The USPS and marketing mail

Postmaster General Patrick DonahoeOn August 8, Postmaster General Patrick Donahoe gave an interview to Bloomberg Businessweek concerning the budget crisis of the United States Postal Service. In response to the question, “What is the biggest problem facing the Post Office?” Donahoe said, “The Internet. The disruption with the Internet has been unrelenting. If we hadn’t lost the volume of bill payment to online, we wouldn’t have defaulted on our prefunding obligations. We wouldn’t have had to close the plants, and we’d be profitable with no debt.”

Like the rest of the offline and paper-based media industry, the USPS has been staggered by the impact of online communications and commerce. In the last ten years, the USPS has lost 60 percent of its annual first class mail volume, going from 51 billion pieces in 2003 down to a projected 21 billion pieces this year. That’s a lot of lost revenue. At 46¢ per piece, you are talking about $14 billion!

Printing Shipments and Postage Costs

However, as important a factor as the Internet has been for the USPS, this is really one side of what has been happening. As the chart from Strategies for Management shows, over the same ten-year period, there have been multiple dynamic cost factors affecting the condition of the USPS as well as the rest of the print media business:

  • While quarterly volumes of printing shipments had already been declining for some years, the Great Recession of 2008-2009 accelerated this downward trend dramatically.
  • Although print prices appear to be increasing marginally, when factoring inflation, they are actually lower than they have ever been. Meanwhile, the fall in print prices has been achieved with increased operational and materials costs.
  • The cost of postage has increased exponentially relative to the dramatic decline in the costs associated with electronic alternatives to printed mail.

Another aspect of the problems facing the USPS, of course, relates to the growth of UPS and FedEx as alternatives. In the 80s and 90s, along with the growth of global economic integration, UPS and FedEx became dominant international package delivery solutions. For a host of complex reasons, the USPS reacted very slowly to this opportunity. Although it would have required infrastructure changes, had the USPS been able to offer a significant portion of the services now dominated by UPS and FedEx, it could have offset much of the losses stemming from the decline of first class mail.

UPS and FedEx RevenueThere has been widespread debate about what can or should be done to address the systemic crisis of the Postal Service. Most of the solutions focus on the massive budget deficit problems and include the following:

  • Elimination of the retiree’s health benefit prefunding requirement
  • Reductions in service such as elimination of Saturday delivery
  • Sale of real estate and facility assets
  • Privatization of the postal service

The conflicts over policy at the federal level regarding the USPS have resulted so far in an intensification of the crisis. It is the opinion of many experts that the current crisis of the Postal Service is the gravest in its 238-year history.

The Continental Congress created the American postal system on July 25, 1775 and Benjamin Franklin was named its first Postmaster General. Since that time, the post office has been through several critical transitions born of disruptive communications technologies such as radio, telegraph, telephone and television.

In its early days, the post office played a prominent role in the development of commerce as well as the westward expansion of the country. In 1788, Congress gave the postal service the authority to build roads and post offices and encouraged the use of stagecoaches to transport the mail, which now included newspapers.

In 1790 there were 75 post offices. By 1860 there were more than 24,000. Recognizing the powerful influence of the service and the Postmaster General, in 1872 Congress made the Post Office a cabinet department of the President.

Transcontinental Postal Delivery SpeedsThroughout its history, the post office has benefited from innovations in transportation technology. Steamboats were introduced in 1811 and by 1820 there were 200 of these vessels delivering mail along US rivers. Initially, mail delivery from the east to the west coast went from New York by ship through Panama—using canoes and mules to the Pacific—and then from Panama to San Francisco. This service was offered at a rate of four weeks transit time.

An alternative method using stagecoach routes across the continent boasted 24-days delivery time but it often took months to get there due to the extreme weather conditions in the 2,000-mile stretch from Missouri to California. The overland transit time was cut in half with the start of the Pony Express in 1860. However, the Pony Express was ended within 18 months following the successful startup of the transcontinental telegraph on October 26, 1861.

Of course, the development of the railroads played an important part in moving the mail. By the time first transcontinental railroad was completed, there were Railway Post Offices that picked up the mail and sorted it en route in specially equipped rail cars. To this day, much of the US Mail is transported via train.

Experimental use of air transport for the mail began in 1911 and on May 15, 1918 the postal service began simultaneous flights from Washington and New York via Philadelphia. Shortly thereafter, Congress authorized “air-mail” postage at 24¢.

Following World War II, with the ubiquity of residential telephone communications, the content of the mail changed dramatically. By 1960, 80 percent of the mail was for business purposes instead of personal correspondence. The expansion of utility bills and payments, bank deposits and receipts, advertising, magazines, credit card transactions, mortgage bills and payments and Social Security checks meant that the post office had to find a better way to manage the mail.

Postmaster General J. Edward Day launched the ZIP (Zoning Improvement Plan) code system on July 1, 1963. It was based upon a postal zone system based on the major cities that had been set up in 1943. The five-digit codes made it possible for the post office to take advantage of computerized and automated systems for scanning, sorting, etc. to smooth and speed up the process of delivery.

In many ways the problems facing the USPS today stem from a crisis of the system that emerged in the 1960s. Unable to keep up with demand and the explosion of mail volume, the Chicago Post Office came to a dead stop in October 1966. The Postal Reorganization Act of 1970 transformed the Post Office Department into the United States Post Office and put into place the structural elements that exist today.  Now the USPS is facing the opposite problem of a decline in mail volume.

In March of this year, Mr. Donahoe gave remarks to the attendees of the National Postal Forum in San Francisco. Talking about the challenges facing the industry he said, “30 years ago, marketing mail claimed roughly 12 percent of the total marketing spend in the U.S. economy. Do you know what that number is today? It’s still 12 percent. With all of the changes in the way businesses can reach consumers, marketing mail has remained constant because of the tremendous value it delivers—for both the sender and the receiver. Marketing mail still remains the most effective way for companies to drive sales and it still delivers an exceptional return on investment.”

With this bit of optimism, Donahoe went on to outline four challenges before the mailing industry:

  • Make mail more personally relevant
  • Make mail more actionable
  • Make mail more functional
  • Make mail for creative

Clearly, these are challenges for both the printing firms that possess the technologies that manufacture the mail as well as the creatives who conceptualize and design the mail. With so much emphasis today on data driven and digitally personalized print, the future and viability of the USPS is a critical factor in being able to do what Donahoe is recommending.

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