What’s Changing More: Prices or Preparation?

Bob Schimek
Posted by Bob Schimek Senior Director of Postal Affairs Thursday, December 22, 2016 - 13:36
What’s Changing More: Prices or Preparation?

What will have a bigger impact on your business; the price increases from the January 22nd USPS® price change or the mail preparation changes that go into effect at the same time?  Most mailers are focusing on the increase in postage prices, however, this year the correct answer could be the scheduled changes to mail preparation.

For starters, letter mailers will see the removal of the 3-digit price and sortation level, which is part of the Postal Service’s simplification efforts.  The 3-digit and AADC prices have been the same for the past several price changes, so on the pricing side it allowed for the consolidation of several price cells that were not really being used.  

On the mail preparation side, the removal of the 3-digit sortation level could prove to have a larger impact.  Prior to the January 22, 2017 price change, the 3-digit sortation level was optional, so removing it completely seemed pretty straight forward.  That is, until you dive into some of the details associated with the change.  After 5-digit/scheme sortation level, the next sortation level for tray creation now becomes AADC.  This created some interesting scenarios for putting AADC trays onto SCF pallets where the two networks are still not aligned. 

In general, the ADC and SCF networks align.  However, with the final phase of network rationalization still on hold, there are currently about 17 instances where a single AADC services two or more SCF facilities.  This has raised questions on what should be done when an AADC tray is created for one of those 17 instances, and the AADC tray is placed on a SCF pallet and dropped shipped to the SCF facility.  

The Postal Service has stated that you will get the DSCF price on the pieces in the AADC tray even though that is not the SCF for those ZIPs.  This will only apply to the pieces in the AADC tray and would not apply to those same ZIP Codes if they were in 5-digit/scheme trays.  

This can be best understood by walking through an actual example:

  • 5-DG Scheme Wilmington MA 01887: Serves 01887 and 01940
  • SCF Middlesex-Esx 018: Serves 018 and 019
  • SCF Boston 021: Serves 021, 022, and 024
  • ADC Boston 021: Serves 018, 019, 021, 022, and 024

So if a mailing had 50 pieces for 01887 and 50 pieces for 01940, a 5-digit scheme tray would not be created, and those pieces would fall to an ADC tray.  Assuming there was enough other mail volume to create an ADC Boston 021 tray, it would be placed on a SCF Boston 021 pallet and drop shipped to the DSCF Boston 021 facility.  The Postal Service is allowing the industry to claim the DSCF discount on all the pieces in the ADC Boston 021 tray, even the 50 pieces to 01887 and the 50 pieces to 01940. 

However, if there were 75 pieces for 01887 and 75 pieces for 01940, then a 5-digit/scheme tray of 150 pieces would need to be created for Wilmington MA 01887.  This tray would have to be drop shipped to SCF Middlesex-Esx 018 to be able to get the DSCF discount.

Another preparation change related to the removal of the 3-digit price and 3-digit sortation level is the elimination of the origin 3-digit trays.  These are being replaced with an origin AADC tray.  While this might seem like a minor change, for some it could have a significant production impact. 

If your local SCF facility was SCF Hartford 060, you are probably making up to 10 different origin 3-digit trays for your mailings.  Likely many of those trays are small only partially full trays, because origin trays are created with no minimum.  With the January 22nd preparation changes all those small 3-digit origin trays will become a single origin AADC tray.  

And letter mailers aren’t the only ones who will be seeing preparation changes which will affect their production environment.  Flat mailers will also experience some important mail preparation changes being made to FSS (Flats Sequence Sorter) preparation.

A new FSS specific price, which was introduced in the previous price change, was not well received by the mailing industry due to the price being higher than Carrier Route High Density (HD) and High Density Plus (HDP) rates.  In an attempt to mitigate the impace of the new FSS price, the Postal Service allowed mailers to exclude HD and HDP mail from FSS preparation, but that also introduce additional mail preparation complexity.  Since the price change, the Postal Service has confirmed that they are seeing less mail destine for FSS ZIP codes as some mailers avoid prospecting to these areas because of the increased cost. 

To reverse this trend, the Postal Service is returning to its original FSS pricing methodology.  Pieces destine for FSS zones will qualify for the price it would have originally qualified for had FSS preparation not been required.  This means that mailers could see up to nine different prices in FSS scheme bundles.  Which in turn will bring back the value of co-mail pools to improve density and achieve the lowest prices.  With the restoration of original pricing, the Postal Service will no longer allow HD and HDP mail to be excluded from FSS preparation.  After the price change goes into effect, HD and HDP mail must be prepared in FSS scheme bundles and Presort will claim the appropriate prices for the pieces.

In addition to the new pricing methodology, to help the Postal Service more accurately track FSS costs, it has also introduce new FSS Optional Endorsement Lines (OEL).  These “optional” OEL’s will be required to be printed on every piece in a FSS Scheme bundle.   That’s correct, required Optional Endorsement Lines…   The new OEL will be very similar to the previous FSS OEL, with the addition of a single letter at the end of the OEL to indicate what price was claimed on that specific piece in the FSS Scheme bundle.  For Example:

  • *****SCH 5-DIGIT 12345 FSSA  reflects Carrier Route HDP price
  • *****SCH 5-DIGIT 12345 FSSJ reflects Presort Bound Printed Matter price.

The Postal Service has also modified the USPS Qualification Report.  You will see a new summary section at the end of the report that lists out the FSS piece totals for each of the nine possible rates that can be in a FSS scheme bundle separate from non-FSS Zones.  This will allow you and the USPS to track the prices being claimed between FSS and non-FSS ZIP Codes. 

One additional change you will see regarding FSS preparation will occur with the USPS publication of February label list data.  The February FSS label list (L006) will be expanded to include more ZIP codes in FSS preparation.  In mid-2016 the USPS started processing additional ZIP codes on the FSS machines, but did not add them to L006 to prevent the un-intended price increase created by the FSS specific price.  With the implementation of the January 22, 2017 price change, the FSS price goes away and the FSS ZIP codes are being added to L006 to better align industry mail preparation with how the Postal Service is processing the mail.

Overall, the January 22, 2017 price change will result in a roughly 1% increase at the class level.  However, the individual prices within each class of mail will vary above and below that Consumer Price Index cap.  Combine that with the mail production changes that were just covered, and this seemingly modest price change may have more impact on your individual mailings and production environment than what you’re currently expecting.