on Dec 12th, 2008 in Mail Processing & Transportation | 21 comments
 

In 1970, the Postal Service delivered fewer than 85 billion pieces of mail. Thirty years later, mail volume had more than doubled to nearly 208 billion pieces of mail — average growth of about 3 percent per year. The Postal Service relied upon this dependable growth in mail volume to finance the expansion of its network. The traditional business model worked.

Then, mail volume entered the new century. Each year from 2000 through 2003, total mail volume decreased. In 2005, the volume of Standard Mail surpassed the volume of the Postal Service’s flagship product First-Class Mail for the first time, with First-Class Mail volume actually falling below its 1995 level. Total mail volume growth averaged an anemic 0.3 percent per year from 2000 through 2007, and when the Postal Service’s 2008 fiscal year ended on September 30, volume had declined in nearly all categories. The total decline in 2008 was 4.5 percent to 202.7 billion pieces.  The Postal Service is forecasting continued volume decline to 194.5 billion pieces in 2009.

Mail Volume

Do these recent trends portend a fundamental change to mail volumes? Or are they mostly a symptom of the current adverse economic conditions? What are the long-term consequences of electronic substitution? How have other factors such as value of competitors’ products, new technologies, and complementary services affected mail volumes?

The Postal Service touches everyone, everywhere, nearly every day and is the cornerstone of the $1.2 trillion mailing industry. The Postal Service’s traditional business model is threatened. But, with every threat, comes opportunity. Which products and services may rebound and grow?

Comments

I think people underestimate the effect of a downturn on mail volume. Mail volume could come back when the economy improves. After all, there is no advertising quite like a personalized mail piece that comes to your house.

My understanding is that the Postal Service is concerned with keeping it's mail monopoly. If this is indeed so, then why are there 2 different classes of first class mail? And why are they trying to increase revenues in areas other than letter mail. They do not have the staff or the expertise to move completely into these markets. There are always all types of issues that the local Postmasters have no power to address, yet upper management would love to see this change. That in itself may not be so bad, but because no one wants to take the bull by the horns, most offices are left shorthanded with help and it is the Postmaster that has to step in to assist.

Speaking of work hour budgets and hiring freezes - that also is OK and should be encouraged for any business where the bottom line stagnates in the red. However, the hiring freezes should take place after consolidations and retail hour reductions. This would have eliminated so many offices working shorthanded through the holiday season.

Go to Congress and push for the 5 day delivery week with additional costs for Sat delivery. This would solve so many immediate issues, but if the USPS management is going to be dictated by the union, we will end up like Eastman Kodak.

Kodak was in denial for many years and even after they almost went out of business. The Postal Service is in the same boat as well as the advertising industry. Until they can fill their upper management positions with younger, technologically advanced individuals, we will end up with the same story.

Look, obviously most if not almost all of this loss has been pecipitated by the economic crisis. The real question is even though the economic crisis is reaonsonable for the drop in volume, how much of it will not come back. Clearly some will not come back. The most important question is how much will not come back, and I don't think anyone knows. It could be only two or three percent won't come back--mail is a VERY powerful channel after all--or it could be more like 10 to 15. No one knows.

You know what will happen! The Post Office will go to five days and endup needing help causing them to hire more people anyway or paying for overtime

I agree with epistola that mail volume has historically moved with the economy (i.e., GDP). Mail volume tends to go up when the economy is doing well and mail volume growth slows down during an economic slowdown. But I believe this historic relationship between mail volume and GDP has weakned over the years. And that is what makes this current volume loss more problematic. Some of it may not come back with an economic recovery.

But that does not mean that new uses of mail cannot be found. And this is what I think the Postal Service needs to focus on -- how to position itself to be innovative to capture some of those new uses. I believe IMB can play a critical role in finding new innovative uses for the mail that will be an engine of new volume growth. Another area is the B-to-C parcel business.

My view is that the information revolution has increased manyfold one's capability to communicate and transact. That increased the pie of communications and transactions. Hard copy mail may be losing share in terms of percentage but not in absolute numbers. A smaller percentage of an increasing size may still provide some healthy growth opportunities for hard copy mail.

I am very hopeful that hard copy mail will persist but the Postal Service needs to explore the underlying opportunities.

I guess I'm just skeptical that mail is going to completely dry up. Yes, the link between mail and GDP may have broken and transactional mail such as bills may be going away, but what about advertising? After all, the end of mail has been falsely predicted so many times in the past, and the Internet has been around for a while now.

I completely agree with Radix that the Postal Service needs to look proactively to develop its own corner of the communications market. Radio didn't go away when television came along. It just turned into something else.

Perhaps the Postal Service could do something with social mail. Written communications have a formality and authenticity that electronic communications don't. The Postal Service should play this up. You should be able to walk into any drug store in the country and see by the counter a prestamped envelope with card that you could jot a message on and send right from there. "When only the mail will do . . ."

How many horse drawn carriages have you seen lately? Just because radio was able to stick around doesn't mean mail as we know it will not dry up. The future lies in delivering packages from online retailers. As more and more retail outlets fall to the likes of Walmart and Best Buy they will turn to the internet where overhead is a fraction of the cost of having retail locations nation wide. The USPS need to establish warehouse where retailers can rent space to store goods and when they are sold USPS can deliver them directly from their warehouse. You could have circuit City leasing whole warehouses from the post office with USPS taking care of all of their delivery needs. Can you say CACHING?

What Circuit City??????

3 days later and they go out of business.

Circuit City would like to thank all of the customers who have shopped with us over the past 60 years. Unfortunately, we announced on January 16, 2009, that we are going out of business.

Guess the USPS will have to court Best Buy.

The first paragraph says: "The Postal Service relied upon this dependable growth in mail volume to finance the expansion of its network. The traditional business model worked."

I have no idea what the word "dependable" means. There were certainly many times during the period when insightful observers were concerned that volume growth might not continue.

Does this mean that if the volume had not grown, the Postal Service could not have financed the expansion of its network? Suppose that over the 1970-2000 period, delivery points increased at 1.5% per year and volume increased at 1.5% per year. This means the volume per delivery point remained constant. Alternatively, it means that each new delivery point brought in the same volume as the already-existing delivery points. Under these conditions, it would certainly have been possible and in order to expand the network. With any economies of scale or joint production, each new point would bring in more revenue than its cost, so it would all be net gain.

Someone should state what the "traditional business model" is. I think the business model is that the Postal Service will serve all qualifying delivery points, as efficiently as possible, and will set rates to break even. If this is the model, it would be met with or without volume growth.

Another possible model might be: "We will let our costs grow inordinately. And if the volume per delivery point continues to grow fast, we will realize substantial economies of scale and joint production. Then with price increases at inflation, we will be able to break even. We will not use these economies to lower rates." This is a very bad business model indeed. But if it is the model, then a decline in volume growth would cause it not to work.

rmit makes some good points:

1) the "traditional business model" is a vague term and may mean different things to different people. I agree with the definition that it means serving all "qualifying" delivery points as efficiently as possible and will set rates to break even. I agree this does not necessarily require volume growth if you can serve these delivery points efficiently but the Postal Service has traditionally relied on volume growth.

2) I still think that the decline on average of mail volume per delivery point is a concern.

3) The addition of new delivery points is a good thing despite the myth that it is not. New delivery points generally tend to generate more volume per delivery point and they cost less to serve -- they can be served more efficiently.

I completely agree with some of the other posts that the solution is in creative thinking about the opportunities that need to be explored. Mail could change dramatically over the next few years, but is that change necessarily bad? What will be bad is if the Postal Service is so focused on its current financial crisis that it fails to task its best and brightest with identifying creative solutions that will propel it into the future.

I have been reading your blog for a long time now. And, for sure, I will continue to read in the future. Thanks for the Posting!

I agree that this is not all related to the economy. Certainly some of it is, but there is more to it than that. The Postal Service just has to keep up with the times and technology as best they can. Keep up the great work!

What concerns me most is the Postal Service's response to weak mail volumes that potentially trade short-term gains for long-term losses. Because the Postal Service will inevitably exist 50 years from now, I hope it continues to make prudent investments in technology, R&D, maintenance, network upkeep, and people during these tough times. Where's the vision(ary)? The Strategic Transformation Plan and Vision 2013 don't go far enough!

USPS is out of touch with reality. It seems to me the management of the USPS is extremely slow at adapting to the changes brought about by the internet. It seems quite obvious to me that the USPS should be putting a greater emphasis on delivering packages bought over the internet. I find that most of the purchases I make over the web are delivered by either fedex or UPS. Obviously the USPS has not reached out to this community to offer them a superior and cheaper service. With the volume the USPS handles they could make it much more economical for shippers to mail their products. The days of delivering bills and personal letters is coming to an end. If the USPS could make their international shipping options cheaper they could open up a whole new area for revenue expansion.

I agree 100% with this comment. Why did the USPS give up on parcel services? This is where the $ is...you cannot email or fax a parcel! The USPS already goes to every address every day, but gave up on the money maker right before the paradigm shifted to e-commerce. Talk about bad timing....

While I may agree with all of the numbers and conclusions, "mstgeorge1" was the only one to posit a solution. As a consultant for over 25 years, I know the difference between a workable solution and pedantic lip service. Saying that the Post Office should take advantage of opportunities is like telling a person up to their eyes in credit card debt to stop charging things. It is axiomatic and not helpful.

The solution is the five day delivery schedule, or in the more extreme, the three day delivery schedule.

There is no reason for the Post Office to endure the costs of Weekend Deliveries for first class mail. Use the Express Mail service as it is currently designed, but move standard mail (FIrst Class, Priority, etc) to a Mon-Wed-Fri schedule.

For those people where ONLY mail will do, the one day difference is not a deal breaker, but for those people requiring next day delivery and ridiculously detailed tracking, let them pay the premiums of the other services.

The words Traditional Business Model are as oxymoronic as Jumbo Shrimp and Minor Catastrophe. Tradition is about remebering how things were, and keeping them that way. A business model, by definition looks to what things will be, and adjusts for the change.

What the USPS excels at (First Class, Priority, etc), nobody in the world can do as well as they do. By the same token, they need to stop trying to be all things to all people.

Go tell Fedex you want to deliver a letter within the week to anywhere in the US for under a dollar and see what you get.

Go tell UPS you have a standard sized box and you only want to pay 4.60 cents to ship in no matter WHAT it weighs and check the response.

I can wait a day for the TV guide, my bills or even my Christmas cards. If I want it mailed out TODAY, I can still drop it in a corner mailbox or visit the post office itself.

The THREE DAY home delivery schedule would cut the overall payroll costs by almost ONE THIRD. and the fuel costs by 20% (remember, mail from PO to PO would still have to be done daily, or it would become unmanagable).

This would allow the service to operate within its operating budget, leaving money for future technology improvements.

The Postal Service with one of the largest number of retail outlets should take advantage of that and expand its relationship with carriers like United Parcel Service (UPS) and Federal Express (FedEx). The Postal Reform act of 2006 separated the Post Office into two (2) categories being competitive and non-competitive products. UPS and FedEx come into many facilities on a daily basis. Why not offer UPS and FedEx products at out retail outlets and make a profit on that transaction? We currently have the parcel select program in place were packages are dropped of at Post Offices and the Post Office receives a fee of about 80 cents per piece and then UPS and FedEx come pick up the packages and we are electronically paid for the arrangement.

On the transportation issue we need to better maximize the utilization of vehicles. At present vehicles are being dispatch and in many cases are only at about 30% of capacity. By law the only mail that has a guaranteed delivery time is Express Mail. With technology we should be able to determine the volume of mail that will arrive at any particular processing facility and then calculate transportation requirements to avoid wasting money on half empty equipment. Also in the same manner that we deliver the last mile for UPS and FedEx if we enter into partnership with UPS and FedEx we may be able to use our transportation resources to provide the first mile and in return maximize the use of our fleet and generate additional revenue to help the Post Office survive into the future.

On the revenue issue we also need to look at providing vending options for out customers that do not use debit or credit. As we eliminate more and more coin operated vending machines we are forcing more customers on to the full service lines just to purchase one or two stamps there by causing the lines to get longer and in many cases alienating customers to the point that they just leave. In essence we are giving away our business by not providing the service which by law we are required to provide. Even the Automated Postal Center is not friendly in this regard because the minimum purchase is set at a price point higher than the cost of a single stamp. As a former postal manager I feel that the APC revenue and retail window revenue should be combined into one goal so that retail window service is not sacrificed at the expense of customer service in order to achieve a high rating during the pay for performance review.

EXFC and the impact on revenue: This is a useful measurement tool but when you utilize overtime to meet this goal because of "sleepers" that were found or late pieces that arrive after the carrier has left to deliver his/her route then the value of the score becomes useless because it is falsely manipulated through the use of overtime which then becomes waste and abuse!

We need to ensure that all revenue sources are protected and maximized and that wasteful practices are eliminated to ensure the survival of the Postal Service.

.. wow! .. now, this is a very interesting/difficult topic worth reading all of the comments on. .. which i did! .. have a great day!

Ditto to ejmercado....I am trying to keep up with all the new changes but I still love to go visit my post office to just mail a letter to a close friend,or my son who serves in the military overseas at the moment,or to my elderly parents...let's not ever forget what makes the Postal Service so great...letter mail!

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