Once, there was a Constitution-ordained, universal delivery service of hard-copy, print communications called the United States Postal Service. It was affordable, reliable and the most efficient of its kind in the world. Direct mail was its bread and butter, and many brands that sought to find and keep customers in a very targeted manner used the service avidly.
Then a century marked a transition. Change was revolutionary: A new form of communication—soft copy—emerged in a few short years to dominate marketers’ mindsets. It was instantaneous, almost universal and largely perceived to be secure, private and nearly free. Suddenly, the communication engine of hard copy sputtered, financial losses mounted at the Postal Service and an infrastructure for hard-copy delivery was bloated. Commercial and nonprofit organizations that largely paid USPS’s bills were questioning the cost of doing so any longer.
Welcome to the world “after” the Postal Service. Or is it?
Last year, the United Kingdom sold Royal Mail. Many other rich-world posts are already private. Could the USPS—the biggest of them all—really be next for “privatization”?
The ‘P Word’
Mailers, for one, appear mixed on the topic.
“When I look at privatization, I look at Canada Post—which is closer to the U.S. geographically and demographically than any of the European posts,” says Charles Howard, VP of postal affairs at Harte Hanks, an integrated marketing services provider which handles several billion pieces of targeted advertising mail each year. “And that’s when I realize I still have problems with privatization. In March of this year, Canada Post will raise rates as high as 35 percent in some categories.”
“In reality, it would be very difficult for any business to replicate the USPS’s infrastructure for delivery to every doorstep in America,” says Joel Quadracci, president and CEO of Quad/Graphics, a leading provider of print and multichannel media solutions. “Yet, the USPS continues to behave like a monopoly. Case in point: the exigent rate increase, which will negatively impact volumes, resulting in a situation where further price increases will be necessary to cover costs. Ultimately, this will drive even more volume out of the mailstream.” Even mailer organizations are uncertain about privatization.
“I doubt America will ever decide on full privatization,” says Hamilton Davison, president of American Catalog Mailers Association. “There are too many complications. However, the relentless demand of the marketplace is forever increasing efficiency and value. Unless the Postal Service responds to this challenge, greater outsourcing, or even licensing, of its functions to third parties is a realistic alternative.”
The Direct Marketing Association concurs. “I believe it will be very difficult to privatize USPS at the moment,” said Peggy Hudson, EVP of government affairs for the DMA. “It is a $60-plus billion annual operation, but it is facing declining demand. That declining demand forecast makes it difficult to see USPS privatized, or at least the ‘universal service USPS’ that has been a staple of the U.S. for its entire history.”
The ‘U Word’ Is Important, Too
Universal service is the everyday delivery of mail to all delivery points served by the USPS—nearly 153 million delivery points in 2013, up more than 700,000 last year alone. What constitutes “universal service” most unlikely will be different in five years’ or 10 years’ time, say postal watchers.
“Assuring affordable universal service should be a top priority for the USPS,” says Paul Ercolino, president of U.S. Monitor, “but the Postal Service must be allowed to meet the evolving needs of the American economy and to set its prices in a way that reflects the cost structure of the delivery industry.”
“I cannot imagine remote areas of the U.S. being as connected as the urban U.S. in 2025,” Hudson says. “Thus, there must be some form of universal service. Moreover, with online and mobile purchasing increasing, universal product delivery will continue to be demanded by Americans.”
Parcel delivery is indeed one of the bright spots in USPS business and finances, as the Postal Service continues to gain market share from private couriers, such as FedEx and UPS. As e-commerce has grown, so has the demand for affordable, reliable and efficient fulfillment.
“Six-day service for all mail will not survive by 2025,” Hudson says. “The reduction in demand for hard-copy delivery will necessitate that. Marketers and charities will adjust to a less-than-six-day delivery schedule. There may be one exception—parcels. ”
Is There No Cure for Congress?
Yes, this subhead has two meanings: First, a demand from mailers (USPS customers) that Congress approves postal reforms that “free” the institution from its financial ills—many of which were imposed by Congress in the first place the last time a major postal reform law was passed in 2006. Second, a demand also from mailers that Congress (then) get out of the way and allow the Postal Service to act as a truly independent organization.
“Congress likes to load up the Postal Service with requirements, but does not provide funding to cover these mandates,” Davison explains. “Sometimes, Congress does things that are counterproductive or downright costly and wasteful. Requiring barely used post offices remain open is an example. Blocking the agency from dropping a delivery day is another. To the extent that Congress elects to micromanage the mail service, its future is bleaker.”
Howard says a seemingly easy fix is stuck. “Congress needs to realize that the Civil Service Retirement System pre-funded retirement costs already paid into the fund, based on current Postal Service employment trends, would be sufficient to be considered fully funded now,” Howard said. “Were the Postal Service allowed to have its own healthcare program, it would save $8 billion immediately every year … Even the labor unions are supporting this effort. Congress should pass this now.”
The mailing community is clearly supportive of recent efforts of Postmaster General and CEO Patrick R. Donahoe and USPS management efforts to reduce costs, right-size infrastructure and improve delivery performance—but failing to listen to customers may cause some unwelcome Postal Service backsliding toward a “bailout” mentality.
“It is still [about] the overall cost structure of the USPS,” says Joe Schick, director of postal affairs at Quad/Graphics. “Its platform needs to continue to be right-sized in order to bring down those costs. The USPS’ greatest challenge is getting ahead of the curve and anticipating industry and volume changes before they are here.”
DMA’s Hudson says the USPS needs to recognize its role as a supplier to the American economy, and—like any supplier—work with its customers, and “not treat them like the enemy—listen, don’t dictate.” She says, “Get excess capacity out of the system by doing it now. Eliminate door delivery. Don’t look to the customers’ pocketbooks to fix all ills. Don’t be afraid to lay off excess workforce.”
“Two to three years ago, we had a perfect storm,” says Howard. “There was a recession, inconsistent [USPS] delivery performance, young people only using digital media—and even when clients still loved to use the mail, their CFOs told them they couldn’t. Marketers were forced to look elsewhere.
“Now,” he continues, “we have excellent USPS service performance … and young people, deluged with digital messages and becoming turned off there, actually are discovering mail. Marketers have been coming back to mail, and using it wisely in an integrated way. The timing couldn’t be worse for congressional inaction and steep postal hikes.”
Clearly more is needed to enliven the Postal Service, and mailers are getting anxious and looking elsewhere.