PRC’s Goldway on FSS, The ACD filing and Catalog Elasticity

The U.S. Postal Service’s $1.5 billion flats sequencing system (FSS) equipment hasn’t lived up to expectations, according to Ruth Goldway, chairman of the Postal Regulatory Commission.

During her Tuesday session, “How the Postal Regulatory Commission Thinks,” at the fourth annual National Catalog Forum, presented in Washington June 21-22 by the American Catalog Mailers Association, Goldway said the PRC has questioned the FSS projected savings for years. “We’ve been giving them the benefit of the doubt and were hopeful about it.”

The USPS has said the implementation of FSS machines would improve efficiencies and control costs by automating the sorting of flat mail. The Postal Service believed FSS will eventually enable it to sort flat mail in carrier walk sequence at speeds of 16,500 pieces per hour.

But the FSS implementation process started slow and has been stalled thanks to the decline in flat mail volume and the financial condition of the Postal Service.

On a positive note, Goldway said Postmaster General Patrick Donahoe has been more responsive than any if his predecessors regarding systemic equipment problems. But the USPS “can’t just ditch the FSS system and install a new one,” she said. “There needs to be cost savings and rationalization.”

Goldway believes that an in-depth study of the catalog market segment conducted by the ACMA could improve the industry’s standing in the eyes of the USPS. “We need to get better information on elasticity,” or how a change in price affects catalog volume or demand, she said. “The data you’re trying to collect will be helpful.”

Most ACMA Forum attendees believe the Postal Service’s costing methodology regarding Standard Mail flats is flawed. The PRC’s Annual Compliance Determination for fiscal 2010 found that rates for Standard Mail flats – the category most used by catalogers — are not in compliance with the 2006 Postal Accountability and Enhancement Act when it comes to “a fair and equitable apportionment of the cost of postal operations.”

ACMA officials translated the ACD filing to mean catalogers could get hit with a whopping 22.3% postal rate increase – the amount needed to cover catalogs’ costs. But that was never the case, Goldway said.

“I know you weren’t happy with our ACD filing,” which singled out Standard Mail flats as not covering their costs, while directing the USPS to come up with a plan to remedy the situation, Goldway said.

“It was never our intention to have the USPS raise rates in any precipitous fashion,” she said. “We want [the USPS] to come back with a plan about cost savings and price adjustments.”

Goldway added: “I’m the biggest catalog reader on the commission. But remember you’re just one part of a vast group of stakeholders. We have to balance all of the interests.”