• on Sep 26th, 2013 in Pricing & Rates | 9 comments

    The U.S. Postal Service’s governing body, the Board of Governors, voted this week to request permission to raise postage prices above the inflation-based price cap to generate $2 billion in revenue in 2014. It is asking the regulator, the Postal Regulatory Commission (PRC), to allow the Postal Service to raise the price of a stamp by 3 cents (to 49 cents), which is 2 cents more than the annual inflationary increase. Prices on other single-piece and commercial mail products would also increase. This request is known as an “exigent” price increase because it will exceed the statutorily mandated price cap that is tied to growth in the Consumer Price Index (CPI).

    By law, the Postal Service can only raise prices on its market-dominant products, such as First-Class Mail, advertising mail, and magazines, by the annual growth in inflation. The law allows it to ask the regulator for a price increase above inflation for “exceptional or extraordinary” circumstances. In a public letter to customers, Board Chairman Mickey Barnett described the “precarious financial condition” of the Postal Service and the “uncertain path toward enactment of postal reform legislation” as primary reasons for seeking price changes above inflation. Barnett said if comprehensive postal reform legislation were to pass, the Postal Service would reconsider its pricing strategy.

    The Postal Service filed for an exigent price increase in July 2010, saying the economic recession was an exceptional circumstance that threatened its viability. The PRC rejected the proposal and the Postal Service challenged the rejection in federal appeals court. The court remanded the original case back to the PRC, but at that time, the Postal Service did not pursue it.

    If the PRC were to approve this current request, the Postal Service would raise prices on January 14, 2014. On average, postage rates would increase 5.9 percent – or 4.3 percent above CPI. Mailer groups are expected to oppose the exigent price increase. The PRC has 90 days to issue an opinion on the Postal Service’s exigent price increase proposal.

    What do you think? Share your thoughts on the proposed exigent price increase.

  • on Sep 23rd, 2013 in Products & Services | 22 comments

    Until the early 1970s, citizens applying for passports had to wait in long lines at one of 10 U.S. Department of State passport offices or at a federal or state court. The traveling public was not happy about the inconvenient locations of these offices or the hours’ long wait to submit an application, and they let their elected officials know. The solution allowed post offices to accept and process passport applications on behalf of the State Department. The passports were then mailed directly to the applicants.

    This arrangement has proven to be a highly successful marriage of government services. With many post offices offering passport services, it has become far more convenient for citizens. Today, customers can go online to find the nearest post office with passport services and also find the number to call to make an appointment. (Most post offices require customers to make an appointment for passport service.)

    The execution fee for a passport is $25. In fiscal year 2012, the U.S. Postal Service processed 5.7 million passport applications for revenue of $142 million. With the additional services it offers, such as passport photos and return postage, the Postal Service’s total revenues from passport services in 2012 was $182 million. It is a nice chunk of change for a service the Postal Service does not need to market aggressively. Still, the Postal Service has seen a significant decline in passport revenue over the past 4 years. In 2008, it earned $283 million from passport services.

    The decline in passport revenue could be attributed to a few things. First, the weak economy has undoubtedly reduced international travel over the past 4 years. It could also be that 2008 was an especially strong year for passport revenue because changes taking effect in 2009 required a passport to return to the U.S. from travel to Mexico, Canada, and the Caribbean. However, postal staff reduction and facility closures could also be playing a role. Customers have complained about waiting too many days or weeks for a passport appointment at their Post Office or about being directed elsewhere for service.

    Why do you think passport services revenue has declined so dramatically in the past few years? Is there a way the Postal Service could improve the process? What changes could it make to maximize passport revenues?

  • on Sep 16th, 2013 in Delivery & Collection | 7 comments

    As online shopping has become the norm for many Americans, it has brought operational changes to both brick-and-mortar retailers and online retailers. Shipping costs are now a major consideration for companies. Retailers are working to control their shipping costs as their ebusiness grows, with the traditional retailers relying on their extensive network of stores to reduce shipping costs. Instead of shipping goods from centralized warehouses to far-flung customers, major retailers, such as Wal-Mart, Best Buy, and Gap Inc., deliver from stores close to their customers whenever possible.

    Amazon.com is focused on building more local warehouses and is also investing in its own delivery fleet. Other retailers have made merchandise available to eBay to sell in select cities with its same-day delivery service, eBay Now. Shipping merchandise from locations close to where customers reside allows retailers to save on shipping costs, which are set based on the distances shipments travel.

    Customers are expecting ever higher levels of service. Same-day delivery to a growing number of customers helps retailers provide customers something close to the immediate gratification of an in-store purchase. So far, however, this service has been limited to customers in cities where a decentralized network can serve them.

    While lower shipping costs is good for the retailer and its customers, the shipping giants are likely to feel the pinch. One retailer’s reduction in shipping costs is a courier company’s reduction in revenue. Ultimately though, these e-commerce shipping strategies should improve the online shopping experience and accelerate its growth, which will boost the number of packages sent. That’s a boon for all package delivery companies, including the Postal Service.

    With its reliable delivery network that serves every address in the United States, the Postal Service should be well-positioned for this shift toward fast, local delivery of online purchases. However, some challenges in its network processing capabilities and delivery operations could hinder its ability to capture a larger segment of the package delivery market. What ways could the Postal Service capitalize on these trends? What improvements does it need to make to position itself as the leader in shipping services?

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