Will Pandemic and Politics Put Postal Service in Peril? Here Are the Facts.

Depending upon which experts you heed, the U.S. Postal Service is either just a few months away from insolvency or it’s in no danger of running out of cash any time soon.

Depending upon which experts you heed, the U.S. Postal Service is either just a few months away from insolvency or it’s in no danger of running out of cash any time soon.

The purpose of accounting, one of my favorite professors used to say, is to give people the information they need to make decisions.

Postal accounting, however, is more like a Rorschach inkblot test: People looking at the same numbers reach widely, and wildly, different conclusions about its finances, depending upon their own perceptions of how the agency should be run.

Even its financial statements don’t mean what they seem to mean. Every expert’s explanation of them always includes a couple of but-you-should-ignore-this-number caveats.

Adding to the confusion are the recent politically charged battles over the supposedly apolitical Postal Service. The danger for us publishers is that we’ll get caught in the crossfire.

Let’s cut through the fog of war and political “heifer droppings” to get a clearer picture of actual facts about what’s going on with this agency that’s so central to American life – and the largest expense for most magazine publishers:

Fact: Even before the pandemic, the Postal Service’s business model was becoming increasingly unsustainable.

On paper, the Postal Service has been losing billions of dollars annually for more than a decade. But if you ignore the odd prefunding of future retiree health benefits – essentially interest-free loans to the federal treasury, which the USPS simply stopped making – the agency was basically at breakeven.

Until the past couple of years. However you slice it, the Postal Service was losing money even before COVID-19 entered the picture. And the trend of declining mail volumes not matched by equivalent cost savings made the outlook even bleaker.

Every significant study of the agency’s long-term health has concluded that long-term survival will require some sort of controversial legislation – whether that’s federal subsidies, reducing service requirements (such as fewer delivery days), raising prices, and/or stripping power from the labor unions.

Fact: The pandemic’s financial impact on the USPS hasn’t been as bad – yet – as initially indicated.

Initial reports in March suggested that closures and the recession were costing the agency about $2 billion per month, a trend that could drive it to insolvency within a few months.

Indeed, “Marketing Mail” (direct mail and catalogs, for example) was 45% lower in April, the first full month of the pandemic, than in April 2019. But revenue from highly profitable First Class Mail was down only 8%.

Package revenue was up 38%, as quarantined consumers switched to online ordering, which has seen some post offices handling more boxes than they do during the December holiday crush. Total revenue was down less than 4% and expenses rose only slightly, apparently because of increased employee leave.

“Our best estimate of the net effect on USPS finances from the Covid-19 pandemic is a hit of $470 million in April,” wrote Steve Kearney, executive director of the Alliance of Nonprofit Mailers. “We do not foresee USPS running out of cash for the foreseeable future as some have predicted,” added Kearney, a former USPS financial executive noted for his expert and seemingly nonpartisan commentary on the Postal Service.

Fact: We can’t be sure that the April results will be repeated in the months that follow.

Kearney’s analysis seems to be based on assuming that April’s results will largely be repeated in the coming months.

But as the economy opens up, will the online-buying surge continue or will consumers revert to shopping at brick-and-mortar stores? And when will direct mail bounce back? And will it ever completely bounce back, or is some of the lost mail volume gone forever?

If online buying fades before traditional mail recovers, the Postal Service’s bottom line could get ugly. But if the opposite happens, the agency could actually be better off than it was before the pandemic.

Fact: Contrary to what President Trump claims, the Postal Service can’t solve its financial problems by raising “the price of a package by approximately four times.”

That would work about as well as a publisher trying to fix its problems by quadrupling its advertising rates: Customers would just say no, and seek other options.

Jacking up freight rates might even benefit Amazon – the target of Trump’s ire because its CEO, Jeff Bezos, also owns The Washington Post. Amazon already has its own delivery force, so it would be in a better position than its ecommerce competitors to pivot if postal rates suddenly became uncompetitive.

The USPS also has multi-year contracts with major package clients like Amazon and UPS that apparently inhibit its ability to impose simultaneous, across-the-board rate hikes.

Fact: The Postal Service can’t declare bankruptcy.

Some on the Left have worried that Trump, who has a history of using bankruptcy proceedings to solve business problems, will try to push the USPS into insolvency in order to advance his agenda and boost his re-election chances.

The Postal Service isn’t subject to federal bankruptcy laws. If it were to become insolvent, most of its financial obligations – such as for pensions and loans from the federal treasury – would shift to the federal government.

But it’s still not entirely clear what would, or could, happen if the agency ran out of cash.

Fact: The most generous recent proposals to prop up the Postal Service were never entirely about the pandemic.

Some Democratic members of Congress, along with the postal unions and some mailers groups, have used the pandemic as an opportunity to push, so far unsuccessfully, for emergency aid that would have also addressed longer-term issues.

One multibillion-dollar proposal, for example, called for ending retiree-health prefunding and providing federal funds to replace more than 200,000 outdated delivery vehicles that have a tendency to burst into flames.

Fact: Trump’s agenda for postal changes also extends beyond the pandemic.

Trump’s Administration has resisted providing any aid to the USPS, and recent Trump tirades have focused on vote by mail as well as package rates.

The USPS’s Board of Governors is now controlled by Trump appointees, who recently hired a Trump donor as Postmaster General. That has critics warning that the agency could become an arm of Trump’s re-election campaign, undercutting states’ efforts to expand vote by mail this fall in response to COVID-19.

Some fear that the governors and Postmaster General will try to carry out Trump’s vendetta against Amazon, resulting in the loss of a major customer. Or that they may force, or at least welcome, a postal financial crisis as a means of pushing through emergency changes – such as privatization, large rate increases, or cancellation of union contracts.

A worry for publishers is that such a crisis could put at risk the long-standing practices of providing unprofitable preferential rates to the Periodicals class, especially for not-for-profit publishers.

Fact: The only postal legislation Congress has passed in the last decade was for the naming of post offices.

Almost all discussions of postal reform face the same hurdle: They require changes in the law. But making tough, controversial decisions is not exactly Congress’s forte.

The U.S. Postal Service seems to be headed for a crisis. The only question is whether that crisis will be brought to a political and/or pandemical head this year or whether it will be pushed out to some point in the future.

Extended Coverage: USPS – Will It Disappear?

When your editor makes a decision to defend you in the comments section below a feature article, then the article must have hit a nerve! I talked to several mailers, and association leaders who represent them, in a feature this month in the magazine … as I should: mailers have a lot to say about goings-on at the Postal Service

When your editor makes a decision to defend you in the comments section below a feature article, then the article must have hit a nerve!

I talked to several mailers, and association leaders who represent them, in a feature this month in the magazine … as I should: mailers have a lot to say about goings-on at the Postal Service (and not-goings-on in Congress) leading some mail marketers to re-evaluate the medium. I’d say it is a timely premise—particularly with the recent exigent postage hike on top of the inflation-indexed hike.

Far more was offered than I could include in the feature. However, “Marketing Sustainably” has a bit of room and—with my editor’s permission—allow me to share a few more observations.

Let me be clear, every mailer I talked to wants the Postal Service to succeed. The prescriptions may vary. What may be unclear is how it will succeed…

Always the Postologist, Charley Howard of Harte-Hanks had these points to share on a future path:

“If the Postal Service is allowed to manage its own healthcare, get the pre-retirement funding relief from Congress that it is due, and get Congress to back off on leaning in on operations, I believe that we would have a USPS that is both viable and competitive. We should close post offices that only see 1.5 people a day, limit some mail delivery to five days (keep the parcels moving) and have the USPS become more sensitive to pricing. These outcomes require enabling legislation—and that’s a big ‘if’ and certainly not likely in an election year, never mind by 2020 or 2025.”

“I believe the leadership of the USPS, Postmaster General Patrick Donahoe in particular, has made the right decisions to try and save the post office,” says Paul Ercolino of U.S. Monitor. “Cost cutting, Network Rationalization and five-day delivery are all controversial decisions, but they are essential if the Post Office is to survive in the coming years.”

Hamilton Davison of the American Catalog Mailers Association spoke about innovation—but still sees challenges because of the process of oversight:

“Innovation on the revenue side, or improvements to [the Postal Service’s] cost structure, will only occur if it is given the freedom to experiment free from regulatory or political concerns. While it is right and proper that the enormous market power of the Postal Service not be unchecked, it should be given greater freedom in advancing markets or improving its cost structure without undue concern about these regulatory and political pressures. Management today is handcuffed in too many areas. Barriers to experimentation on a modest scale must be removed so the USPS can demonstrate pathways for greater innovation that can then be rolled out system-wide under the review of a regulator. Getting the regulator involved in early stage exploration of potential innovation is much more cumbersome.”

And Joel Quadrucci of Quad-Graphics spoke to mail’s role in a multichannel, digital-savvy world:

“We live in a multichannel media world, and print is—and will continue to be—a critical marketing and communications channel,” he said. “Print is especially powerful when connected with other channels. Direct mail is a critical channel because of its ability to drive action to numerous other media channels. Direct mail and digital marketing channels will move forward hand in hand, with direct mail creating a compelling call to action and digital marketing channels giving consumers a way to act.”

“The entire world of logistics is evolving along with retail,” Quadrucci continued. “More and more consumers are opting for the convenience of shopping online. We already see it with Amazon building distribution centers all over the country with the goal of facilitating same-day delivery of its products. The USPS could play a pivotal role in this evolving world of logistics; it is has many strengths. But in order to be competitive with alternative delivery systems, it must address its current challenges head-on.”

Clearly marketers must stay engaged with the Postal Service—and with Congress—as we tackle these challenges together. The Postal Service clearly has my support, too. Now if I could only sate Denny Hatch.

Augmented Reality, Wearable Electronics and the Postal Service’s Future

In my previous blog post, I commented on the United States Postal Service and its announced plans for five-day delivery, discussing the importance of hard-copy communication and a commitment to deliver such communication on a daily basis. In extending this commentary, I claim no nostalgia for daily mail delivery, rather simply recognition that such communication has its unique position as a vehicle for superb brand engagement. The Postal Service is not standing still in the digital age.

In my previous blog post, I commented on the United States Postal Service and its announced plans for five-day delivery, discussing the importance of hard-copy communication and a commitment to deliver such communication on a daily basis. In extending this commentary, I claim no nostalgia for daily mail delivery, rather simply recognition that such communication has its unique position as a vehicle for superb brand engagement.

The Postal Service is not standing still in the digital age.

Last October, when the Postal Service announced its intention to raise rates this past January, it also announced its schedule for postage promotions through 2013. And in the mix is a bevy of technology-driven, multichannel “positioning” of direct mail that leverages mobile and interactive channels.

Discounts
Look at this selected line-up from the USPS promotion calendar:

  • March-April 2013: Mobile Coupon/Click-to-Call
    This promotion seeks to increase the value of direct mail by further highlighting the integration of mail with mobile technology in two specific ways. First, the promotion would encourage mailers to integrate hard-copy coupons in the mail with mobile-optimized platforms for redemption. Second, the promotion will drive consumer awareness, and increased usage, of mail containing mobile barcodes with “click-to-call” functionality.

    Provides a 2-percent discount on the qualifying postage for First-Class Mail and Standard Mail presort or automation letters, postcards and flats sent during the established program period that include a two dimensional mobile barcode inside or on the mailpiece. The barcode must either lead the recipient to a coupon that can be stored on a mobile device, or enable the recipient to connect by telephone to another person or call center via a mobile device.

  • August-September 2013: Emerging Technology
    This promotion is designed to build on the successes of past mobile barcode promotions by promoting awareness of how innovative technology—such as near-field communication, augmented reality and authentication—can be integrated with a direct mail strategy to enhance the value of direct mail.

    Provide a 2-percent discount on the qualifying postage for First-Class Mail and Standard Mail presort or automation letters, postcards, and flats that are sent during the established program period and include print that allows the recipient to engage in one of the following:

    • an augmented reality experience facilitated by a smartphone or computer,
    • authentication of the recipient’s identity, or
    • an experience facilitated via Near Field Communication.

To receive the discount, mailers must comply with the eligibility requirements of the program.

  • November-December 2013: Mobile Buy-it-Now
    This promotion will encourage mailers to adopt and invest in technologies that enhance how consumers interact and engage with mail, and demonstrate how direct mail can be a convenient method for consumers to do their holiday shopping.

    Provides a 2-percent discount on the qualifying postage for First-Class Mail and Standard Mail presort or automation letters, postcards, and flats which include a mobile barcode inside or on the mailpiece that facilitates a mobile optimized shopping experience. To receive the discount, the qualifying mail must be sent during the established program period by mailers that comply with the eligibility requirements of the program

Augmented Reality
Next, in January during the media-frenzy of Consumer Electronics Show in Las Vegas, this Venture Beat post appeared, reporting on a USPS mobile app that uses “augmented reality” (subject of the August-September 2013 promotion) to integrate direct mail promotions with interactive programming on a mobile device and give recipients an enhanced digital experience with the mail piece. In augmented reality, a physical ad and an interactive ad comes together by way of an app, developed by Aurasma, rather than a QR Code. Augmented reality can be applied to any visual cues.

The apps keep coming. Associated Press then reported that Val-Pak, the company that sends blue envelopes stuffed with coupons, also wants consumer households to save money while driving. Valpak has partnered with Roximity, a Denver-based app developer, to bring coupons and deals to drivers of newer-model Fords and Lincolns who use the voice-controlled Sync AppLink connected to their mobile phone. The app allows people to hear about personalized deals from stores, restaurants and other businesses as they drive. The “coupon” appears on the driver’s smartphone and can be redeemed once the car is stopped.

Wearable Electronics
And how can you keep it all connected—the mail, the apps, the augmented reality, the mobile coupons? Why through wearable electronics, of course, article courtesy of The Atlantic Wire. The fashion verdict may be out, but the Postal Service is clearly thinking hard on how to keep mail relevant in an increasingly digital—and mobile—age.

I still maintain that the six or seven direct mail pieces I receive a day are precious real estate. They represent a tiny portion of the thousands of advertisements and brand “touches” I’m exposed to each and every day. Yet this is advertising that is largely targeted, and one with which I have a tactile experience—reading, responding, recycling as I deem appropriate. This is a powerful consideration, one that I certainly pay closer attention to. Will I be running to the app store to integrate this experience with my smartphone? Not anytime soon, but a hoodie for my iPod, ThinkPad and Samsung to tote and plug into would be nice.