January 6, 2016
Since United States Postal Service (USPS) volume peaked in 2006, we have been inundated with negative outlooks and pessimistic interpretations about its present state and its future. Sometimes it seems we cannot see the forest for the trees. It is time to take a look at reasons to be optimistic about one of the most important and enduring elements of our national infrastructure.
After enduring several years of operating losses, the USPS achieved two solid years in Fiscal Years (FY) 2014 and 2015, and the operating net income continues in FY 2016. Controllable operating income was $1.357 billion in FY 2014 and $1.188 billion in FY 2015. In the first two months of FY 2016, October and November, the USPS booked an $800 million operating income. Operating revenue was up 2.1 percent while operating expenses rose only 1.4 percent. The positive spread between operating revenue and expenses is a very important financial indicator for the USPS.
Cash held by the USPS improved greatly from the low levels it reached during the recession. At the end of November 2016, the Postal Service Fund held $7.588 billion in government securities.
Operating income and cash are the two most important financial gauges for an ongoing, essential government infrastructure agency, and the USPS is doing much better than during the recession and far better than most other elements of the federal government.
Once again this holiday season, online shopping reached new highs. Consumers are moving in droves from bricks-and-mortar shopping to online ordering with delivery to the home or office. And the USPS is uniquely positioned to take advantage of the fast-moving trend because of its ubiquitous delivery network. The very thing that a few short years ago was called a massive burden has been recognized as the greatest USPS asset. The “network effect” is working for USPS.
While the final numbers are not yet in, The Wall Street Journal reported: “So far, USPS is on track to scale a new high in holiday deliveries, as its volume is up more than 15% compared with a year ago and is forecast to reach more than 600 million packages between Black Friday and New Year’s Eve. Based on that number, the agency’s market share of holiday deliveries this year will increase to 40% from last year’s 35%, as it continues to elbow its way into an e-commerce market long dominated by United Parcel Service Inc. and FedEx Corp.”
When was the last time the USPS was a major player in a rapidly growing, profitable business segment?
Following a one-quarter decline in a few short years of economic downturn, mail volume has stabilized at just over 150 billion pieces. Commercial First Class Mail even increased slightly in FY 2015. Volume stability gives management breathing room to continue to make adjustments to the new normal and to pursue growth opportunities in both mail and packages.
After implementing a major consolidation of its mail processing network in January 2015, delivery service times lengthened for many customers. Apparently, postal management did not anticipate the personnel impact its changes would have in the short run. As these and other issues have been worked out, service has returned to normal for most types of mail.
Management appears to be on top of any problems that pop up, very quickly sending in groups of experts assigned to solve technical or systemic problems, and performing Kaizen continuous improvement projects for affected customers.
The 4.3 percent “exigent” or emergency surcharge that all USPS customers have been paying will come to an end this spring. Apparently, the temporary surcharge ordered by the Postal Regulatory Commission (PRC) has done its job—tiding the USPS over during a time of crisis. Now we all have a chance to see how much of a growth spurt a price reduction gives the postal system.
Clearly, the USPS is a big believer that price reductions can and do spur growth, as it has signed numerous Negotiated Service Agreements (NSAs) in recent years with individual customers. Most NSAs trade lower pricing for increased volume.
Customer response will vary, but as most US mail is sent by businesses and organizations that budget for postage and measure returns on investment in mail, the chance for a boost in volume is good. USPS Acting Chief Marketing and Sales Officer Jim Cochrane recently urged mailers to use the price cut as a chance to mail more. The Alliance certainly suggests its members take a close look into this rare opportunity.
Next year’s OPM computation will be to retire the obligation by September 30, 2056, 40 years hence. Most of the reported non-operating losses by the USPS since 2006 have been caused by an unrealistic and unnecessary 10-year pre-payment schedule for retiree health benefits.
When the USPS stopped making the payments, Congress and Treasury de facto agreed to not enforce them. The 40-year amortization schedule will yield more reasonable annual charges than the $5.4 billion to $5.8 billion not being paid now.
The law requires the PRC, starting in December 2016, to do its best to determine whether the rate regulation system meets the nine objectives and 14 factors in the statute and to invite public comment. This should be a well-run, deliberative process that allows all parties, including the Alliance, to participate in a solution that should benefit all.
An article in Dead Tree Edition explains that predictions of further postal worker downsizing are greatly exaggerated. Rather, they are based on old data and erroneous assumptions. In fact, the USPS increased the number of career employees by 4,000 in FY 2015 and has added 12,000 to its workforce in FY 2016.
An excellent column was published in The New York Times on January 1, penned by a college professor who came to the US from Turkey. “Why the Post Office Makes America Great” reminds us that the USPS is an important, well-functioning part of our national “publicly funded infrastructure” that we might take for granted. The author also points out that you can’t have an Internet economy “without a reliable way to get things to people’s homes.” The article generated an outpouring of positive comments in social media.
The stories and studies are too numerous to recount. But they have a common theme—that print on paper is here to stay, and that it in some ways performs better than digital messaging. Quite often, combining the effectiveness of digital with hard-copy yields the best results.
When a major nonprofit decided to drop direct mail from its acquisition strategy, it suffered crippling losses of revenues and has returned to the mail.
A recent study sponsored by the USPS Inspector General compared digital and print advertising and found: “Physical ads, though slower to get one’s attention at first exposure, leave a longer lasting impact for easy recall when making a purchase decision. Most importantly, physical ads triggered activity in the area of the brain (ventral striatum) that is responsible for value and desirability for featured products, which can signal a greater intent to purchase.”
Many recent studies have found that print books work better and are preferable to e-books. Digital natives prefer reading print on paper. Recognizing the power of combining print with digital, USPS has been offering increasingly cutting-edge pricing promotions to encourage mailers to innovate with new and combined media.
Beyond promotions, the USPS is testing a new service with mailers and consumers called Informed Delivery ™. The service enables consumers to get a digital preview of the front side of the mail pieces they’ll be receiving in their mailbox. Informed Delivery ™ promises to give mailers who actively participate increased impressions, instant interactivity, improved accessibility, and innovation input.
(c) 2016 Alliance of Nonprofit Mailers