Direct mailers’ primary interest in the U.S. Postal Service is rates. They like them low. They don’t like exigent or emergency or any other kinds of rate increases outside of the price caps set down by the Postal Accountability and Enhancement Act of 2006, and they’re not so crazy about them. They feel they and their huge Standard Mail volumes are floating this particular government boat while the Internet sucks away First Class Mail like a Dyson DC65 Animal and “underwater products” are allowed to stay buoyant due to their largesse.
Though First Class volume continues to decline at a steady pace, big mailers still need to cheer it on, because it’s more profitable on a per-piece basis than Standard and helps keep them from paying even more. In the six months ended March 31, First Class contributed $5.5 billion (the amount of the annual retiree health benefits bill the Postal Service can’t pay) more in revenue than Standard Mail did—and did it with 8 billion fewer pieces. But that can’t last for long. First Class is in a free fall. What big mailers need to root for most as a rate hedge in the future is USPS’s shipping and package business. Not only does it own the highest growth rate of all the Post Office’s lines of service at 8% to 11%, but its upside is enormous.
According to a new study from the Office of the Inspector General of the U.S. Postal Service, “Package Services: Get Ready, Set, Grow!”, the Postal Service accounts for almost two fifths of the total volume of the shipping business, but less than one fifth of the revenues. USPS’s focus on lightweight packages returns it a revenue-per-piece of $3.37 as compared to $9.70 for FedEx and $9.39 at UPS—for whom postal carriers provide last-mile delivery of light packages.
What the Office of the Inspector General (OIG) prescribes is a customer-driven package delivery strategy focused on capturing a larger share of the online retail business. OIG suggests that the Postal Service’s personal relationships with customers along that “last mile” give it a competitive advantage, but that, to take advantage, it needs to match value-added services offered by rivals and introduce innovations. Suggestions include back-end fulfillment on printing and payment, scheduled pick-ups, real-time tracking, time-definite service, and mobile apps.
OIG cites an Accenture study suggesting that the Postal Service’s shipping business may be giving away too much to its hundreds of millions of customers. It found that consumers would be willing to pay extra for special services such as accelerated delivery, delivery scheduling, and secure delivery and retrieval. What consumers dislike most about all shipping companies, the study found, were packages that were delivered at a bad time, left unattended, or lost or damaged.
Undoubtedly, the Postal Service should be able to find ways to close that $6 dollar gap in revenue-per-package, but you could add the potential solutions to a wish list to be sealed and opened after postal reform is enacted. A delivery company that can’t afford to replace 20-year-old trucks has a hard time positioning itself as an innovator.
In the meantime, direct mailers, you send out a few million packages now and again, don’t you? Do the patriotic and rate-rationalizing thing and choose USPS for your package delivery needs. I hear they’ll be a good buy once UPS and FedEx move to dimensional pricing in 2015.
