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Economics & Research Blog

Reality and the Postal Service Don't Mix

Last week,

By Dr. Joe Webb
Published: August 13, 2008

Last week, the U.S. Postal Service reported that it ended its most recent quarter with a loss of $1.1 billion, which was larger than expected. That's not disturbing, but other items in the release are. The good news was that on-time delivery rates were at record highs, or perhaps that is the residue of their lack of volume.

As their release states, “Mail volume was 48.5 billion pieces, a 5.5 percent drop from the same period last year. First-Class Mail and Standard Mail volume were each down 5.5 percent in the third quarter, reflecting the challenging economic environment.” Challenging economic environment? Perhaps it was their lack of response to economic conditions. Perhaps is was their price increases in the face of constant price reductions by their new competitors. Unfortunately, that inability to respond to market and competitive conditions is required by law.

The only glimpse of reality was a quote from the Postmaster General.

“When the economy does rebound, mail volume may not return to previous levels,” said Postmaster General John Potter. “This requires that we significantly accelerate process improvements and the realignment of resources in order to achieve long-term financial success. Failure to do so will threaten our ability to meet our mission of providing universal service at affordable prices.”

Oh well, perhaps I was expecting too much. The only way they will have “affordable prices” is by recognizing that their competition is electronic, and those costs are in regular decline, or they are essentially free. Because the Postal Service is a “cost-plus” provider of services, there is no market incentive to change costs like regular businesses have. At least they recognized that volumes will decline.

The release continued: “In the third fiscal quarter, on-time delivery performance reached record highs for all three categories of First-Class Mail the Postal Service tracks. Overnight service was 97 percent on-time, up from 96 percent the same period last year. Two-day service was 95 percent on-time, up from 93 percent the same period last year. Three-day service was 94 percent on-time, up from 91 percent the same period last year.”

Notable in the Postal data were the decline in periodicals, dropping -3.1% in pieces and -8.7% in weight mailed.

When businesses have declining volume, they have more slack in their systems so that performance can measures can actually improve. Because of the way they are structured, Postal Service resources are essentially all fixed costs. Any managerial or worker freedom of action are constrained by collective bargaining agreement, regulation, law, or political pressure.

In the past, Postal Service rate increases would be absorbed by the market with relatively little disruption. Note in a previous column where I had shown that Postal volumes often went up after increases. These were usually macoreconomic changes: as business was good, they used more mail services, finding ways to accommodate the cost changes.

Those were times of few alternatives. The alternatives are here, and their impact is discernible as postal volumes as measured in pieces and weight have declined. A problem for many in understanding it is that it is not one alternative, but many, all nibbling at the edges of print and postal volume.

Essentially, even if the cost of postage was $0, the other costs of mailings would still be higher than new media competition.

What does the industry do? Tying in print campaigns to other media is essential. Keeping mailing lists efficiently clean and robust is an area many list owners are not capable of, but many printers can help. I'm not referring to rented lists, but the lists that companies like small and mid-size keep themselves, especially professional service businesses. Few print customers outside of catalogers and publishers have capabilities for list maintenance or even an understanding of the basics of them.

Print buyers, stymied by the total costs of mail promotions, need some insights about how to implement them better and get better returns for their communications dollars. Are we up to the task?

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink's Economics and Research Center.



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