as much as the market will bear, so it does not have to do that type of
filing, and the rate increases on the Competitive Services side have been higher than
the rate of inflation. In response to the question of whether a larger increase should
be expected for the Competitive Services products in 2014, Glick said the USPS will
raise the prices to what they think the market will bear.
Regulatory Update
Michael Scanlon, K&L Gates, provided a regulatory update on other matters before
the Postal Regulatory Commission (PRC). He began by reiterating the fact that the
current government shutdown could have an impact on the PRC’s proceedings.
Right now, he noted, the PRC is closed along with the rest of the federal government.
The 5 commissioners and 2 IT staff are the only ones working. While the shutdown
continues, the PRC dockets will not be operational and the impact depends on the
duration of the shutdown. By law, the PRC staff are prohibited from working.
Scanlon gave an update on the active cases currently before the PRC, by case type.
A Cases – Appeals. A cases include appeals cases filed by consumers, communities or labor appeals of retail post office closures. The PRC has limited authority but
performs a procedural review. These cases have an impact on PRC operations,
Scanlon noted, because nearly 200 were filed simultaneously, which was taxing the
PRC’s resources. That activity has abated now with the USPS’ PosTPlan activity.
C Cases – Complaints. Scanlon noted there are two significant complaint cases
active before the PRC. One is a complaint by the APWU challenging the USPS
network rationalization plan, alleging that two of the facility closures significantly
disrupted service and asking the PRC to revisit those and ask the USPS to present
data on the impact on service. The USPS is taking the position that it is attempt to
slow down closures. It is not likely to go far, Scanlon noted, but we may see more
appeals of this type.
The second complaint case worth noting is the Gamefly complaint, which alleges that
the USPS gave preference to one DVD mailer over another. The case has now
moved in the direction of whether the USPS can transfer market dominant products
to the competitive products side, which has raised interesting market definition
questions. Some of the issues involve the scope of the USPS monopoly, and there
could be significant ramifications from the outcome, Scanlon said.
CP Cases – Competitive Products. Competitive products cases involve contract
rates the USPS enters into with individual customers (e.g., NSAs). NSAs are one of
the success stories of the 2006 PAEA law, Scanlon said, noting there have been
about 90 cases to date and they tend to move through the PRC fairly quickly now as
October 3, 2013, PSA Seminar Report
Page 23
it has become adept at handling them. These cases include global resellers, Priority
Mail and Parcel Select.
PI Cases – Public Inquiry. Public Inquiry cases are PRC-initiated dockets to
explore various issues. Current active PI cases include Competitive Products Fund
(accounting and transparency); 407 Inquiry (international postal arrangements); and
investigation of suspended post offices (lease expiration, stealth closures).
RM Cases – Rulemaking. Under the PAEA, the USPS has increased pricing
flexibility, Scanlon said, but the PRC establishes the rules through RM dockets.
Current active RM dockets include Periodic Reporting/data collection; Market Tests/
Experimental Prods; Unfair Competition (404a); Advisory Opinions; Mail Classification Schedule; and Price Cap Mechanics (the way it is implemented has some impact
on all products).
On the 404a Unfair Competition docket, Scanlon said there is a statutory provision
that tries to reconcile the USPS’ dual role as service provider and competitor in terms
of how it both regulates and competes, compelled disclosure IP, and how it obtains/
uses nonpublic information. For Market Dominant products, the PRC is the exclusive
competition regulator because the USPS is exempt from antitrust laws. For Competitive Services products, the PRC is the first-line defense to raise issues without going
to federal court. These rules are a requirement from the PAEA, but there is no time
limit.
The Price Cap Mechanics applies only to the Market Dominant products, Scanlon
noted, and deals with things like incentive programs, unused rate authority, timing of
filings. Two items have a potentially significant impact on the current pending rate
cases – the IMb Full-Service mandate and offset of eligibility changes that affect the
price (if the price increase that results from requiring IMb FS exceeds the USPS’ rate
authority); and the negative banked authority the USPS has, which is not included in
the exigency and could result in a modification of the amount the USPS has
requested.
R Cases – Rate. Scanlon noted that the fact that the USPS has filed the two cases
in parallel raises some interesting questions. The PRC’s role is different on the two
cases. It does a quick look on the price computations for the CPI case and some
review of workshare discounts, but is much less hands on. The PRC has interpreted
its own authority on such cases as limited. But it has a much freer hand on the
exigency case and will have to go through a series of different determinations in its
review of the USPS’ request, including the exigency criteria, the amount, who pays,
as well as the “reasonable and equitable and necessary” requirements where the
PRC has broad latitude and has never issued an opinion.
October 3, 2013, PSA Seminar Report
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PRC Role Going Forward. Scanlon noted that some of the postal legislation bills
have proposed significant changes to the PRC’s oversight role. Senate bill S1486
proposes a diminished role for the PRC in both pricing and non-pricing matters. A
balance between the USPS’ operational flexibility versus effective regulatory oversight is critical for market dominant products and important for competitive products
while a monopoly remains.
Legislative Update
Pierce Myers, PSA Executive Vice President & Counsel, provided a legislative
update. He began with the complex diagram of how a bill becomes a law under the
proper process, noting that often that process is no longer followed to the letter. He
then gave a re-cap of where things stand on pending postal legislation.
Myers said that there has been little progress in the regular, traditional sense (regular
order) in either the House or Senate. In the House, Chairman Issa's Committee has
approved a bill, but has not officially reported it to the full House, which is the next
step in the process. On the Senate side, two committee hearings have been held on
a bill sponsored by Chairman Carper and Ranking Republican Coburn. They have
described their introduced bill as a draft, and asked for suggested changes. PSA,
DMA, NPPC, and the 21st Century Coalition are in discussions with top Postal
Service officials and union leaders to see if a bill agreeable to all can be cobbled
together.
October 3, 2013, PSA Seminar Report
Page 25
Myers provided a comparison chart (see below) of the House and Senate bills with
the USPS’ plan. He noted the following highlights on some of the key elements.
Price Cap. The USPS would like to be able to spread the price cap across all products, which means there could be greater price increases for "underwater" products
or smaller classes and more moderate increases for other products. The USPS has
pushed for this change since 2006, Myers said. The Senate bill would also shift substantial authority from the PRC to the USPS and eliminate the price cap in 2017.
These particular provisions are adamantly opposed by the industry.
5/6 Day Delivery. This issue has a direct impact on the parcel industry, Myers
noted, and both bills would allow the USPS to make the change, with some delays
built in. Significant savings for the USPS have been attached to this issue, though
the estimates differ between the USPS and PRC. But, in another victory for PSA, the
bills would require continued Saturday delivery of parcels.
Centralized Delivery. Myers said that the USPS Office of Inspector General (OIG)
report had suggested that the USPS could save a lot of money if it moved a portion
of its current door delivery addresses to curb or centralized delivery. Under the
House bill, both businesses and residences would be required to transition to curb or
centralized delivery (with some exceptions). Under both bills, all new residences
would be required to have curb or centralized delivery unless it was not practicable.
October 3, 2013, PSA Seminar Report
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There are about 38 million existing door delivery points, and pressure is building to
change as many as possible to a cheaper mode of delivery. The House committee
has asked the Government Accountability Office (GAO) to review the issue. At GAO
request, PSA is serving as a resource for the study.
In response to a PSA member question of whether there has been any study on
consumer reaction or direct marketing response analysis by delivery type, Myers said
the GAO is still forming a plan as to what it will do.
New Products. The USPS has asked to be freed from the 2006 restrictions that limit
it to providing only "postal" products and has pushed hard for this. The Postmaster
General is focused on wanting its authority in the digital realm clarified. The Senate
bill opens it up a bit more and says the USPS can move into new markets if there is a
market failure, i.e., if the private sector can't serve the market. The House bill would
allow the USPS to expand into providing more service for Federal, state, and local
government entities, but would otherwise continue the ban on USPS providing new
Non-postal services.
USPS Health Plan. Myers noted that the "solution du jour" is the USPS changing
how it provides health insurance for its employees and retirees and requiring that
benefit plans be integrated with Medicare parts B and D. He shared slides (see
below ) that purport to demonstrate the substantial savings which could accrue to
the Postal Service under such an approach. The Postal Service believes the savings
would virtually eliminate the pressing unfunded liability it faces under the existing
system and reduce its costs by as much as $3.5 billion per year. The change,
however, requires a change in law. PSA is supporting efforts to achieve the needed
changes.
October 3, 2013, PSA Seminar Report
Page 27
“Underwater Product” Increase. "Underwater" products, as identified by the PRC,
include Periodicals and Standard Mail flats. The PRC repeatedly has said these
products are not covering their costs and urged the USPS to raise their prices. Both
the House and Senate bills have mechanisms that would require products covering
less than 90% of costs to be increased at a rate of 2% above the increase allowed by
the price cap.
Workers Compensation. Myers said that for the past 30 years the Postal Service
and various administrations have tried, unsuccessfully to reform the workers compensation program that covers all Federal employees, including postal. Given the
state of the USPS' finances, however, perhaps progress will be made on that finally
for at least postal employees. This would result in savings.
Questions. In response to the PSA member question of how to measure progress in
the legislative process, Myers said that the willingness of all involved parties, mailers,
labor, and the Postal Service, to get together and talk is a good measure because
any one of those interests probably can stop legislation from moving. Although most
of the Government is shut down, PSA continues to work with these parties seeking
an agreeable legislative solution. Myers said he has a good feeling about the progress that people are trying and are compromising on things you would not expect
them to. He noted, however, that only 3 of the major postal unions are actively engaged in the health care discussions.
Myers said the key to success lies with the USPS getting revised health insurance
plans that integrate with Medicare. That could go a long way to righting the ship. It
would be a huge step forward and provide a lot more flexibility on the other contentious items such as Saturday delivery, door delivery, and price cap changes, and the
pending exigency case. Possible savings from these areas might not be necessary. It
is a very fluid situation right now, however, though at the last hearing Senators
Coburn and Carper invited the parties to come forward with a solution. If those
groups could find common ground, Myers said, it would be beneficial. But we should
not underestimate the difficulties of any changes involving Medicare, he said.
October 3, 2013, PSA Seminar Report
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PSA International Committee
John Callan, URSA Major Associates, said that the feedback from PSA members on
the international portions of the meeting were interesting. PSA has an international
committee, he noted, which has not been very active in the past because of lack of
interest. If there is now interest in revitalizing that effort, contact PSA and it can be
done. Callan said that while IMAG does deal with international mail issues, its focus
is primarily IPA and ISAL and Canada. IMAG doesn’t deal with customs issues or
cross-border issues, he noted, so if there is interest in PSA taking up those issues
through its committee, he can coordinate. Those interested should contact John
Callan.
2014 PSA Meeting Schedule
Wendy Smith, PSA President, said that the 2014 meeting schedule has not yet
been finalized, but the association will try to do four meetings again, while trying to
maximize travel and budget by dovetailing around other meetings. Two time frames
for meetings are likely – one is definite, the Sunday before the National Postal
Forum, which will be held in Washington, DC in 2014 in March. The other would be
in October around this same time of year. The other two meeting dates are not yet
decided, and suggested dates will be sent out to the membership. PSA members
should let Pierce Myers know any topics they are interested in hearing more about
at the meetings.