Blog Post

Don't Blame the Web for Postal Service Woes

Stay on Top of Enterprise Technology Trends

Get updates impacting your industry from our GigaOm Research Community
Join the Community!

usps_smalluseThe United States Postal Service is in dire straights. The second-largest employer in the country (behind only Wal-Mart (s wmt)) 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.


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 (s fdx) and UPS (s 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?

27 Responses to “Don't Blame the Web for Postal Service Woes”

  1. You have no idea what you are talking about. Things in the Postal Service aren’t even close to that bad, and almost all of the woes of the Postal Service can be tied back to the bad economy and a requirement to prefund their retiree health benefits in an unrealistically short time frame, which Congress put on them to make the budget look better. No private sector company has such an obligation. If they did, they too would look bankrupt. So far this year, they are down net $1.8 billion. That’s about 2.6% down. Not bad for the seond year of the Great Depression II. When the economy comes back, they will pick that back up. True some of the mail is going electronic, but online purchasing is giving them a lot of business, business that is projected to grow by 20%+. UPS AND Fed Ex are increasingly using the Postal Service as the final step for a lot of deliveries.

  2. PhillipP

    Today for the 5th time in a row I received my photo order from Snapfish creased. The envelopes look like they have been run over by the mail truck or thrown off a mountain ledge. I had one order shipped FedEx and I received it in perfect condition. As of today I will be paying $5.99 instead of .99 cents for shipping FedEx knowing my treasured memories will be arriving in good shape.

  3. Kent Smith

    The USPS is one of the most over-regulated organizations in the country. It has a Postal Regulatory Commission that regulates only the Postal Service (and competitors can actually participate in regulatory proceedings – looking at postal operating and financial data in detail). It has a very large Office of Inspector General examining its books. It has independent auditors reviewing its finances (OK, so do most other companies, but unusual for a government agency). It is subject to Congressional oversight (a single Congressperson can attach a rider to legislation which can determine even the hours of service for a retail facility). It is subject to SOX, OSHA, and all the other things that businesses complain about, and then some. The FTC reviewed competitor complaints that the USPS had unfair advantages in the market because of its government status – and the Commission found that the dice were loaded against the Postal Service. Some of the terms and conditions of even the labor agreement are set by Congress. The Regulatory Commission keeps the Postal Service from exploring new ways to make money. There are some good suggestions in this string for solving the problem – but as long as the Postal Service is set up so that a lot of stakeholders are getting something for nothing it is likely to continue to glide downward.

  4. Some points to consider: USPS was aware of the Internet impact for quite a while, but scraped all e-strategies due to continuous growth in mail volume. The recession lead mega-mailers to cut down on shipping costs and this was the major factor for this crisis. The USPS had a transformation plan for at least five years. Their latest “billion of dollars” investment was placed in better mail processing technology for Flat Mail – which is nothing new. The first line of Optical Character Readers debuted in 1986, followed by super-fast Bar Code Sorters and eventually lead to Delivery Point Sequencing for Letter Mail. The letters are sorted at a potential throughput of 32,000/hr or more requiring only two mail processing clerks. The letters are sorted in exact delivery sequence for the Letter Carriers. Even though the system is not perfect, it is safe to guesstimate a 97% error-free rate. USPS has spend lots of money on state-of-the art equipment for years, therefore being able to process so much mail for every household in the US. It is still the cheapest postal Universal service in the industrialized world. The workforce was reduced by 200,000 employees in the last few years while millions of new delivery points were added to the routes. The latest investment in Flat Sorters Sequencing left the USPS in a bad spot. Since the obvious drop in mail volume, the predictions higher executives made proved false. The USPS management has played the “more business-like game” since at least 1992. They executed the most aggressive cost-reduction program possible. Managers have no loyalty to the Service and what the USPS ought to continue being. They have fallen in the “bonus” trap and can’t get out – yes, even without bonuses. They utilize dehumanization techniques and a good number of them show little skill in being good leaders to the hard and correct postal workers who still take pride in their jobs. Postal workers don’t want a bailout from the government and these are just scattering clouds. The emerging Postal Service will transform and create new lines of income with new ideas for a 21st century. They would be surprised at how much high-tech is behind a mail processing plant. Too many people get bent-out-of shape when they get a misdelivered piece of mail. The Letter Carriers have a lesser error-rate than the best technology available. And for those worried about “dead trees” it would be nice to find out that the USPS is the nation’s leading paper recycler. But of course, it could do a lot better.

    What if the USPS will engage in online micro payment transactions? Individuals and businesses will purchase a guaranteed and reliable payment exchange system backed by USPS.

  5. There is no sense of urgency. It’s also probably fair to mark trends with B2B mailings vs. consumer mailings to track differences, as that would be an interesting comparison.

    To be specific as well, what really killed snail mail is probably the PDF more than anything. White papers, reports, newsletters, brochures, and even billing statements are now “printed” electronically.

    Electronic Billing Statements probably account for tens of thousands of envelopes a month reduced. Also importantly, does less mail mean more trees saved?

    What if USPS established a “secure” transfer protocol online (similar to https) that was proprietary in nature, fully regulated by the government with escalated surveillance? They could charge premiums to allow for customers and businesses and contracted entities to send proprietary information over this secure protocol vs. the world wide web. I suppose one way to jump on the bandwagon…

    • onceagainsingle

      “What if USPS established a “secure” transfer protocol online (similar to https) that was proprietary in nature, fully regulated by the government with escalated surveillance? They could charge premiums to allow for customers and businesses and contracted entities to send proprietary information over this secure protocol vs. the world wide web. I suppose one way to jump on the bandwagon…”

      This has been proposed in the past. The problem with the idea is that the Internet is global. Non-US individuals and organizations aren’t going to want their correspondence sent through a US government run system. Nobody trusts the government to protect their information. Besides, open source (free) secure transfer mechanisms already exist in abundance, so why would we want to pay to send our data across an untrusted proprietary network?

      The other thing that’s been proposed is an e-mail tax, where the tax goes to bolster the USPS and other government programs. Many different methods for taxing e-mail have been proposed, and nearly always shot down. Being taxed for e-mail would result in other communications springing up that get around the tax. Nobody wants to be taxed, and the nature of the Internet makes it practically impossible to regulate in such a way. In fact, probably the only way to tax an individual for Internet use would be to apply a tax at the ISP level, just like they do on your phone bill and cable bill. It wouldn’t be popular, but it could happen. And in the Socialist States of Obama, it’s actually quite likely.

      • Kent Smith

        This issue is not limited to mail service. Telephone service is taxed to provide subsidies for phone service to rural areas ( universal telephone service). Rural electricity service was extended through public funds. Billions in public funds will be distributed to make broadband Internet access universal (some 40% of households do not have broadband access). The Postal Service is self-sufficient (no subsidies) and would like to remain that way, but other barriers need to be removed (letting it downsize instead of mayors chaining themselves to mail collection boxes, or Congressmen passing admendments to determine the hours of operation of a particular branch, etc.).

  6. Adam Gutterman

    I love a “journalist” that reports that a business is losing users, and leaves the investigative analysis —– the Virginia ham of journalism — on the table, instead asking the reader to speculate on the “Why?”. Perhaps this is why Rupert Murdoch said “Quality journalism isn’t cheap.”

  7. Jesse Kopelman

    As a few posters have already noted, the reason the USPS doesn’t make a profit, despite being a monopoly, is that it provides universal service. Universal service and profit are pretty much mutually exclusive. The whole reason unregulated monopolies are considered bad is because they cherry pick whom they serve to maximize profits. With a competitive industry, profits are maximized by maximizing customer share — with an unregulated monopoly, pretty much the opposite is true. Bottom line, given its mission, it is ridiculous to expect the USPS to turn a profit.

  8. Does anyone see the dead tree newspaper story being replayed here? They are historically important service that is going downhill. While many of us are full of nostalgia and are sad to see their decline, we do not wholehearted want to revive it either. Because deep down we all know they are outdated by current technology.

  9. Kent Smith

    Until recently, the Postal Service was not allowed to make a profit – it was established as a self-sufficient “break-even” (non-profit)agency with significant public service responsibilities and a universal service obligation. For example, the Postal Service is not allowed to make a profit on magazines and non-profit mail (indirect subsidy to these industries required by Congress).

    It does not have the flexibility to close post offices (although it tries) – people even chain themselves to collection boxes to prevent removal. Nor is it allowed to diversify into other business (like foreign posts do)to generate new revenue.

  10. I think the biggest reason people use USPS less is because although they have been raising rates, their service has been continually dropping. We live in a time that reliability is important. If I promise I will have something to you by a certain date, I would never use the post office. It’s too unreliable – you may get it in 3 days, it might be 5 or 6 – you don’t know, they don’t know. And they act like you’re crazy if you try to find out. I live a mile and a half from the Post Office, and I almost never get my mail before 4:45! If I’m waiting on a check, I can forget about making it to the bank! I will pay the extra to make sure something gets where it needs to get when it needs to get there!

  11. 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.

  12. bhavesh

    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…

  13. 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.

  14. 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.

    • 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.

      • R. O'Dwyer

        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.

  15. 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.

  16. 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.

  17. 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.

  18. 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.