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Failing to deliver? Postal service cutbacks have marketers, publishers worried

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The U.S. Postal Service's attempts to stay financially viable in the face of dramatically declining mail volume and revenue have magazine publishers and direct marketers worried about their own future. Of particular concern was last month's request by Postmaster General John Potter that Congress allow the USPS to cut mail service from six days a week, if necessary, to five to reduce costs.

“We're opposed to any cutback in delivery days, but if it's implemented because the Postal Service has no other options, they should seek and consider the views of their customers before deciding which day is most appropriate to cut,” said David Straus, Washington, D.C.-based counsel for American Business Media, an association of business publishers.

“I'm hopeful the Postal Service won't have to do it, but I'm less hopeful over the longer term. If the mail-volume declines continue, and they can't contain their costs, we will see a reduction in delivery days.”

The USPS lost $2.8 billion in its fiscal year ended Sept. 30, 2008, despite more than $2 billion in cost-cutting measures that included 50 million fewer work hours compared with 2007.

ONE DAY COULD SAVE $3.5 B
Potter told Congress the USPS could lose as much as $6 billion in the current fiscal year unless it gets financial relief. Axing one day's worth of mail delivery could save $3.5 billion annually, according to USPS' own estimates, but the agency is still facing inexorable pressures.

Mail volume last year totaled 202 billion items, more than 9 billion fewer than the year before—the biggest drop in history. Potter said there could be a further drop of 14 billion pieces of mail this year, driven by the increased use of the Internet as a communications medium combined with the economic meltdown.

“The 9 billion drop in volume in was a shocker,” said Jerry Cerasale, senior VP-government affairs for the Direct Marketing Association, “and that combined 23 billion-piece drop is huge.”

Mail volume continued to fall in the fiscal first quarter ended Dec.31, with a 5.2 billion-piece decline from the year-earlier period. The 9.3% drop marked the eighth consecutive quarter of accelerating volume declines. The USPS reported a fiscal first-quarter net loss of $384 million. Revenue declined 6.3% from the year-earlier period to $19.1 billion.

ALTERNATIVES MULLED
Cerasale said the DMA is taking a “realistic” approach to the USPS' financial troubles. While many DMA members depend on six-day mail delivery, he said, “We can't have the Postal Service collapse.”

What recourse marketers have is not immediately obvious, but the implication of losing one day's worth of delivery—in particular if it's Saturday—is clear. Dropping Saturday delivery means two straight days without mail. In addition, the five federal holidays observed on Mondays would produce five three-day stretches of empty mailboxes each year.

Straus noted that Saturday delivery is considered important for catalogers that rely on consumers to review mailings over the weekend, as well as by the remittance industry, which anticipates many people reserve Sundays to pay their bills.

A more likely scenario, many say, would be the elimination of a light-volume day, perhaps Tuesday or Wednesday. “Losing one of those days wouldn't be an impossible situation,” Straus said. “I would think direct mailers would be willing to trade one day of nondelivery if it would result in more attractive rates.”

That may not be possible either. Postal increases, scheduled for May, are expected to hike the first-class rate per piece 2 cents to 44 cents. “Increasing rates and decreasing service—those two don't mix,” Cerasale said.

PRICE INCREASES
Periodicals, whose rates last year covered only 84% of their delivery costs, may be the most severely affected by rate increases, as the law requires that all attributable costs of delivery be covered. It may take a rate increase on periodicals delivery of as much as 19% for the USPS to break even in this category. “That would be a disaster,” Straus said of the impact of such a move on the publishers he represents.

Other solutions are being considered. Last month the DMA, along with various direct mailers, publishers and associations, urged federal committees to support legislation that would save the USPS about $2 billion annually by changing health benefit payouts.

Observers also urge a stronger partnership between the USPS and businesses.

For example, David Sable, vice chairman-COO of Wunderman, urged long-term contracts based on volume and frequency. He also said mailers should make greater use of automation that packages mass mailings in sequence of mail delivery, which saves both the USPS and the mailer money.

“I'm passionate about this,” Sable said. “I think the Postal Service needs to be supported—and pushed and argued with as well—but supported.”

But the combination of declining mail volume and sales (it is anticipated that revenue could decline in fiscal 2009, which hasn't happened since 1945) may make service cuts inevitable.

“It will decrease convenience and increase inconvenience,” said Gary Slack, chairman of b-to-b agency Slack Barshinger. “And a move like this will inevitably reduce marketers' reliance on the U.S. mail. It's been declining, and this will probably accelerate the decline.”
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