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February 10, 2009 update - the service cut proposals described below
are still pending, but the US Postal Service today announced the annual
increase in postage rates in May. How many
companies would like to be able to automatically raise their prices
every year by the inflation index or more? The basic letter rate
goes from $0.42 to $0.44, which may not seem like much at first, but I
still have some "old" stamps for $0.33 from not so many years ago.
That's a 33% increase so far, with no end in sight. Indexing
prices to inflation or other indices may seem to be a reasonable idea at
first, but it creates the bureaucratic expectation of endless budget
increases regardless of performance. |
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January 28, 2009 - It was reported today that the Postmaster
General, in testimony before the Senate Homeland Security and
Governmental Affairs Committee, proposed giving him the authority to
cut back on the number of mail delivery days from 6 to 5. |
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the latest alleged victim of this recession, he reported that mail
volume was down last year from around 211 billion to 202 billion items.
Wow. That's the "largest single volume drop in history", we are
told. Let's see now, that works out to a little more than a 4%
drop in mail volume. The forecast trend is that this may lead
to a $6 billion net loss this fiscal year. Is this a
prelude to a bailout request? |
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Meanwhile, of course, postage rates have been steadily ratcheted up for
years by annual adjustments for inflation, regardless of the efficiency,
operating cost changes, or budget of the US Postal Service. When
volume was at record levels, was any capital saved for a rainy day?
Apparently not. Like other government sponsored entities, it
was just assumed that we would all happily pick up the tab endlessly for
any rising costs or market risks. The public would always bail
them out. |
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Why do you suppose that mail volume is down 4%? If we are to
believe the Obama pitch, this is the worst economic recession since the
Great Depression. Maybe even worse! Somehow, a 4% decline in
mail volume doesn't seem to be such a remarkable crisis. Yes, it
may get worse as 2009 proceeds. Perhaps it has
something to do with rising postage costs. Wow, what a
revolutionary market idea.
Maybe it is because fewer banks are mailing out tons
of credit card offers. Fewer mortgage brokers are mailing out
refinancing offers. Fewer home builders are mailing out
promotional materials about their next development project. Fewer
magazines are still in business. Some are going digital.
Fewer companies may be using direct mail to reach
potential customers as the cost per piece rises, while the cost of
Internet marketing declines and effectiveness improves. Maybe,
just maybe, even a government sponsored monopoly faces some competitive
market forces eventually. |
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labor unions in Europe pushed for a 35 hour work week when unemployment
went up in the early 1980s, arguing that this would create more jobs.
Watch for this process to not end with the cut of one day of delivery,
whether it is a relatively slow day like Tuesday or perhaps a more
appealing day off for postal workers like Saturday. If 5 days is
good, 4 will be even better. Why not limit deliver to M/W/F?
Of course, don't hold your breath for postage rates to be frozen, or
actually decline. Instead, we'll just be paying more for less
service, as in Europe. |
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first glance, this might look like an opportunity for the express
delivery services to pick up some business. After all, what
happens to "Priority Mail" and "Express Mail" when you cut out one of
the regular delivery days? Does that premium service get delayed,
too? |
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more likely outcome is that the Postal Service will attempt other cuts,
such as rural delivery services, to create more "fair" competition with
the express services which are not required to deliver everywhere.
Watch for any budget savings to be used to create more competition with
these higher margin private services, and to drive them out of business
here.
How is DHL doing these days, by the way?
That's the Deutsche Post (German post office) venture to try to compete
in the express delivery market in the USA. In case you missed it,
here's a
NY Times story from November 2008 when they finally threw in the
towel after insisting they remained committed to this market despite
growing losses. Of course, FedEx and UPS have also felt the effect
of the recession in their sales volume. After living in Germany, I
wasn't very surprised to see Deutsche Post fail here. FedEx also
announced layoffs and salary cuts in December. UPS has also talked
about it in 2009. |
| This
is a slippery slope to accept less postal service at a rising price,
perhaps providing even more leverage against the private competition in
the process. The US Postal Service should be as capable as any
other business entity at adapting to market forces, such as a decline in
volume which may actually be a temporary effect of the current recession
for everyone in the business. I'll bet that there are a lot of
executives out there who wish their sales volume was only down around 4%
last year, and that they could keep raising prices with impunity while
they cut services. What a deal. Is
there even any discussion of this being only a temporary cost-cutting
measure? No. Is there any talk of rolling back postage rates
to reflect less service? Of course not.
If it happens, it will likely become a permanent
change to how the Post Office does business - but don't expect the
postage rates to be frozen. They will keep creeping up inexorably,
and as that drives direct mail volume down, there will be calls for
further cuts in service and more focus on the higher-margin services
which the private sector still manages to provide very efficiently. |
| If
you don't think that this is such a good idea, please let your elected
officials know. They are easy to look up through the links in the
right column. |
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