Neither snow, nor rain, nor heat nor gloom of night stays these courageous couriers from the swift completion of their appointed rounds — but the Internet could seriously change which rounds they’re appointed, how their retirements are funded, and how many non-profit periodicals are in their trucks.
The US Postal Service has been on the brink of insolvency for as long as I can remember, using public histrionics as a prelude to a wrenching 1¢ or 2¢ price increase for postage stamps, with more significant increases to business achieved through similar tactics (the PR of price increases has an inverse logic — sell high, buy low). This year is no different, as this preamble to current “crisis” recommendations shows:
The U.S. Postal Service is at a tipping point due to the combined effects of the economic recession, increased use of electronic communications, and its obligations to prepay Retiree Health Benefits.
Despite being on the brink of insolvency, the USPS seems able to afford some excellent help in analyzing their situation, using talent from not one, not two, but three top-tier consulting firms:
The Boston Consulting Group (BCG) provided forecasting expertise, Accenture provided an analysis of the revenue generation diversification strategies used by foreign posts, and McKinsey & Company provided an analysis of the feasibility and impact of a multitude of cost-reducing and revenue-generating options.
As with any huge, complex organization, the root causes can hide in the weeds. But they can still be found. One of the main problems with the current way the USPS is run is its obligation to prepay retiree health benefits, which means:
the Postal Service in essence has been lending the federal government billions of dollars annually, interest free, to make the federal deficit look smaller. These “pre-payments” into the retiree health fund do nothing to help retirees or current employees. That’s why postal unions actually oppose the pre-payments; they weaken the Postal Service without doing anything for postal workers.
Their union’s leader, William Burrus, is quoted as saying:
the central cause of USPS financial difficulties [is] the congressionally imposed requirement to pre-pay retiree healthcare obligations.
Without these prepayments, the USPS would have had multi-billion dollar profits during 2007 and 2008, and a much smaller operating loss in 2009.
One radical proposal that the USPS has floated before but seems to be pushing harder than ever is the idea of stopping Saturday delivery. Of course, Netflix would suffer mightily from this change, but might actually be big enough to consider a solution outside the USPS.
Revenue per delivery point is also falling — it will be down by as much as 40% in a few years due to decreased mail volumes. Even in the face of this, the USPS still spends 80% of its budget on personnel, despite the vast automation that has occurred throughout the rest of the delivery world. Mailers have a term for the USPS’ practice of avoiding automation when it can — it accuses the USPS of catering to “automation refugees.” The techniques for doing this include bagging co-mailed periodicals instead of palletizing them, along with sticking with manual sorting despite an oversupply of flats-sorting machinery and publishers’ increased compliance with methods allowing automated sorting.
Periodicals mailers have, in unprecedented numbers, migrated to co-mailing, co-binding, co-palletization, drop shipping, sack reductions, and increases in carrier route copies. How could this significantly more efficient mail lead to greater mail processing costs?
It seems that periodical mailers and non-profits in particular are being targeted, despite rampant inefficiency and poor cost-accounting in a system claiming otherwise.
So, on the one hand, the main delivery network for printed information is in financial peril, struggling with automation, and driving up prices during a down economy. On the other hand, we have delivery systems emerging (wifi, 3G) for portable readers and smartphones, with increased functionality.
It seems clear that the top-tier of the economy could easily shift out of harm’s way here. Top-tier publishers can become more electronically accessible and develop for new devices. Top-tier consumers can afford new devices and pay the big wireless bills.
If high-earning consumers shift in large numbers, advertising should follow, especially now, when the infrastructure is largely in place, and years of conceptual and factual arguments have tilted the playing field more toward value-based digital advertising.
Ultimately, these changes could drive print information delivery into oblivion for certain markets — technology, specialist professional information, and news digests. Printed magazines and journals delivered through the mail are already luxury items for a subset of consumers. If postal increases drive up the expense of these items while at the same time digital devices make the same content easier to receive and easier to use, the combination could be fatal to this segment.
The USPS is playing with fire. In an age when its delivery system is weighted down with personnel costs, inefficiencies, cloudy accounting, and unattractive options, solving those problems with price increases aimed at periodical and non-profit publishers may only accelerate their shift to digital.
Of course, at this point, the USPS’ scare tactics are already fading in the light of debate and discussion, dropping from double-digit increases to something more along the line of 7-8%. Nevertheless, at a time of zero inflation, stagnant wages, and high unemployment, driving a wedge into the delivery system for print seems counterproductive, especially when bureaucratic and automation solutions seem poised to solve most, if not all, of the problem.