Pushing the Envelope Beyond Ordinary

Just got finished reading an article from Newsweek (I thought they were out of business!). The article is entitled “Do We Need a Postal Service?” and is written by Kevin Kosar, a senior fellow at the R Street Institute; a Washington D.C. think tank.

It’s an interesting piece, filled with data about the Post Office’s indebtedness (maxed out at $15 billion), unfunded medical benefits liability ($50 billion and counting), inadequate capital investment (140,000, 20 year old vehicles in need of replacement) along with the same sad song about its inability to modernize and adapt to a greatly reduced mail volume caused mostly by widespread preference for digital communication.

The tease of the article’s headline gives way to some hedging by Kosar on why the Post Office couldn’t be completely eliminated. He also avoids taking direct responsibility for his implied conclusion by saying the “public” views the Postal Service as a “pointless, environmentally harmful anachronism” which they therefore would be reluctant to bail out once the gargantuan bills come due. 

Certainly those bills will come due and need to be paid and that is a huge problem for the service and ultimately the taxpayers. Unlike a private enterprise which has to be competitive and answer to stockholders, the postal monopoly just keeps rolling along beholden to its political masters; very few of whom have any desire to upset any of their constituencies who might complain about commonsense reforms like doing away with Saturday delivery and closing unnecessary post offices.  The largest single constituency is the postal union which of course will not take kindly to any significant lay-offs or cuts in pay or benefits.

Kosar succumbs to the canard that mail is an environmentally harmful exercise because it cuts down trees which are turned into paper in factories that pollute the air and then delivered in old trucks that do the same.  I’ve never quite understood why some people think that growing trees and then harvesting them for paper is such a bad thing.  New tree growth is an unequivocal positive for the environment. The more paper that’s consumed, the more new trees need to be grown to meet the demand.  On the environmental argument I’d say “don’t get me started” but that’s obviously too late. I’ve posted several times on that topic if you’re interested.

But the larger question is how best to provide the mail delivery service that we still need.  You can make the argument that much of what’s delivered (direct mail advertising) isn’t really a “need” but you can also make the argument that we should all ride bicycles and take public transportation and not drive cars.  The fact is that while the amount of first-class mail has declined significantly over the past couple of decades, there are still billions of letters and packages that need to be delivered.  I don’t think it matters whether those letters are now primarily marketing-related rather than love notes or letters from camp.  There is a market for mail delivery services and that needs to be serviced.

Is the Post Office as presently constituted the best way to do that?  I think not. In an ideal, non-political world (yeah, right!) we’d have private companies competing to deliver the first class mail just as we do for packages.  Pricing would mostly likely be based on the destination and if you lived in a remote area, it would cost more to send you mail which is how it should be.

While that utopian scenario seems far-fetched, ironically I think that the same technology which has caused the mail to be less important than it used to be will actually allow it to be delivered more efficiently in the future. The direct marketing industry should be a driver for Post Office reform rather than defending the status-quo as it too often does.

I also think the country could do with many more hand-written love letters!

What do you think?

In my last post, I listed some of the factors contributing to the huge drop in overall mail volume and the sorry fiscal state of the US Postal Service.  Certainly the two are related; any business that sees a precipitous decline in its customer base due to factors somewhat out of its control is going to suffer.

However, this is not the first time a business has declined due to new technologies or its own inefficiency. IBM was once the center of the mainframe computing universe; until personal computing and the incredible advances in microchip technology revolutionized the market. Big Blue’s leadership was supplanted by Apple, Microsoft, Intel and a host of other companies but over time it remained viable by reinventing itself and today remains a major player in the high tech world

Can the Post Office pull off the same transformation as IBM?  Certain factors weigh heavily against that outcome. First and foremost is that there is no free, competitive market for first class mail delivery. The USPS holds a monopoly on this service and in the present statist era it seems unlikely that the federal government would loosen the reins and allow other companies to compete and provide this service as it did successfully with parcel delivery. 

A major factor in IBM’s decline was the 13 year-long antitrust suit initiated by the Justice Department. The after-effects of this litigation paved the way for other companies to compete on equal footing which helped give rise to the proliferation of desk top computing. Antitrust law is based on the premise that monopoly power in any business is not good for the consumer. Of course the government reserves the right to a double-standard but its own monopolies are just as bad.  

What would be the result of eliminating the monopoly on letter delivery? We are told that companies would simply cherry-pick the most profitable routes - mostly those in densely populated urban areas – and would leave the rest of the population to pay higher delivery rates. We usually hear this from those who have a vested interest in maintaining the status quo. The problem is the status quo is unsustainable. 

One thing we know about markets is that when people are free to come up with solutions, customer demands are generally met. None of us can predict with any certainty what would happen in the aftermath of a post office breakup. But we can look to the coexistence of UPS, FedEx and the Post Office in parcel delivery as a possible model for a better future.  Maybe we will need a drastically scaled-down version of the Post Office to continue to service rural areas on a subsidized basis.  Maybe the companies that bid for the prime routes will have to accept some of the burden to serve those areas in the same way that cities require developers of prime property to include parks and other public accommodations. Regulated utilities are required to allow smaller, private companies to supply power to households and businesses at a reduced rate. Maybe we can use the existing mail delivery infrastructure to facilitate something like that.

One thing is certain; without some type of radical reform, the taxpayers will be paying billions to bail out a once proud and once necessary institution. Additionally, the companies and individuals in the printing, mailing and envelope industries who rely in large measure on the post office will suffer due to increased costs and declining service.

As always, your comments are very much appreciated and welcome.

As anyone who keeps up with current events is aware, the United States Postal Service is in a very bad way.

The price of a first class stamp has just gone up again to 46 cents. If only that solved the problem, then we’d just accept it and move on. However, the Post Office posted a $15.9 billion dollar loss for the fiscal year that just ended in September 30^th of 2012. And if that’s not enough bad news for you, they are declaring that they will be out of cash sometime around October of 2013 unless something is done.

As the chart below demonstrates, (courtesy of the Wall Street Journal) the volume of first class mail has seen a precipitous decline in the past ten years. The number of pieces mailed is now about half of what it was in 2002.

Now obviously the digital world has made a serious dent in the number of pieces mailed. Companies are saving money by pushing their customers to pay their bills and receive statements on-line.  Financial service companies which used to mail huge numbers of proxy statements and prospectuses are now going digital. Back in the 1980's, I was a bank purchasing officer and we bought huge amounts of paper and printing much of which is no longer necessary because of the personal computing revolution. You can’t stop companies from reducing their costs through greater efficiency; especially when it’s what most of their customers find more convenient.

Another significant factor in the decrease in mail is the lousy economy of the past four years. The so-called recovery we have been experiencing is tepid at best with growth that doesn’t even keep up with the increase in new people entering the job market. While the movement away from certain kinds of mail would have happened regardless, robust economic growth would mitigate some of the pain for envelope and printing companies.

In its attempt to cut costs, the Post Office has slowed down first class mail delivery and is considering cutting Saturday delivery service. This is probably the worst possible way to deal with the problem. We are in the age of instant gratification courtesy of those same computers that are driving down the mail business. A recent article in the Boston Globe references a study by the Pew Research Center’s Internet & American Life Project concerning people under the age of 35 and the dangers of their hyper connected lives with this warning:  “Negative effects include a need for instant gratification and loss of patience”.   So at the same time that Gen X and Gen Y are moving away from mail partly due to the time involved, the Post Office decides to make us wait longer. Great.

As I’ve suggested in previous posts, the politics surrounding Post Office reform will make it virtually impossible to fix.  Yet, the best solution  for direct mailers and the many small businesses that serve them would be to abolish the government monopoly on first class mail service and allow private companies to compete for that service in the same way that FedEx and UPS have done for parcel delivery.  That would allow direct mailers who provide the biggest chunk of concentrated business for the post office to receive preferred rates which would drive down the cost of direct mail and keep it strong along with the printers and envelope companies who provide the components.

In my next post, I’ll delve into the politics in a bit more detail and also flesh out a simple proposal for reform.  As always, your comments are most appreciated.

Well, 2012 is almost behind us:  another year of challenges and ups and downs but hopefully more than your share of success.  The printing and envelope industries continue to either decline or evolve depending on your outlook. I prefer the latter. While there’s no question that far fewer envelopes are being mailed today as opposed to ten years ago, direct mail has remained a vibrant and attractive tool to marketers.  New digital technologies have made personalized mail affordable.  Improved four color envelope printing equipment and technology has moved process printing firmly into the mainstream.

As I write this we are facing the end of the world according to the Mayan calendar.  My 13-year-old daughter wanted to sleep over a friend’s house to mark the occasion which was fine with me. I could use some peace and quiet before the end of time. So who knows if you’ll even be around to read this?  Just in case, here are some of my fervent hopes and wishes for 2013.

• I wish that companies in our industry and in general would be less timid about wishing customers “Merry Christmas”.  I understand that businesses tend to be risk averse and generally will take the path of least resistance. But Christmas Day has been a national holiday since 1870 and has a healthy and ubiquitous secular side.  I know there are some that take offense at being wished Merry Christmas but they are a tiny fringe and do we really want to consider their tender feelings above the vast majority who, regardless of their religion, enjoy and celebrate the Christmas Holiday?   How about “Merry Christmas and Happy Holidays”?

• Along the same lines, I hope that printers and envelope companies will be less accommodating to the “green” agenda which ultimately does not have our best interests in mind. I’ve written in more specific detail about this issue in previous posts.  We should all take responsibility in our personal and professional lives to use resources wisely and consider the environment. But the greens think paper consumption is bad and that’s not right.

• To add to #2, I wish that companies in our industry would stop claiming that their products are produced with “certified wind power” when all they are doing is buying Renewable Energy Credits.  If you have a wind turbine in your parking lot or solar panels on your roof then you are entitled to make this claim.  If not, it’s misleading and more kowtowing to environmental purists who are, for the most part, not our friends.

• I wish more customers would go back to using formal purchase orders. E mail has certainly made us more productive but getting unspecific messages to proceed on an order via e mail requires us vendors to confirm everything in writing which is really what the customer is supposed to do through a detailed and precise purchase order.  Plus, sometimes you have two or three separate trails going on the same order which requires printing out voluminous correspondence for the job ticket. (I wonder if any of these e-mail orderers have that “don’t print this e mail unless it’s absolutely necessary” message after their signature?)

• I wish more people would stop responding “your” welcome when I say thank you for doing something for me.

• I wish our political class would allow Postmaster General Donahoe to implement most of the reforms he’s been recommending for the past several years. The Post Office is a mess. It’s losing money at a terrifying rate and needs to be significantly downsized and reformed or face collapse. What really needs to be done is to break the monopoly and privatize the delivery of first class mail as we have with parcels with great success.  What will most likely happen is dithering followed by another taxpayer-financed bailout.

Despite the many problems we face as an industry, we can be thankful for the chance we have to persevere and dream. We can also give thanks for our friends, family and loved ones; without whom our lives would be diminished. Lastly, to everyone in the printing and envelope world: Merry Christmas, Happy Holidays and may we all flourish and prosper in 2013!

We left our usual package of homemade cookies and wine for Dave, our mailman this Christmas. He responded as he usually does with a thank-you card including a handwritten note.  He gives us great service throughout the year and, as the saying goes, is not deterred by “snow nor rain nor heat nor gloom of night”… (Although I have to say I don’t see Dave much at night. We’ll chalk that part up to poetic license).

The 6 day week of mail delivery by the regular mail carrier is a fixture of our culture and only one of the many reasons why it would be very difficult to sell a private mail service to the American public. The mail has been immortalized in art and song and goes back to the founding of America. For many, in a world of increasing complexity and depersonalization, the constancy and daily contact that many have with the “mailman” harkens back to a simpler time.

However, many of the same feelings and connections were associated with the monopoly that AT&T had on telecommunications for most of the 20^th century. How many scenes in the movies involved those old, black telephones and the battery of operators who connected the calls?  Wasn’t there something reassuring about dialing “O” from any phone and being able to speak to a live person who could give you a number or answer your questions?  Everyone had that spot in their kitchen or pantry for the monstrous phonebook including the yellow pages which were so handy.

These days, with cell phones so universal and inexpensive, even in the poorest countries, coupled with rate plans that make the average call a fraction of what it once cost under the regulated system, the days of Bell Telephone being the only game in town seems unthinkable.  I have kept a telephone with a cord in my attic so my 12 year old daughter can see what it was like. It’s right next to the gigantic metal calculator my Dad bought in the 1960’s and not far from the turntable my mother had that played 78’s: all relics from the past.

Sad to say, but the Postal Service is now also a relic from days gone by. Times are changing but as with all huge public bureaucracies, adapting to change is never high on the list of priorities. Nowhere is this more evident than in the Social Security system. When the program was first proposed and enacted in the 1930’s, the retirement age was set at age 65. At that time, the average life expectancy for a man was below 65.  Fast forward 75 years to the present when the average man lives well into his late 70’s, and the retirement age for Social Security is still age 65.  As a result of this and other factors, the system is going broke.  Anyone who dares suggest that we adjust the retirement age to reflect current realities even slightly  is met with howls of protest or worse from the vested interests of the current system.

Even though the amount of first class mail has decreased substantially in the past 20 years, there are billions of envelopes that need to be delivered.  We still need the mail for a variety of reasons, most notably to facilitate the advertising/fundraising function of direct mail. However, there is no longer any reason to perpetuate a government-sponsored monopoly to provide this function. In fact, doing so could do much more harm than good.

More on this later.

When the federal government first established the postal service in the late 18^th century, the United States was a relatively small parcel of land on the east coast of the continent.  At a time before telephones or even telegraphs, letters were the only long-distance method of communication. It made sense to facilitate such an important function in a nascent and growing society.  

Of course, we now live in an age where telephones are ubiquitous and cheap. Sending someone a written text on a cell phone is commonplace and costs nothing.  The internet and similarly cheap personal computers have made e mail the preferred method of written communication. Why spend the time and money typing a letter and sending it to a relative overseas when you can send them an e mail for free and have them receive it within seconds?  Additionally, fax machines are either on your desk at home or easily available at a local copy or print center.  Lastly, you can scan a document on your computer and send it as an e mail attachment for someone to print out upon receipt.

All these developments have reduced the amount of regular mail delivered by the Postal Service dramatically in the past decade.  That trend is going to continue. The reduction in demand would seem to require a commensurate reduction in costs and overhead.  However, there are no incentives to economize or streamline operations at a government-run agency. The incentives are exactly the opposite; spend all the money in the budget so that more can be allocated for the future. "Don't kill the job", has been the public sector motto for as long as there has been a public sector.

Ultimately, the huge fiscal problems facing the Post Office are not solvable through the political process. A government which spends taxpayer money at a rate that is slowly but surely leading to the bankruptcy of the nation cannot be expected to muster the fortitude and common sense required to put the Postal Service on a fiscally sustainable course.  It seems to me the only viable course of action is to break up the postal monopoly and allow private companies to compete for the letter business.

The Post Office used to have a monopoly on parcel deliveries but, as everyone alive knows, UPS and Fedex and many other excellent companies have gobbled up a huge portion of that market by providing great service at very competitive prices.  In the process they have forced the Post Office to implement service upgrades like online mail tracking.  Does anyone believe that would have happened without the healthy competition provided by those private companies?   

Are there any good reasons why the same thing could not happen for the delivery of first class mail? Aside from the huge political uproar which would certainly accompany such a move, I think not.  Would the increased competition for the first class and bulk mail business be a boon to direct marketers and the printing and envelope companies which supply them?  I’ll get into that in my next post along with some of the reasons generally offered in opposition to Post Office privatization.

In the meantime, your comments are most appreciated.

The future of the United States Postal Service is one of the great question marks to anyone in the envelope, printing or direct mail business.

As overall mail volumes continue to decrease nationally and internationally, the ability of the Postal Service to continue to deliver mail economically will be a major factor in the continued viability of our industries.

Like any other government-provided service, the post office has been the butt of many jokes about poor, unresponsive service over the years. Some of it is certainly justified (is there a private business that consistently keeps too few people up front to handle customers? Probably, but they don’t stay around that long.) However, I’ve often remarked that the business office people I’ve dealt with provide a high level of prompt and friendly service; comparable to any private business and superior to many.

However the business model of the post office; with its monopoly power over first-class mail , tax-free status, heavy brick and mortar presence throughout the nation, unionization of the majority of its workforce and ultimately being under the control of politicians for any changes or reforms puts the mailing industry in a tenuous position here in 2011 and beyond.

We’re all aware of the changes in our culture and economy that have led to fewer mail-pieces.  Certainly the continuing influence and penetration of the digital world is at the top of the list. To cite only one example; going back less than 20 years, just about every mutual fund company in the country regularly mailed out a big, thick prospectus for each fund to millions of customers.  I have to admit that along with probably the vast majority of mutual fund customers, I now receive prospectuses via e-mail.  If I need to read it, and frankly I rarely even glance at it, I can access it on my computer. Much easier and more convenient that way, right? Well yes, but it also means a lot few envelopes and brochures being printed and that’s just one example.

As I’ve written about in previous posts, the Green movement has done a fine job convincing millions of people that generating and mailing printed material is somehow a sin against Mother Earth. And right on cue, the private sector is now taking up that rallying cry in a somewhat disingenuous attempt to lower their costs.  As I write this, Elite Envelope is imprinting a message on some bank statement envelopes we produce imploring the recipient to “Go Green” and get their statements electronically.  It’s a nice, little order for us today. But it’s kind of like a rough draft of our obituary.

Nevertheless, we can’t swim against this tide. Our industry must adapt and come up with new ways to thrive. In order to do that however, we’ll need some help from the Postal Service.  In future blog posts, I will be focusing on the problems we face today and will suggest some possible solutions to help keep the mail moving at a reasonable cost into the future.