National Postal Forum Highlights Few, but Vital, Options for Smaller Mailers

April 16, 2010

multipage

Credible mailing consultants such as Mary Ann Bennett and printing trade publications like Printing Impressions have advised the rest of the printing and mailing industry, who are not in a position to martial this level of resources, to take a wait-and-see attitude. The “basic IMb” compliance deadline is May, 2011. An awful lot can happen in the meantime as the USPS continues to work out the glitches on its end and the multitude of industry software vendors are enhancing their IMb compliance solutions almost on a daily basis. Hopefully, free enterprise will kick in and software prices for IMb modules will come down.

All Printers Near Term Strategic Imperative

I certainly concur with this more conservative approach of holding off on the no ROI IMb requirement. However, in the meantime every single local or regional printer must be doing the following:

Recognize that your clients are looking to you as their technical consulting resource to manage all of their graphic information distribution needs.

If you have decided not to offer mailing services in house due to the IT complexities as well as the intimate knowledge required of USPS’ regulations (DMM), you must be confident in recommending a local mailer in which you have confidence. If you don’t know who to recommend, or recommend a mediocre one, your credibility as the distribution consultant is lost. And the door is now open to competitive printers with more first hand knowledge of credible mailing solutions.

Printers offering mailing services must re-emphasize the importance and discipline of address hygiene (CASS, NCOA, DPV sortations and updates) on every list for every mailing. Track your undeliverables and the associated costs for the benefit of your clients. Don’t let MERLIN compliance (address print quality and placement) become slip shod and taken for granted. This is every bit as important as the most stringent disciplines, procedures, training, and resources that you dedicate to color management.

Forecasting Future Mail Volumes

The Boston Consulting Group (BCG) was hired by the USPS to forecast mail volume through 2020. Through basic surveys to mailers and service bureaus followed up with personal conversations with the largest clients, BCG forecasts volume to fall to 150 billion pieces of mail by 2020 from its peak of 213 billion in 2006 or 30% drop. This assumes no extraordinary intervention elements. The worst-case scenario pushes the 2020 volume down to 120 billion. Additionally BCG expects a major shift from First Class to Standard Class mail dominance as bills continue their transition to e-presentment via the Internet. First Class was 50% of the total in 2009 and it will be 38% in 2020. This product mix shift will erode the profit margin to cover fixed costs from 71% last year to 21% in 2020.

Diversification to Raise Revenues

Accenture Consultancy was hired to suggest how to raise revenues. Its job was pretty easy. The USPS does not have enough cash to invest in any type of significant diversification. The Postal Services’ only option is to stick to its core business and get that turned around.

Deficits Escalate

McKinsey & Co. was asked to take BCG’s range of volume forecasts and apply the contracted financial models to determine profitability in another decade. It assumed postage prices would climb by the annual inflationary cap allowed by law. 2020 will have a $33 billion loss while the next decade will accumulate a $230 billion deficit.

The USPS operations group has been on an aggressive track to cut as much cost from the existing business as possible. It has squeezed more than $10 billion from the operation in the last two years alone. This is the biggest in the country by any corporation. Two million man-hours and the equivalent of 115,000 full time employees were saved.

Even the most optimistic can’t conceive of being able to save their way out of a $33 billion dollar deficit when the 2009 level of labor productivity was only 2%. And this low level of productivity is tied to the continuing escalation of union wages, benefits, and totally outdated work rules. The printing industry’s productivity exceeds four times that level.

More Productivity Improvements Need Legislative Approval

Of the 27,000 post offices through out the nation, 20,000 are losing money. If these could be shut down and the service integrated into big box retailers, many billions could be saved. If this were allowed, service could actually be improved as several postal retail outlets could be set up in the same community.

The post office has huge excess capacity and rigid work rules around the full-time work force. While the USPS would prefer a higher proportion of part-time employees to give them more flexibility in matching hours needed to volume demand, more part timers will not save much money because the union contracts give these part timers full medical and retirement benefits.

The USPS would like another class of employee that is simply paid market rates and benefits. It would agree to grandfather the existing union labor since 50% or 300,000 of them are eligible for retirement in the next decade.

Nearly three dozen other practical, workable, proven (in the nonunion, private sector) ideas were discussed at length during the full year of regional meetings leading up to the Postal Accountability and Enhancement Act of 2006. While the unions fought each of them tooth and nail, it was Federal legislators who disallowed any whisper of hope. And as you recall the economy was pumping along quite strongly at mid-decade.

New Products & Innovative Incentive Pricing

Senator Susan Collins has been reported in the newspapers as being insensitive to the Post Master General’s annual pleas for fiscal relief from the $5.5 billion annual Retiree Health Benefit payments. She feels that the management team should be putting that energy into creating new products and innovative incentive pricing programs that will increase mail volume.

Several such initiatives were announced at the National Postal Forum. For example, Hallmark cards announced a program by which one ounce First Class postage will be paid by Hallmark beginning this year on their new greeting cards. A barcode and written explanation will be preprinted in the upper right hand corner of each envelope to that effect. The cards will, of course, be increased in price to reflect this additional cost. It will be interesting to see if this convenience will result in increasing Hallmark’s market share on these postage paid greeting cards.

Wal-Mart negotiated an exclusive agreement with USPS to ship all of it telephone pharmacy orders “free” by Priority Mail to the respective consumer. There is obviously adequate margin in prescription drugs to absorb shipping costs. Wal-Mart has a reputation throughout its history of driving down each of their suppliers’ prices. Wal-Mart surely put FedEx, UPS, and USPS up against one another to obtain the cheapest distribution price possible. USPS CFO Joe Corbett remarked that he sits on the seven person pricing committee and is personally confident that this Wal-Mart contract will be profitable to the Post Office.

The second summer seasonal pricing discount has been approved for standard mail projects which accumulative volumes exceed the July-September volumes of last year for larger retail mailers.

“Exigent” Rate Increases Over the Price Cap

For a number of market dominant products the USPS price is well below that offered by competition. The USPS would like regulatory relief to impose a one-time price hike (in excess of the legal inflationary cap) to recover some of this lost opportunity margin value. This is just about the only USPS issue, which the postal unions will endorse to support management. The two most obvious “market dominant products” are periodicals and standard flats like catalogs. Since the postal costs for periodicals typically exceeds the total printing costs for all periodicals whose run length exceeds 15,000, such a move could force additional bankruptcies or shutting down of marginally profitable titles.

It is truly amazing the extraordinarily effective World Class mailing service, which the United States enjoys. Particularly when the elected Federal legislature, monopolistic unions, and huge mailers with deep pockets funding PACs have effectively hog-tied the USPS management.

By C. Clint Bolte, C. Clint Bolte & Associates, Chambersburg, PA.

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