Declining First Class mail volumes may snowball

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Both the U.S. Postal Service and postal customers should be concerned by recent First Class mail volume trends.

For the first half of fiscal year 2007 First Class mail is down by almost 650 million pieces, or 1.3 percent. What is particularly troubling is that single-piece First Class mail, the Postal Service's largest revenue source, declined by almost 1 billion pieces. In the past, volume optimists claimed that the decline was merely due to mailers transferring to the less expensive presort and automation categories. Yet those categories only grew by 288 million pieces.

Could it be that the move toward electronic bill pay has begun in earnest? I am amazed at the number of people I speak with who pay many, most or all of their bills online. And these people are not young adults just out of college. The primary reason they give is convenience and time saving. Add in the increased postage savings, and it seems to be a losing battle to keep the financial transactions of these folks in the postal mail stream.

I expect that the Postal Regulatory Commission's recent decision to reduce the increase in the basic First Class stamp from 42 cents to 41 cents will do nothing to stem this change. However, the one-cent reduction will drain hundreds of millions of dollars from postal revenues and increase the likelihood of a larger rate increase late next year.

A few weeks ago I had an opportunity to speak at a meeting of the Vermont, New Hampshire Direct Marketing Group. There was a lot of uncertainty and concern expressed by catalogers about the postal rate increase.

Delving into the rate increase with those catalogers in attendance, I noted an interesting dichotomy. Heavyweight catalogs - those weighing close to one pound - actually got a postage rate decrease. Lighter-weighted catalogs, mailed by many at that meeting, received a substantial rate increase, perhaps as much as 20 percent.

Let me make a couple of generalizations that are usually, but not always, true.

First, older, more established companies usually mail heavier-weighted catalogs. Secondly, most heavier-weighted catalog-mailing companies started out as small companies mailing lighter-weighted catalogs. In other words, this rate increase will tend to stunt the mail volume growth of the smaller companies that the economy and the Postal Service are counting on for sustenance.

It was interesting to note that, according to a recent Shop.org/Forrester Research study on online retailing, U.S. online shoppers spent more on clothing than on computer hardware and software. That's quite a reflection of the broad acceptance of the Internet.

These clothing retailers have learned that they can't abandon the mail; they need it to drive volume to their Web site. However, they can mail a smaller catalog, at less paper, printing and postage cost, to drive that traffic.

Another benefit of that Internet order, as compared to the telephone or mail-in order, is that the customer does data entry, transferring that effort and expense to the customer. Unfortunately, the PRC failed to sufficiently take these factors into account in its rate increase decision.

There are a couple of other items I would like to discuss. Both in some manner relate to postal reform legislation.

One concerns legislation recently introduced in Congress by Rep. Susan Davis (D-CA). Her legislation would provide free postage for voters using absentee ballots.

The second item concerns nominations that President Bush has announced to make to the Federal Reserve Board. The president's intention is to reappoint one sitting governor and two new governors. Both the new prospective nominees are currently bankers, one with Capitol One and the other with Wachovia.

Both nominees, and here I quote The Wall Street Journal of May 16, "will add to the board's banking expertise." Clearly these individuals are being nominated for their background and are not being asked to leave their experiences and knowledge-based biases behind when they join the board.

Interestingly, one of the nominees is former chairman of a very prominent industry trade body: the American Bankers Association.

One has to wonder how the postal world would change if someone with knowledge and experience in postal matters would be nominated for a seat on either the Postal Service's Board of Governors or the Postal Regulatory Commission.

A typical private-sector board of directors has a member that has some familiarity with that corporation's industry, while a typical public-sector regulatory commission has a member with some regulatory experience. As best as I can determine the Board of Governors and the Postal Regulatory Commission have neither.

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