The Postal Rate Case: Nuggets of Information on the USPS

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One of the beauties of a postal rate case is the nuggets of information often revealed. Unfortunately, like panning for gold, one often needs to sift through a lot (sometimes a mountain-sized pile) of ordinary stones to find them. I found a few of what I believe are nuggets; perhaps you'll agree.


One of the first nuggets I found dealt with First-Class delivery service. Every quarter, the U.S. Postal Service reports with great fanfare on First-Class delivery service for mail that is expected to receive one-day delivery. Generally, this is defined as local mail, for which the mailer and recipient are less than 100 miles apart. The postal service has been doing a great job meeting its one-day commitment for this mail, averaging close to a 95 percent attainment score.


However, while the USPS measures delivery service for greater geographic distances -- mail entitled to two- or three-day delivery -- it does not announce the delivery results as loudly. Perhaps that is because service levels for meeting this commitment seem to be stuck at 85 percent.


One could ask: Which is more important -- the highly publicized overnight statistic, or the barely noted two- or three-day number? Based on the volume of mail, it would seem that the latter statistic is more important. In response to a question posed during cross examination at the Postal Rate Commission, we learned that only 43.5 percent of all First-Class mail is supposed to receive overnight service.


Perhaps equal publicity should be given to reporting the service that applies to 56.5 percent of the mail.


A second nugget, or rather, nuggets deal with what are called "nonpostal" products, programs or services. The Office of the Consumer Advocate, an independent arm of the Postal Rate Commission, asked a series of questions about these nonpostal programs. Seven of these products, programs and services were reviewed:


• First-Class Phone Card. The brand name of a prepaid phone card developed through a strategic alliance between the USPS and AT&T.


• Retail Merchandise. T-shirts, coffee mugs, neckties, greeting cards and stationery. However, the postal service has indicated that it will no longer sell apparel merchandise.


• PostOffice Online. A service designed to help small businesses move money, messages and merchandise over the Internet.


• LibertyCash. A postal service money card that can be used to pay for postal products and services.


• Dinero Seguro. An electronic version of a money order that can be used to transfer money from certain U.S. locations to Mexico.


• Sure Money. A pilot test with the postal administration of the Dominican Republic providing a service similar to Dinero Seguro.


• Remitco. A remittance processing business that involved opening envelopes, extracting bill payments and processing and depositing the checks. However, the postal service gave up its interest in Remitco in July 1999.


In fiscal year 1999 these seven businesses generated revenues of $55.2 million, with expenses of $85.2 million, for a loss of $30 million. If we eliminate Remitco, which was sold off, the revenues reduce to $51.3 million, the costs go down to $71.3 million and the losses fall to $20 million.


Much has been written about these postal ventures, and many questions have been raised. Are they appropriate ventures for the postal service? For a quasi-governmental body? Aside from the public-policy questions, there are issues concerning the losses being sustained and whether these ventures were likely to lead to significant profits.


Looking at the ventures in more detail, we find that two of the businesses generate continuing profits. The phone cards and retail merchandise generate total revenues of $45.1 million, and profits of $9.2 million. Three of the businesses generated $21.9 million in expenses, without any revenues. These three ventures are all start-ups, having begun operations in fiscal year 1998.


Many would say that the postal service should not be in these ventures and should immediately get out of any and all nonpostal programs, products and services.


That is not the view of this writer.


First, for an organization the size of the postal service, these are relatively small amounts of money. One could make a very strong argument that for an organization whose sales are near $65 billion, these efforts are undersized, and that more effort should be put into these developments.


Second, it seems clear that the long-forecasted slowdown in mail volume may be at hand. If that is the case, the postal service needs to do two things: reduce the size of its work force and find new sources of revenue. These projects may lead to new revenue sources.


Third, many management theorists believe that managers have an opportunity to learn more from their failures than from their successes. Managers in the private sector usually have the opportunity to test and fail without the glare of public scrutiny. I believe postal managers should be given that same opportunity.
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