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Summary:

The United States Postal Service is in dire straights. The second-largest employer in the country (behind only Wal-Mart) is facing a massive fiscal crunch amid falling mail volumes and rising expenses. The GAO estimates total mail volume will fall to 175 billion pieces in 2009, a […]

usps_smalluseThe United States Postal Service is in dire straights. The second-largest employer in the country (behind only Wal-Mart) is facing a massive fiscal crunch amid falling mail volumes and rising expenses. The GAO estimates total mail volume will fall to 175 billion pieces in 2009, a massive, unprecedented drop to levels not seen in more than 15 years. In a release today, the USPS blamed the drop on the “trend of letter mail and business transactions being replaced with electronic alternatives” and anticipated “continued downward pressure into coming years.” In other words, email is killing the USPS. But it’s not that simple.

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Surely more business is being done online, but there is no correlation between Internet adoption rates and a drop in mail — both have been generally rising over the past 15 years, at least until mail service fell off a cliff over the past few months. It’s likely that the Internet is playing a role, but I don’t think all the blame can be placed on technology. A look at the history of total mail volumes shows that declines around recession years are not uncommon, with particularly large drops occurring in the 1930s.

Additionally, the service’s package delivery competitors, like FedEx and UPS, don’t show a comparable drop in revenue, though it’s not a great comparison as those company’s routes have traditionally been more profitable than the Postal Service’s — plus, as a publicly traded company, FedEx has more of an obligation to be profitable than the government-run USPS. Though, as one of the few legal monopolies, shouldn’t the post office, with no competitors in most of its market (federal law states the USPS is the only organization that can deliver “non-urgent” letters like First Class and bulk mail), be able to make a profit? So we leave it up to you, dear readers. Why is the Postal Service in such a state?

By Jordan Golson

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  1. I think online adoption and the recession are playing an equal role. The USPS doesn’t run a very tight ship either; another cause.

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  2. Answer: Direct Mail Marketing.
    While email was stealing away everyday users of postal mail to do our daily business, improved database content and techologies offset that decline and drove an increase in the number of pieces handled (especially credit card applications). The recent downturn has put a halt to these types of mailings. Without them the post office is back to 1993 levels.
    Even with that decline, I think direct mail marketing represents 50% of mail USPS mail.

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    1. Is DM mail more profitable to handle than 1st class mail? I would think so, as it is standardized and done in bulk, but don’t know.

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  3. The steep decline in credit card solicitations and other direct mail marketing probably has quite a bit to do with this as well.

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  4. More importantly than direct marketing representing 50% of USPS mail, “Standard Mail” constitutes 50% of their revenue, which I have to imagine is declining.

    “Standard Mail” btw, used to be known as “Bulk Mail” or 3rd class mail, as in the stuff addressed to “Resident.” This is the stuff that essentially blankets an geographic region that has to have a poor return rate for anything other than retail and grocery sales.

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  5. I think the USPS is suffering from “The Perfect Storm”. Decades of mismanagement, combined with slow but steady increases in e-mail replacing snail mail, and our current economic recession are all contributing factors.

    There is however a second Internet related phenomena that you failed to mention. E-mail is not the only thing that has replaced snail mail. Online billing and payments have hit critical mass in the last year or two. Everyone is paying everything online these days. In the past, the USPS got paid twice for every bill sent out. Once when the bill was sent, and again when the payment was sent back. That’s simply not happening anymore (or not nearly as often). Not only are bills being paid online (eliminating the sending back of a check), but in the last year or so, even the bills themselves are being sent electronically. That’s got to be a huge part of the USPS’s mainstay — dried up with no hope of return.

    Catalogs and magazines are also going digital. Even Playboy is suffering in the print business. These large, bulky items were likely huge money-makers for the USPS. Once again, the Internet has leached this business away from them.

    Probably the only source of paper mail on the increase these days are letters from debt collection services.

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  6. Many banks and other billing services are switching more aggressively to paperless billing in an effort to control costs, something that can only have been accelerated by the recession. Similarly, direct mail marketing is diving as companies are slashing their marketing budgets and rerouting what’s left to trackable online advertising instead.

    It’s “dire straits”, by the way.

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  7. I don’t think you have covered all the issues here.

    Of course the recession is part of it. People aren’t spending money, that means less advertising (mailings), less invoices, less checks, and more. The people that are out of work are submitting resumes electronically – I can’t recall the last resume I sent or received USPS.

    FedEd and UPS are very different models. It isn’t just delivery – they don’t go to houses if they don’t have a delivery. And they charge substantially more to deliver a letter. So much more, it never makes sense.

    That leaves the USPS with the obligation, routes, and headcount to support the crap. The base infrastructure. I run a small business and we send all our invoices by PDF email – some payments come in electronically. Almost all advertising is electronic. These trends are not likely to reverse. I just got wedding invites by email.

    The fact is USPS is not as important as it was due to physical and electronic alternatives – but it is still critically important.

    As a result, we need to look at updating the model to be less critical. Do we really need delivery 6 days a week?

    I also think there is a big increase in packages thanks to the likes of Amazon and eBay. The post office can really capture this with better tracking services and better rates. But I tend to use UPS for my shipments simply because it is easier.

    A reliable and expensive postal system is critical to our infrastructure.

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    1. Excellent response Dave,

      People forget that the USPS is forced into the least profitable line of business out there, door-to-door delivery to almost every area of the U.S.

      It’s time to let the USPS drop mail service to remote locations and become more competitive, after all the U.S. is now much more urban than rural.

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      1. They cannot just drop service to rural areas – it’s quite possible those folks are the most likely to NEED mail delivery. If the Postal Service didn’t deliver to the more remote locations – who would? If the Service was to be privatized, as some suggest, there would be cream skimming of the urban areas and rural would be left out because it is just not profitable.

        Layer upon layer of postal management, with their bonuses and poor decisions, are to blame. We need the postal service but heavy cuts need to be made in the areas of people who have nothing to do with the processing or delivery of mail. People who sit behind desks and generate one needless report after another. Supervisors supervising other supervisors.

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  8. The Postal Service is simply not reaching their market because of a fundamental shift in the way people want to be marketed to. Each week I open my mailbox, take out dozens of ads, flyers, newspapers, and throw them into the garbage without a second thought. In fact it’s become so annoying I can hardly find a real letter anymore. At least online you can filter out the things you don’t want and get the things you do. Time to downsize or privatize.

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  9. it’s also important to note the growing trend to go green and switch to receiving email account statements instead of paper statements — notable early adopters of this are banks, credit card issuers, brokerage, electric utilities, cellphone carriers, and pay tv providers (directv, time warner, etc). the more and more of these companies push their subs to switch / go green, the bigger the impact will be on USPS which traditionally has been able to count on these monthly recurring postage fees.

    basically every product or service that switches from monthly billing and mailed paper statements to electronic will slowly kill the USPS model. they have to react and adapt. and it may be the only choice is to cut staff and equipment over the next decade…

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  10. First of all, I love it that I can log in with Facebook credentials. Thank you.

    Second, and on topic, is my support of twice-a-week mail delivery. Monday and Thursday is plenty for me, unless someone wants to next-day me something, which they can pay extra for, or use UPS or Fedex. But for 99% of the stuff that comes to me in the mail could certainly be a couple days later with no repercussions at all.

    The biggest hurdle to this idea, however, is the union at the post office. I’m not necessarily anti-union at all, but they seem bound and determined to make sure that the post office fails instead of re-groups intelligently.

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