First Nsa Setting The Ground Rules

First Nsa Setting The Ground Rules

Byline: Barbara Love

As anticipated in CM’s August issue (Updates, page 18), the first Negotiated Service Agreement (NSA), proposed as a three-year experiment, was filed with the Postal Rate Commission in September.

NSA’s are designed to help the U.S. Postal Service boost mail volume and cut costs, at the same time encouraging and rewarding greater efficiency by individual USPS customers who participate in them. The official definition of a NSA is “an agreement with a customer on service and pricing reflecting the unique characteristics of that customer’s mailing practices and needs.”

While the first NSA is between the USPS and a very large First Class mailer (Capital One Services, Inc.), the proceedings will be watched by publishers and other high-volume USPS customers, regardless of mail class, because it will set the ground rules for future NSA’s.

The PRC can decide to accept, reject or modify the proposal. “No one has any idea how the PRC will respond,” says Gene Del Polito, president of the Association for Postal Commerce. “They could make it so ugly that no one will have anything to do with NSA’s from here on.”

Stephen Kearney, USPS VP, pricing and classification, said during a recent interactive Webcast with the Mailing & Fulfillment Service Association that there is no reason to expect that the USPS will wait on the outcome of this first NSA before it introduces another one. Kearney did not divulge which customers in which mail classes are talking with the USPS about NSA’s, but industry sources say that those mailers include magazine publishers.

“We’re open to considering all ideas that make sense to our customers and us,” Kearney told CM. “We plan to build on the success of the first NSA and then, working with the PRC and our customers, do more.”

The USPS/Capital agreement constitutes a significant reduction in costs for the USPS and increased efficiency for Capital One. The terms of the NSA include an incentive to maintain or grow volume, a linking of the incentive to addressing improvements to reduce processing costs, the elimination of the physical return of undeliverable pieces, and both requirements and penalties for performance.

Specifically, it includes discounts for Capital One’s First Class mail volume above an annual threshold of 1.225 billion pieces, and electronic address corrections rather than nearly 200 million physical returns over the term of the agreement. (Under normal First Class procedures, Capital One would receive free return of undeliverable mail.)

The NSA is new ground for the USPS, the PRC and mailers. According to Del Polito, the PRC has never before considered or approved a proposal based on an agreement with a single mailer. This is one way that the USPS is making good on its Transformation Plan promise to use its pricing flexibility to introduce innovative pricing designs. The USPS says that NSA’s can specify the preparation, presentation, acceptance, processing, transportation and delivery of mailings under particular rate, classification and service conditions, and can include restrictions that go well beyond those required of other mailers.

The bottom line is that the USPS expects to see operational costs fall and the mailer expects to benefit from more economical postal rates. Moreover, because the Postal Service will save money, non-participating mailers should also see a reduction – however slight – in their institutional cost burdens.

Industry associations are supportive of NSA’s. “We’re pleased that the log jam is finally broken,” Robert Wientzen, president, Direct Marketing Association, said in a statement. “The Postmaster General is delivering on a commitment made to commercial mailers and the mailing public. This is a good first step towards addressing market demand for consumers and commercial mailers alike.”

“As a general rule, we’re supportive of the USPS trying to find ways to drive costs from the system,” says Rita Cohen, Sr. VP, legislative and regulatory policy for Magazine Publishers of America. “There are some savings in this for the mailer. It’s similar to a workshare discount. We think it’s a good development that the USPS can do tailored cases between rate cases. The first NSA is not directly applicable to us, but we’re supportive of the process and the principal. The concept allows for more mailer innovation and can provide a savings for everyone.”

David Straus, postal counsel for American Business Media, says ABM is interested in a number of general issues, including: the nature and speed of the proceedings before the PRC; the manner in which results will be made available to “similarly situated customers;” the burden of proof that will be imposed on the USPS for demonstrating that the theoretical cost savings will actually be obtained; and administrative costs – whether and to what extent the USPS’s administrative costs will be considered.

Many mailers, including publishers, are also interested in mail volume requirements for NSA’s. CM asked Kearney whether or not the USPS has established a minimum annual mail volume that would be required before the USPS would consider an NSA with a particular mailer. “We do not have a cut-off,” Kearney said. “But until the PRC litigation process becomes more regularized for negotiated agreements, customers are likely to take into account the cost of litigation and the uncertainty of the outcome in deciding what to pursue.”

You have to be careful not to read too much into the first proposal, says Del Polito. “First Class mail is the least problematic and the least politically-sensitive class of mail the USPS could start with,” he says. “They chose the best case – the largest single user of First Class – to test to see if the PRC will withstand the onslaught of criticism that will come from small mailers who think that this program just gives to the big guys at their expense; the unions, who are afraid NSA’s will eliminate work; and competitors to Capital One, who may contend that they are disadvantaged. Also, I’d be stunned if the Nader organization doesn’t pop in to defend the little guy. All parties will be feeling their way and trying to establish precedent.”

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