The U.S. Postal Service Needs Financial Protection

Even in crisis, exacerbated by COVID-19, there’s not likely to be new postal reform bill any time soon. So here we are now: the U.S. Postal Service needs financial protection.

COVID-19 may have frozen ad budgets, including direct mail, but the financial woes of the U.S. Postal Service have pre-dated the current crisis. Calls for postal reform to facilitate all types of fiscal fixes have gone unanswered, despite bipartisan support to get the job done. Huge Congressional mandates from 2006 to pre-fund healthcare costs for future retirees – which do not exist to any such extent in the private sector – are just one example of how politicking gets in the way of running USPS more efficiently.

On paper, the U.S. Postal Service should be holding its own. And it had been through the end of last year.

A Formidable Job of Management Couldn’t Predict a Crash

Mix and match, but it’s been managed. In 2010, First-Class Mail volume was 77.6 billion pieces. In 2019, it was 54.7 billion – a nearly 30% decline. Marketing Mail also declined, but less precipitously – from 81.8 billion pieces to 75.7 billion. Meanwhile, as direct-to-consumer (DTC) shopping has taken hold, parcel volume has doubled from 3.1 billion to 6.2 billion package deliveries, making the USPS truly the Greatest Carpool on Earth. (Happy Earth Day.)

And though there is mail volume decline, the “mail moment” remains vital, and delivery points have increased from 150.9 million in 2010 to 160 million in 2019. Against this expanse, the USPS has shed 93,000 jobs in 10 years, maintaining 497,000 positions in 2019.

Throughout all this, USPS operating revenue has increased to more than $71 billion, from $67 billion in 2010. Rate hikes have been predictable and better managed. So why the carnage?

Yes, it’s COVID-19. Mail volumes reportedly have dropped by 30% since the crisis began. Add to this the hands-tied effects of the Congressional mandates – and it’s no wonder the USPS Postmaster General is seeking a “we need cash” bailout. This time, will Congress – and The White House – answer the call? According to The Washington Post, as of Friday, April 24, President Trump stated he would not approve of emergency aid for the Postal Service if it didn’t raise prices for package delivery immediately.

We Can Debate the Amount – But Let’s Recognize These Heroes at Work

The U.S. Postal Service is a quasi-governmental operation that answers by U.S. Constitution to the American people – but is called upon to run as a business. And it indeed tries. Yet it can’t just set rates on its own, as everyone gets a voice in rate-making and operations, even competitors.

Even in crisis, exacerbated by COVID-19, there’s not likely to be new postal reform bill any time soon. So here we are now: the U.S. Postal Service needs financial protection.

It’s hard to blame the USPS, but that doesn’t stop President Trump from calling out sweetheart deals that don’t exist. Add to the cacophony those who wish to privatize – answer to shareholders instead of the public – and sparks fly. Postal labor interests, for one, are powerful – and so are marketing mail and parcel customers. No one wants to upend the letter carrier.

But a virus might just do that.

So as I put on my mask and gloves, and go to the mailbox as part of my daily heightened ritual, I retrieve my personally addressed parcels, flats and letters. I spray them with Lysol. I open and read each piece, and I recycle each piece when I’m done (Happy Earth Day again). And I wish Godspeed, and a few billion tax dollars, to all these postal heroes who are keeping American commerce every day in movement. We need you. America needs you. Thank you.

My Summer Reading List Includes Facts About Direct Mail

The “dog days” of summer are about to end, so I’d better wrap up my summer reading fast. Of course, my summer reading list really is my only opportunity to delve into those volumes of research that have been accumulating, that I’ve been meaning to get to, that I really should be on top of

The “dog days” of summer are about to end, so I’d better wrap up my summer reading fast. Of course, my summer reading list really is my only opportunity to delve into those volumes of research that have been accumulating, that I’ve been meaning to get to, that I really should be on top of … to be the best professional I can be … but I just can’t shoehorn the time because of daily demands.

Thankfully, the Direct Marketing Association’s “Statistical Fact Book 2014” has provided me with invaluable Cliff Notes. The team there has done some surfing and sifting for me and my readers.

For example, did you know?

  • In 2013, direct mail spending in U.S. reached $44 billion, while teleservices topped $41 billion. Digital media spend (search, display, other) came in at $44.2 billion (Winterberry Group, 2013). Talk about a direct marketing triumvirate!
  • While today might not be the “Golden Era of response rates,” some marketers—such as retailers—are seeing dramatically higher response to their direct mail than in the 1980s (USPS Household Diary Study, 2013).
  • Also according to the USPS Household Diary Study, those earning $65K per year or more evaluate their mail “useful,” “will read” or “will respond”—up virtually across the board when compared to 1987.
  • According to DMA’s own research, cost-per-order and cost-per-lead costs for direct mail are in line with print and pay-per-click, not all that more than email, and significantly less than telemarketing. I’ve always maintained that those few pieces of direct mail are marketing gold when compared to the 5,000 ad messages we’re exposed to each and every day.
  • Who’s your best customer, USPS? According to the USPS Revenue, Pieces and Weight by Class of Mail and Special Services, direct mail accounted for 39.9 percent of total mail volume in 1990—and topped a record 56.2 percent in 2013.
  • Catalog mail volume actually increased in 2013 to reach 11.9 billion—the first recorded increase since 2006.
  • Yet there’s less overall competition to worry about in the mailbox: Households received an average 8.9 pieces of Standard Mail per week in 2012—down from 13.8 pieces in 2008. That seems like an opportunity for any brand that wants to have a high-touch engagement.

I’m a multichannel, integrated marketing fan. But sometimes in our digital, mobile age we forget, or overlook, or even dismiss the value of printed communication in the mailbox. I’ve been busy reading my mail these summer months, too.

Have We Achieved ‘Peak Mail’?

In the energy industry, a couple of years ago, there was active discussion of “peak oil”—the very point where half the world’s known, proven oil reserves had been extracted and put to use, leaving less than half yet to be tapped or discovered.  In the U.S. mail industry, perhaps, too, we’ve reached “peak mail”—except there’s no extraction and no finite supply here: simply the notion that pricing, and changing use and acceptance of mail by consumers and businesses, is driving demand elsewhere, and that we’ve entered an era of post-peak mail in volume.

In the energy industry, a couple of years ago, there was active discussion of “peak oil”—the very point where half the world’s known, proven oil reserves had been extracted and put to use, leaving less than half yet to be tapped or discovered. The thought then was that oil still available would become more dear (read, expensive) because our unrelenting global appetite for the stuff would far outstrip supply.

Of course, conservation, increasing fuel efficiency, and alternate sources of power could mitigate demand in such a way that the pricing effects of past-peak oil could be less severe. What if the world, in fits and starts, simply transformed to an economy that relied on other, less expensive, sources of energy (nuclear, natural gas, hydroelectric, geothermal, solar, wind, biofuels and the like). Perhaps this scenario is happening now.

In the U.S. mail industry, perhaps, too, we’ve reached “peak mail”—except there’s no extraction and no finite supply here: simply the notion that pricing, and changing use and acceptance of mail by consumers and businesses, is driving demand elsewhere, and that we’ve entered an era of post-peak mail in volume.

In 2010, the Boston Consulting Group in its “Projecting U.S. Mail Volumes to 2020” report stated:

The U.S. Postal Service will experience profound declines in its volumes of mail and its net income over the next decade under its current business model, presenting a grave threat to its viability. Massive structural changes are required to avoid this outcome. We forecast U.S. postal volumes to decrease from 177B pieces in 2009 to around 150B pieces in 2020 under business-as-usual assumptions. Notably, volumes will not revisit the high-water-mark of 213B pieces in 2006 – on the contrary, the trajectory for the next 10 years is one of steady decline, which will not reverse even as the current recession abates. Expressing the decline in terms of pieces per delivery point highlights the challenge: we project pieces per household per day to fall from four pieces today to three in 2020 – driven by decreasing volumes delivered to an increasing number of addresses. We also project a rapid mix shift from very lucrative First-Class Mail to less-profitable Standard Mail. The volume decline and the mix shift, coupled with an increasing cost base, will cause profits to experience steep, unrelenting declines. Starting with the 2009 loss of $4B, we expect a steady string of increasing losses, culminating with an approximately $15B loss in 2020 (based on USPS and McKinsey cost forecasts). These declining volumes are unlikely to reverse.

So far—four years, and two years of data—toward 2020, this striking scenario is largely playing out: “USPS: A Decade of Facts and Figures.” (See the chart in the media player at right.)

None of this is to say there is a diminished role for direct mail in a post peak-mail digital age. Quite the contrary, the role of direct mail is simply changing, gaining efficiency in targeting, response and engagement—and learning its space and place in an omnichannel marketing environment. In its various postage promotions for 2014, the USPS is testing and encouraging such innovation and integration.

In a recent presentation to the Direct Marketing Club of New York, Bruce Biegel of The Winterberry Group, saw direct mail spending in 2013 actually grow by 1.2 percent, and is projecting another 1.1 percent uptick this year. (Postage hikes in 2013, and coming in 2014, well exceed both these growth percentages.) “Direct mail should be growing because it works,” Biegel said as he announced his findings and projections. “Digital doesn’t do enough in customer acquisition.” This is encouraging news following years of decline.

Volume, however, is not immune to increases in postage, paper and print costs, and to digital migration, and in this scenario, we are really in a situation where USPS infrastructure must continue to adjust to changing mail composition, shape, class and purpose—while continuing to serve all its stakeholders. First-Class Mail peaked in 2000, and Standard Mail in 2007—and we most likely never will return to such volumes ever again.