• on Feb 16th, 2015 in Finances: Cost & Revenue | 24 comments

    What if your credit card company told you: “You will charge a million dollars on your credit card during your life; please enclose the million dollars in your next bill payment. It’s the responsible thing to do.” Doesn’t seem quite right, does it?

    Well, that’s what the U.S. Postal Service’s requirement to prefund its long-term pension and healthcare liabilities is like. The Postal Service is required to pay the full estimate of its liabilities, currently estimated at nearly $404 billion, even as that estimate moves around and is based on assumptions that are highly uncertain and can frequently change over the life of the liability. Our recent white paper, Considerations in Structuring Estimated Liabilities, evaluates these assumptions and other considerations and shows the Postal Service is closer to being fully funded, or potentially overfunded, when certain assumptions are reasonably adjusted or considered.

    First, let’s look at current funding levels. The Postal Service has set-aside cash totals of more than $335 billion for its pensions and retiree healthcare, exceeding 83 percent of estimated future payouts. Its pension plans are nearly completely funded and its retiree healthcare liability is 50 percent funded – much better than the rest of the federal government. But getting to this well-funded position has been painful. The Postal Service’s $15 billion debt is a direct result of the mandate that it must pay about $5.6 billion a year for 10 years to prefund the retiree healthcare plan. This requirement has deprived the Postal Service of the opportunity to invest in capital projects and research and development.

    As things stand now, retiree healthcare, pensions, and workers’ compensation are unfunded by about $86.6 billion. But our paper says any discussion of unfunded liabilities should take into consideration assets that could be used to satisfy the liabilities, such as real estate. The Postal Service’s real estate assets have a net book value of $13.2 billion. But fair market value of these properties is estimated as high as $85 billion. Neither is factored into the Postal Service’s ability to meet future liabilities.

    In addition, the liabilities are not exact or static amounts and they require certain assumptions, such as interest rates and demographic inputs, to estimate the future costs of these programs. For example, interest rates are at historic lows. Even slightly higher interest rate assumptions would reduce or eliminate the estimated liabilities.

    Our paper details how different assumptions and considerations would affect the liabilities. Basically, if the Postal Service’s real estate assets were considered and one other assumption adjusted, the long-term liabilities would be overfunded.

    Mandating 100 percent prefunding of future liabilities that are frequently changing and highly uncertain could unnecessarily damage the Postal Service, inflate prices, and overfund future liabilities.

    Share your thoughts on our paper. Do you agree or disagree with the overall premise of the paper or have additional insight to share? 

  • on Feb 9th, 2015 in Products & Services | 3 comments

    People may not like getting bills, but they prefer to receive them in the mail and pay them online.

    That’s the finding of our study on transactional mail, which is made up mostly of household bills and payments moving as First-Class Mail.

    We collaborated with the consulting firm InfoTrends to analyze 3 months’ worth of customer billing data from a major U. S. utility. We also jointly interviewed executives who manage bill delivery and payment processing to help determine how the utility’s delivery-and-payment costs and customer preferences compare with those at other utilities and even in other industries.

    As you can see in our new white paper, Will the Check Be in the Mail? An Examination of Paper and Electronic Transactional Mail, we found that despite a clear preference to pay bills online, 91 percent of customers prefer receiving their bills by mail. Even among the utility’s newest customers — those expected to be more digitally savvy — an average of 89 percent opted to have their bills mailed to them, though, like the others, most preferred paying online.

    The reasons are pretty simple. People like having a physical mailpiece as a reminder to pay and as a record-keeping tool. The execs we spoke with said our results are consistent with what they’ve been seeing and hearing.

    It’s also consistent with another clear directive from consumers: they want options in just about everything, including bill delivery and payment. So, in addition to being good news for mail, our findings suggest that a company offering a variety of bill delivery and payment options will keep customers happy.

    Do you prefer receiving your bills via regular mail or email/text? How about paying – do you pay online or ‘is the check in the mail’? 

  • on Feb 2nd, 2015 in Ideas Worth Exploring | 11 comments

    You can’t cut your way to prosperity. It’s a common saying in business circles, particularly in the mailing industry. The U.S. Postal Service has done a good job cutting costs, yet still needs to grow revenue with new products and services.

    Indeed, recent reports suggest a sure way for a post to boost revenue is by offering customers a range of innovative products, such as parcels, logistics, banking, insurance, and digital services. Many of our papers have encouraged the Postal Service to explore these kinds of revenue-generating products and services.

    Yet diversification doesn’t necessarily mean wandering too far from the mission, or reinventing the wheel. Good ideas can be found close to home, using existing assets. Our most recent paper, Revenue Opportunities for Innovative Mail Services, presented some ideas that could take advantage of the Postal Service’s existing network, brand, excess facilities, equipment, or other assets.

    For example, we looked at International Mail Forwarding (IMF), a service that provides recipients a U.S. address from which packages and mail can be collected, held, digitally scanned, or shipped anywhere in the world. This booming business – a current U.S. market of over $1 billion from service and shipping revenue – is expected to grow even more because foreigners need a U.S.-based address to buy online from U.S. companies. Given the Postal Service’s reputation for being secure and trustworthy, and its experience in international delivery, it could grow quickly in the IMF market, our research indicated.

    We saw another opportunity in continuity shipping, a service where a consumer agrees to receive merchandise automatically at regular intervals until canceling the shipments. This established and growing segment of the retail industry is an integral part of eCommerce fulfillment because it helps automate merchandise shipment and return. Given the Postal Service’s expansive facility and transportation networks, and experience with parcels, it is in a strategic position to offer continuity shipping services.

    These types of products would take advantage of the Postal Service’s existing assets and experience. In addition, they open the door to further innovation and value-added services. Are there other innovative ideas that are similarly “close to home” and worth exploring? Do you think these types of ideas have merit? Is there value in smaller revenue products or should the Postal Service not waste time on smaller projects? 

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