Why the Postal Service Must Survive
Over the past several months we’ve had dozens of meetings with major mailers, compilers and list brokers. The overall consensus is that business is improving, and looking good for 2012. Our company can attest to that. Sales in 2011 are up substantially compared to the past three years. We’re not up to 2007 levels, but we think we might get close to that goal in 2012.
In the third quarter of 2011, the USPS reported the following volumes:
* First Class: 17.7 billion pieces.
* Standard Mail: 19.7 billion pieces.
* Periodicals: 1.8 billion pieces.
* Package Services: 143 million packages.
The USPS has 574,000 employees, making them the second largest employer in the country. Their fleet has 218,000 vehicles, the largest fleet in the world. This is a massive enterprise. They will probably lose $9 billion in 2011, and that rate of loss cannot be sustained. Something must be done.
The USPS has 461 mail processing centers. They want to shut down 252 of them. The postal service also wants to shut down 3700 local post offices. They want to get rid of 220,000 employees – 100,000 through attrition and 120,000 through layoffs.
They have agreed to wait until May 2012 to implement these changes. In addition to closing those physical facilities they want to:
* Void current union contracts.
* Move their employees out of federal health and retirement plans.
* End Saturday delivery.
* Raid the pension surplus to make a mandatory payment on retirement benefit funds.
The volume of standard mail is showing life. But the volume of first class keeps falling. Think of all of the bills and payments and reports that you now receive online that you used to receive via first class mail. That switch is not going to stop, if anything it’s going to escalate. Everyone is talking about the need to increase prices and reduce services.
However, no one is talking about what impact on direct mail response these changes will have. For example, during the holiday season we receive many catalogs every day, lots of nonprofit solicitations, etc. Currently, they are spread out over a six-day delivery week. But if the USPS cuts Saturday delivery, the amount of mail we receive each day will increase by 20%. There is no doubt that will decrease the response for each mailer.
The postal service has discontinued its overnight first class mail promise. Although almost all mailers use standard mail, many use first class. Slowing down delivery on invoices means slowing down cash flow. And that can force some companies to begin or increase costly borrowing.
I’m assuming that something will be worked out between the USPS, its unions and Congress. So the postal service will continue to provide for America. However decreased profitability by mailers will lead to few and fewer pieces being mailed. This creates a vicious cycle of the USPS dealing with decreasing revenue by increasing costs and decreasing services. And that in turn leads to lower mail volume and other unwelcome surprises.
We all have a vested interest in how this will be resolved. As we are not only interested in USPS survival, we need rates and delivery that will allow our industry to prosper. The best way for you to deal with increased postage rates, and decreased service is to identify new markets that allow you to expand your mail programs.
David Bancroft Avrick is president and CEO of Avrick Direct.
