Will Publishers Pay for the USPS’s FSS Fiasco?
More than seven years after it began rolling out, the billion-dollar system that was supposed to revolutionize how publications and other flat mail are handled is still making the U.S. Postal Service less, not more, efficient. In fact, the Flats Sequencing System’s performance, already well below plan, declined even further last year, according to a recent USPS report.
Publishers have been shielded from footing the bill for the FSS fiasco – so far. But goings-on in Washington threaten to pierce that sanctuary.
Buried in a USPS report (excerpted and explained further on the Dead Tree Edition blog) issued just before New Year’s were the latest ugly facts: FSS throughputs declined 6% last year, and the proportion of FSS mail that was sorted on older equipment or manually rose from 40% to 43%. “Mail Pieces At-Risk” (Postalspeak for really bad screw-ups, like jammed machines and ejected magazines) also rose 6%, affecting 1 of every 18 magazines, catalogs, and retail flyers.
Previously, postal officials have blamed declining mail volumes and flimsy mail pieces for the poor performance. Neither of those issues are going away.
Another recent USPS report argued that it will just take more time: “The Postal Service’s experience with the FSS is in its relative infancy, and the Postal Service is still learning about which operational flows will minimize the cost of FSS processing.”
That “infant,” however, is old enough to attend elementary school and still shows no signs of ever being able to walk.
With an investment of $1.3 billion to install 100 football-field-sized machines, FSS’s Phase I was supposed to save the agency about $600 million annually by sequencing flat mail into walk sequence instead of letter carriers doing that manually. Wisely, postal officials stopped talking about Phase II several years ago, so only about 30% of the nation’s flat mail goes through FSS facilities.
The Postal Service’s cost of handling FSS flats was supposed to be even less than the cost of handling publications that are in carrier-route bundles, which require minimal handling until they reach the letter carrier . But with machine throughputs running 35% below plan, postal officials acknowledge that the additional costs of FSS sortation are greater than the savings from letter carriers not having to sort copies that are in carrier-route bundles.
Besides overestimating throughputs, the original FSS plan included two other miscalculations:
- It didn’t count on flat mail becoming more efficient without FSS. Thanks to better rate incentives and heavy investment by the printing industry, the proportion of non-FSS flat mail in carrier-route bundles has risen from less than 50% to more than 70%. That means the new-fangled FSS will never pay off unless it becomes as efficient as carrier-route bundles and 20th century technology.
- It assumed that the volume of flat mail would continue increasing, even though mailers warned that this thing called the Internet was already stifling demand for newspapers, magazines, and catalogs. Sure enough, as the USPS was installing the first machines, flat mail was dropping by double-digital annual percentages -- and continues on a downward path today.
Here’s why the FSS fiasco is a threat to publishers: As required by Congress, the Postal Regulatory Commission is leading an in-depth review and rethinking of the self-contradictory (Thanks, Congress!), 10-year-old law that overhauled how postal rates are set. The timing is not good.
The law continues the practice of providing preferential rates for Periodicals, a tradition that started with the Founding Fathers’ view that widespread newspaper distribution would help bind the young country together. (Even though the vast majority of Periodical mail today is magazines, not newspapers.)
But the same law also says that each class of mail should cover its own costs. USPS estimates that publishers’ postage rates would have to be jacked up 35% for the Periodicals class to break even. And thanks largely to the FSS, the trend has been getting worse.
The breakeven requirement is trumped by another provision of the law that caps price increases for each class of mail at the inflation rate. Noting the inconsistencies in the law, postal officials have proposed relaxing that requirement to allow higher rate increases for Periodicals in exchange for smaller (or no) rate hikes on more profitable classes.
Speaking of trumping, this review of postal law comes just as the White House is about to get an occupant who doesn’t exactly have warm, fuzzy feelings about the Fourth Estate, especially magazines. (Can you say “Vanity Fair”?) Ending the Periodicals “subsidy” would do little to save the Postal Service, but it might be good politics.