Why the Postal Service May not be the Web's Biggest Victim.

WTOP.com reports that in recent survey by the Pew Research Center's Internet & American Life Project shows 24 percent of adult Internet users have placed calls on the Internet, a major spike from just 8 percent four years ago.   This increase shifts calls and revenue away form landlines and wireless phones.

Other interesting finding from the Pew Research Center's report include:

• On any given day 5% of Internet users are going online to place phone calls, up from 2% in 2007.
• The percentage of American Internet users who have placed phone calls online is now about the same as the percent who were aware in 2004 that it was possible to use the Internet for phone calling.
• High-intensity users of all communications modes, and recipients of mail are significantly more likely to use the Internet to make phone calls.  These are individuals with a college education or more, and individuals earning more than $75,000.  Also urban and suburban residents are more likely to use the Internet for voice communications
• Hispanic Americans are more likely to use Internet based phone services than any other group.
• The authors of the study implies that some of the interest in Internet based communications is that it allows for a relatively cheap method of having a video link as well as a voice link.

While the survey did not ask about immigration status of white or black Americans, the higher share of Hispanic Americans using the Internet for phone service indicates that the service has significant appeal to individuals wanting to make international calls.   One would expect that first and second generation Americans, including non citizen residents are likely among those with the greatest interest in a low cost method of international voice communications.

The growth of Internet based phone calls may put another nail in the coffin of land line companies as they lose revenue from International calls, the last type of phone call that has a per minute charges for most customers.  Similarly, high international call charges for cell phones represent a revenue stream for these companies that may be lost as well as customers seek cheaper alternatives using their data plan to do voice communications.

For the Postal Service, the growth of internet based telephone calls should have no impact.  Postal executives must feel good not being in the cross hairs for once when talking about  a rapidly growing new communications technology

The Chalenge of Rural Postal Servcies

Sometimes a picture is all that is is needed to illustrate the problem of rationalizing retail postal servcies in rural America.   Haswell, Colorado is a town of 84 people in 2000 Kiowa County which had a population of less than 2000



The picture implies that in a town this size, it may be tough finding any business that can thrive let alone a Post Office.  The Post Office is open 4 and 1/2 hours weekdsays and three on Saturday

Looking at the county web site found a second Post Office in the town of Sheridan Lake, CO, population 66.  The Post Office sign is on the first floor of what appears to be a coverted school building.




Eads, the county seat of Kiowa County sits about halfway between  Haswell and Sheridan Lake whicha re 47 miles apart. It also has a Post Office and appears to be the only town in the county with a "downtown" based on pictures on the county website.

Concensus Economic Forecasts Now Lower Than Those Available When Last USPS Public Forecast Made

Here is the latest list of announcement of slower economic growth announcements:

Goldman Sachs trimmed GDP growth to 2.6 percent for all of 2011 from 3.1 percent.

JP Morgan  cut GDP growth to 2.5 percent annual pace in the second quarter of 2011 from the previous estimate of 3 percent.  This followed a cut in full year growth to 2.5% from 2.6%.  The small decline in full year GDP growth reflects a shift in auto sales from the 2nd quarter to later in the year once supply disruptions caused by the Japanese Earthquake are resolved.

Macroeconomic Advisers has cut their GDP growth rate from 2.8% annual pace in the second quarter of 2011 from the previous estimate of  3.2%.

The slower growth forecasts were generally made before new data on housing sales and consumer spending were announced that indicated that neither housing nor retail sales are experiencing robust growth.  

Why does this matter for the Postal Service?

The decline in First Class mail, and in particular statements and bills, increases the Postal Service's reliance on economically sensitive advertising and parcel shipping.    So not only does the Postal Service face declines in revenue from the product that has traditionally generated most of its revenue, the revenue that remains becomes more sensitive to the business cycle.

 If revenue will increasingly rise and fall with the business cycle, so must costs.    Contracts with employees, transportation companies, and other contractors that assume a steady demand for services over an extended period of time need modifications that will allow the Postal Service to modify schedules as demand changes. 

The Postal Service made this change with the new APWU contract, and will seek similar changes in its other agreements. 

Similar changes are needed in its highway and air transportation contracts.   If contractors are not willing to provide service allowing for such flexibility, then the USPS may actually find it cheaper to use its own employees who can work a flexible schedule to handle certain movements.

Finally, the Postal Service needs to be able to look at its processing plant network as less of a fixed asset and more as a sunk asset.   The optimal network today will be different from the one needed five years and ten years down the road.  The Postal Service most likely already knows that only consolidating into existing facilities produces both sub-optimal cost-savings and sub-optimal service quality.   However, lack of capital prevents the Postal Service from creating an operating network that will fit the volume and mix and mail that a Postal Service focused on serving economically sensitive customers need.

The End of Mail - A Picture Says it All

I guess this moves postal policy off of the back burner. (Click picture to read article.)

Could a July 2012 Shut-down Date for the USPS Be Optimistic?

The Wall Street Journal has reported that a number of private sector economic forecasters are toning down their economic forecast for the rest of 2011.   Slower economic growth is not good for the USPS as it means less revenue across all mail classes.  Slower economic growth is one of the factors that CFO Joe Corbett noted which could cause a July 2012 shut down date to happen sooner when he spoke at MTAC today.

The April 2011 preliminary financial report shows losses before dealing with workers compensation or retiree healthcare payments.   First Class volumes are down at high single-digit levels, which likely means that single-piece volumes continue to drop at well above 10% year-to-year.   Even Standard Mail volumes and revenue seems to have stalled.   The data also shows significant increases in transportation expenses, mostly driven by rising fuel costs and increased vehicle maintenance caused by a delivery vehicle fleet that has long passed its sell by date.

Postal Stakeholders need to stay on top of economic factors that drive either postal costs or revenue.  They need to determine on their own how changing economic forecasts move the shut down date forward or back.

The USPS Has a Shut Down Date

Twitterer, nonprofitpostal tweeted today that Joe Corbett, USPS CFO, stated that "assuming no legislation, and no worse news, the USPS starts shutting down July 2012 when it runs out of operating cash."

This makes for a rather interesting political problem for Congress.   If Congress doesn't act, the Postal Service would shut down just before the Republican National Convention.   This timetable almost guarantees that if nothing is done the future of the Postal Service could become a hot topic for Republican candidates during later primaries, and talk radio, cable news, and the blogosphere during what could be relatively slow political news cycle in the weeks prior to the convention.

Why Mail Matters: Google Needs it To Sell On-line Advertising

 Heigi Toliver-Nigro in a post in the Digital Nirvana Newsletter provides another example as to why mail continues to thrive as an advertising media.   Google needs it to reach potential customers for its ad words and other on-line advertising services.

“If print is dead,” said Andrew Davis, owner of Tippingpoint Labs in his presentation “Positioning Print for Today’s Customer” (from which these examples were taken), “then why are Google and Yahoo! using direct mail to promote Internet search?”

Good point. As I sat in the presentation, I thought about the multiple direct mail pieces sitting on my own kitchen counter at home. They were from Google, with integrated cards inviting me to expand my AdWords account. Haven’t gotten anything from Yahoo! yet, but it’s probably a matter of time.
When I got home from the trip, I was going through my mail and I had to smile and think of Andrew. Yet another direct mail solicitation from Google.

Have you gotten direct mail from Google lately? If so, what does this say about the viability of print?


I have to say that I get Google's direct mail.  In fact, I think I have been getting a piece from Google nearly monthly.  I thank Ms. Toliver-Nigro for pointing me to an example out the importance of mail in a digital world that was just under my nose.

Deutsche Post's Strategy for Mail

In response to two questions as part of an interview posted on the company's website, Deutsche Post CEO Frank Appel provides a description of Deutsche  Post's strategy for mail.

How do you intend to achieve the stabilization of the traditional letter business?

Of course, in this division we can see far-reaching structural changes that relate to electronic forms of communication. We have reacted to this with a range of e-products, such as the e-Postbrief. Such products are only one element of our strategy to offer innovative solutions in digital and traditional physical communications and, with this approach, to permanently defend our position as THE postal service for Germany. Moreover, one fact is frequently overlooked: we are also one of the big winners of the e-commerce boom because of the strong growth we have achieved in our parcel business. The parcel business now already accounts for around one-fifth of the MAIL division's total revenue and these revenues are seeing highly dynamic growth: 9 percent in the first three months of 2011 alone.

Like I said, we have set ourselves a target of achieving underlying EBIT of around EUR1 billion in the MAIL division. We need this amount to be able to make the necessary investments in an efficient network. The dynamic parcel business will contribute to this goal and help us to achieve it. The extent to which the traditional letter business will be in a position to contribute will depend on a number of external factors that we are unable to influence.

I presume you are referring here to the procedure for setting the price of letters?

This is definitely one important aspect. Consider this: the price for sending a standard letter in Germany has not been raised for 14 years. Our prices are low in European comparison - although the quality of service is extremely high. At the same time, earnings in the letter business have almost halved within only three years.

The discussion about a possible increase in the price of a letter, then, is not about maximizing our profit, but rather about maintaining the current status and a good infrastructure. At the end of the day, the Federal Network Agency will not only be deciding the future procedure for setting letter prices. In fact, it will also be part of the decision on whether or not Germany will still have a modern and efficient postal network in ten years.

His response raises a couple of questions for those thinking about ensuring a self-sufficient United States Postal Service. 

• What should the financial goal of the Postal Service be?  Deutsche Post believes that the financial health of its mail business requires $1 billion in EBIT (earnings before interest and taxes.)  This is about a 7.8% margin before interest and taxes are determined. 
• What is the role of e-Products for the USPS and can it survive delivering only print-communications and parcels?  Deutsche Post apparently believes that it has to provide both print and delivery options to survive.
• How much capital does the United States Postal Service need to make the investments necessary to handle restructuring the network to deal with changing levels and mix of volume?  Deutsche Post believes it needs $1 Billion Euros EBIT for a much smaller network.
• With declining volume, can the Postal Service continue to hold all rate increases below CPI, or will some rates need to increase at a faster pace to generate the cash needed to cover the transition costs that will be required to shrink the workforce and network as First Class volume decreases?  Deutsche Post believes that it can no longer continue to meet its long-term commitments if there is not a change in regulatory pricing policy of the past 14 years.
• What impact does rate changes in any particular year have on the long-term viability of the Postal Service?  Deutsche Post looks at rate setting policy having an impact not just on immediate results, balance sheets, and cash flow but also the long-term viability of the enterprise.    

PostalVision 2020: Finding the Postal - Digital Horizon

has just announced its agenda.   The agenda brings together some of the clearest thinkers in both the digital and print communications world with a goal of examining how the Postal Service can thrive in a digitally-centered world. 

PostalVision 2020 is dfifferent from most postal conferences as it focuses on more on the future than on either the past or how the Postal Service survives the current financial crisis.  Clearly if your business or livelihood depends on the Postal Service, then learning what the Postal Service might look like 10 years hence is critical part of your strategic planning effort.  The full agenda is as follows:

PostalVision 2020

June 15, 2011 • Crystal Gateway Marriott
1700 Jefferson Davis Highway • Arlington, Virginia 22202 USA

Registration and Continental Breakfast – 8:00 to 8:30

Opening Remarks – 8:30

John Callan, Managing Director, Ursa Major Associates

The Age of Digital Disruption in Media

Jeff Jarvis, Author, What Would Google Do?

Social Media: Communicating in the 21st Century

Larry Weber, Social Media Author, Founder W2 Group

U.S. Postal Review and Emerging Digital Alternatives

Matt Swain, Senior Consultant, InfoTrends

Break

Panel: Digital Innovation and Alternatives

Moderators:
Jeff Jarvis and Matt Swain
Panelists:
Jay Adams, President and CEO, MakesBridge Technology
Patrick Bartlett, Senior Consultant, Ursa Major Associates
George Kliavkoff, CEO, Manilla
Ramesh Ratan, President, Pitney Bowes Document Technologies
Jennifer Tomlinson, Senior Consultant, Innovapost

Lunch

Keynote Presentation

Vint Cerf, VP and Chief Internet Evangelist, Google

Panel: The Role of Government in the Postal Service and Communications

Moderators:
Gene DelPolito, President, PostCom and Jeff Jarvis
Panelists:
Jim Campbell, Legal Consultant on Postal Regulatory Issues
David Williams, Inspector General, U.S. Postal Service
Jeremy Grant, NIST’s Senior Executive Advisor for Identity Management
J. Erik Garr, Principal at Price Waterhouse Coopers, broadband policy expert

Break

Panel: The Postal-Digital Horizon – Achieving 2020 Vision

Moderator:
Jeff Jarvis
Panelists:
Ruth Goldway, Chairman, Postal Regulatory Commission
David Williams, USPS Inspector General
Gene DelPolito, President, PostCom
Ron Stroman, Deputy Postmaster General, U.S Postal Service

Closing Remarks – 5:00

John Callan

If PostalVision 2020's agenda excites you as much as I believe it should, register soon as there are a limited number of spaces available.  Fill in the  PostalVision 2020 Registration Form and e-mail or Fax it today.

Comparing Labor Cost Proportions at the USPS, UPS, and FedEx

Update: this chart in this post has been replaced to correct a silly error.  The USPS delivers to residential addresses 6 days a week.  I know that and I know that all readers of this blog know this as well.  I would like to thank the reader who posted the comment that force me to fix this error. 

In a discussion today on his Facebook page, Representative Dennis Ross fell into a common trap in comparing the labor's portion of costs by the USPS, UPS and FedEx.  He states that:

UPS (Union) - about 66% of their total operating costs are labor. FedEx (non-union) - about 45% of their total operating costs are labor. USPS - 80-82%.

The differences in the proportion of labor costs can come from one of six factors:

1. Compensation levels - what each company pays per hour worked
2. Work rules - affects how efficiently each company uses employees
3. Contracting - companies use different models regarding the use of contractors to handle the collection to delivery process, and in particular the labor-intensive delivery function
4. Network differences - Differences in the network affects the amount of labor involved in delivery, sortation, transportation and retail portions of an end-to-end movement.
5. Capital intensity -  The companies have very different capital requirements that affect the amount of non-labor costs needed to provide the services that they offer.
6. Congressional requirements - Congressional requirements focus on the aspects of the Postal Service that add significantly more labor costs while making minimal impact on capital spending.

Compensation Levels

I have already presented a comparison of compensation levels between the Postal Service, UPS, and FedEx.   The comparison showed that total compensation of Postal Service employees in a delivery function clearly fall in between the compensation of UPS and FedEx.  

Employees who work inside processing facilities at the Postal Service on average are paid more than FedEx and UPS employees.  However, the new APWU contract will result in Postal Service compensation falling in line with what compensation of UPS and FedEx.   (It should be noted that UPS also offers significant college scholarships as a benefit to parcel sorting employees that are not included in these comparisons.)  The compensation levels of the new class of APWU members that could include 20% of APWU employees are very competitive with compensation of individuals with similar experience at UPS and FedEx.

Employees that provide retail services at the Postal Service have no real comparison with employees at FedEx and UPS.  Comparisons are usually made here with other retail occupations and bank tellers.  I have not looked at this comparison but the data is available to make this comparison is available from both private and public sources.
Finally, compensation of UPS and FedEx executives are significantly higher than Postal Service executives.   The compensation levels of managers and technical staff at UPS and FedEx are likely also higher.

On balance, it is unclear how much a compensation premium affects labor compensation's proportion of total costs.

Work Rules

Another factor that increases USPS compensation expenses are work rules used for mail processing, local transportation and retail services.  The new APWU contract, and in particular the new method of defining a full time schedule should go far to eliminate work rules that requires the Postal Service to overstaff its processing and retail facilities.   The new method of defining full time will likely result in employee schedules that are close to the part time schedules that FedEx and UPS use for its sortation centers.

Contracting

The following table illustrates how the Postal Service, UPS and FedEx use contractors.  

Comparison of Contracting at the USPS, UPS, and FedEx

The three carriers have very different operating models that significantly affect the portion of costs that show up in expenses as "compensation and benefits" and "contracted transportation" This makes comparisons particularly difficult as both UPS and FedEx use contractors extensively for retail services and FedEx Ground uses contractors to deliver all parcels.

An accurate comparison would identify the labor component of contracted retail, transportation, and delivery services. This is nearly impossible and is the primary reason that I have never presented a comparison of the proportion of labor costs in my previously published analyses of the parcel industry.

Network Differences

The following chart looks at differences in the networks employed by the USPS, UPS and FedEx. 

 Comparison of USPS, UPS, and FedEx Networks

The Postal Service's delivery network is significantly more extensive than either UPS or FedEx and primarily delivers to residential addresses that are more expense to serve than business address due to volume of deliveries per delivery point.  Delivering 6-days to residential addresses increases the proportion of labor costs as capital expenses for buildings and vehicles are the same whether the Postal Service delivered 5 or 6 days per week, and some operating costs (heating fuel and electricity) do not change as much as labor costs. [added 5/23/2011 3:15 pm along with corrected chart] 

The Postal Service network has significant overcapacity.   To the extent that there is overcapacity in either UPS or FedEx's network it would affect short-term economic impacts or changes in population and economic growth across the United States.   Also both UPS and FedEx are face the prospects of growing volumes so they face some challenges of having sufficient capacity while the Postal Service faces shrinking volumes so its network faces the prospect of increasing levels of overcapacity and the prospect that over time existing facilities will be in sub-optimal locations.

The Postal Service's retail network focuses on less knowledgeable buyers of the services that it offers.  Also, the Postal Service's network faces regulatory and legislated constraints that neither UPS nor FedEx face.

Capital Intensity

Capital intensity affects the proportion of costs that are labor costs.  Companies that are more capital intense have a lower portion of labor compensation costs and vise versa.   For example, an electric utility is a more capital intense business than a nationwide retail chain.   The following chart illustrates differences in capital intensity between the delivery services offered by the USPS, UPS, and FedEx. 

Comparison of Capital Intensity of USPS, UPS and FedEx

FedEx has the most transportation capital needs as they operate the largest fleet of freighter airplanes in the United States. UPS has the second largest fleet of freighter airplanes. Both FedEx and UPS use their aircraft to fly Postal Service mail and parcels, relieving the Postal Service from making substantial capital investments.  The Postal Service's transportation needs focus on its delivery fleet.   However, it has not had the capital needed to replace its aging fleet, so its capital spending on transportation assets are below what may be required for cost-efficient operations.

Both FedEx and UPS are among the leaders in information technology spending among transportation companies.    They both look at their IT investments as a competitive advantage.   The Postal Service, on the other hand, has tended to underspend on information technology resulting in long implementation schedules for needed infrastructure, management information systems, customer information and transaction systems, and track and trace systems for mail and parcels.

Finally, both UPS and FedEx have managed their processing network using network models for years without constraints set by Congress on closing or moving operations.    When additional facilities are needed, or upgraded to ensure proper maintenance and worker safety, they have the resources to make these investments.   The Postal Service is limited to use the facilities that it now has and faces significant backlogs in facility maintenance.   To the extent that facilities are located in the wrong location, or too small to handle sortation of a larger geographic territory, the Postal Service does not have the capital to make those investments. 

Congressional Requirements

The Postal Service face two requirements from Congress that increase the labor cost's proportion of total costs.

1. Restrictions on how retail services are provided -  Both regulatory and legal restrictions on the Postal Service's retail network increase the proportion of total costs that are labor costs.  These costs come from both operating a retail network and managing the process to implement changes in the network.     In addition, Congressional efforts to slow changes to the retail networks add additional labor costs to managing the network to handle questions and concerns of members of Congress.
2. Restrictions on delivery frequency - Requiring the Postal Service to provide delivery services 6 days a week has a larger marginal impact on labor costs  than it does on all other expenses.   The proportion of labor costs would be lower if the Postal Service only delivered mail 5 days per week.

Conclusion

Comparing the proportion of labor costs at the Postal Service with the proportion of labor costs at FedEx and UPS is a nonsensical exercise.   It tells one little about what the appropriate proportion would be for an efficient or properly capitalized Postal Service. 

Focusing on unionized labor costs may be an easy political target for a Republican member of Congress. However, Congressman Dennis Ross would find his time better served if he now focused his time on examining, the Postal Service's financial goals, its capital structure and its real annual capital needs to replace the delivery fleet, optimize the network, modernize retail, upgrade the IT infrastructure and customer interfaces, and cover the transition costs of downsizing the workforce.   By making this shift, Congressman Ross would make a real contribution to postal reform.  His efforts would for the first time address one of the key failures of both the Postal Reorganization Act and the Postal Accountability and Enhancement Act, the failure to adequately recognize that "accounting break-even" is not an appropriate fiancial goal and that an under-capitalized Postal Service is an inefficient Postal Service.

Could the Postal Service Grind to a Halt in FY 2012?

Yes, according to Postmaster General Pat Donahoe's testimony

With no remaining borrowing authority, at some point in FY 2012, the Postal Service easily reaches a point where making payroll is no longer possible.  Unable to pay our employees or suppliers, we are forced to cut back service. We cannot afford fuel for delivery vehicles and lack resources to operate our facilities. Unable to support our infrastructure, the mail delivery system grinds to a halt.  No mail is collected or delivered, resulting in serious repercussions throughout the mailing industry, ultimately leading to  million-dollar losses for thousands of companies and lost jobs, wages, and benefits for millions of workers. These results  take a significant toll on an already shaky economy.

Bill Mc Allister, the dean of postal industry reporters, pointed me toward this quote from his testimony that provides more specifics about what could happen than my previous post "Will FedEx be Stiffed?" 

This quote suggests that the Postal Service may have a shut down date in mind given current financial projections.   This announcement should add postal employees, mailers and parcel shippers to the list of those who have to look at the risks that they face from a potential shutdown.   The sooner they can get information on possible shut-down dates, the sooner they can make preparations for alternative means of delivery if a shutdown occurs or seek alternative employment to avoid being caught up in a potential shut down.  

Will FedEx Be Stiffed?

In his testimony before the Senate Senate Committee on Homeland Security and Governmental Affairs, Postmaster General Patrick R. Donahoe testified that the Postal Service's cash shortfall could extend to operational expenses.  What he did not say was what operational expenses will not be paid.

 

 Previously, when he has testified that the Postal Service would default on the Federal retiree health care and workers compensation payments.   The escalation of the bad news suggest that all of the cost cutting efforts to date have not come fast enough to deal with declining revenue and most importantly declining revenue from First Class transaction mail.

 

When the Postmaster General previously stated that the Postal Service would default on its Federal obligations, he stated that the Postal Service would continue to deliver the mail and employees would still be paid.  So that leaves payments of postal contractor bills as the operating expenses that will not be paid.  In 2010, the Postal Service's largest contractors, and therefore the firms that face the greatest risk that the Postal Service will not pay its bills are as follows:

1. FedEx Corporation (Air Transportation)
2. Northrop Grumman (Equipment, consulting)
3. Kallita Air, Ltd. (Air Transportation)
4. Pat Salmon & Sons (Truck Transportation)
5. Siemens (Equipment, consulting)
6. Hewett Packard Co. (IT support)
7. Wheeler Brothers Transportation (Truck Transportation)
8. Campbell- Ewald (Advertising)
9. Accenture (Consulting, IT support)
10. IBM (EXFC measurement, consulting)
11. Mail Contractors of America (Truck Transportation)
12. United Parcel Service (Air Transportation)
13. Continental Airlines (Air Transportation)

Normally, the Postal Service pays its bills within 30 days of receipt.   The financial shortfall will likely force the Postal Service to delay payments for bills submitted in September and possibly August under it generates enough to cash to pay them.  For these contractors, this could mean that payments that were usually made within  30 days could take 60 to 90 days until the Postal Service has the cash to pay.  

Some contractors may stop work on contracts until payment is received.  Some may decide not to provide any more product or services after payments stop.   Given that nearly all inter-city transportation involves contractors, the greatest risk to service would come if the cash shortfall is large enough to prevent the Postal Service from paying its transportation contractors. 

The Postmaster General's testimony requires Postal contractors to assess the payment risk.  Unless the Postal Service begins talking to its contractors now about the payment risks that contractors face, they may asume that the risk is quite high. Such an assummption could create significant challenges for the Postal Service in providing the mail and parcel delivery services that are critical to the economy in the 4th quarter of 2011 and beyond.  The sooner the Postal Service can allay fears of contractors the sooner they can ensure that Postal contractors continue to act as the partners that they are. 

Why Mail Matters: Newegg

Newegg, one of the largest sellers of computer and electronic parts and products is a Postal Service customer.  How do I know?  I just purchased some memory for my laptop and just got the notice that the shipment is on its way.    Here is the e-mail message, minus information describing the purchase.


Dear Alan M Robinson,


Thank you for shopping at Newegg.com. We're glad we had what you're looking for!

Your tracking number has been generated via Egg Saver. Please see below for your order information and tracking number. It may take up to 1 business day for your tracking information to become available.

Egg Saver shipments are picked up from our warehouse at the close of each business day by DHL Global Mail, who handles shipping from Newegg to your nearest USPS facility. USPS then delivers the package to your ship-to address with your regular mail delivery within 4-7 business days. [Words are bold in the original email.]

Now, the graphic is nice but isn't it a bit too complicated for Newegg customers who don't know what a DDU, SCF, BMC, or an AMF are?   But it does make it clear that the shipment will arrive in the mail after being transported much of the way by DHL. (DHL should develop a new graphic for inclusion in e-mails like this designed for non-mailing industry customers of Newegg.)
 
The description of the service clearly illustrates a marketing and operations problem that the Postal Service has to fix if it wants to take a larger share of the Newegg's delivery business.   Doesn't the sentence, "USPS then delivers the package to your ship-to address with your regular mail delivery within 4-7 business days," encourage customers to pay to upgrade to faster service the next time they make an order?  Doesn't this sentence make signing up for either Amazon Prime or Shoprunner to get 2-day service at no charge if one shops online frequently?
 
Even with much slower service commitments, the Postal Service has been able to grow its last mile delivery business. In the First quarter of FY 2011 parcel select volume was up 26%, allowing its first-mile partners to cost-effectively drop shipments nearer to the delivery point. 
 
The Postal Service's last mile, parcel delivery service could grow faster if it had tighter delivery standards so DHL would no longer say the "USPS then delivers the package to your ship-to address with your regular mail delivery within 4-7 business days."  For example, the USPS needs to find a way to deliver shipments dropped at a DDU or SCF the next delivery day, and shipments dropped at a National Distribution Center (NDC) in two or three days.   Then its service would nearly service competitive with ground delivery offerings of FedEx and UPS to merchants trying to satisfy demanding customers, while still offering the low-cost delivery option that makes on-line purchases attractive.
 
 

Why Mail Matters: Macy's

Macy's today announced its First Quarter 2011 earnings this morning and provided another clear indication that the courier, express and postal industry provide the an increasingly important role by delivering web based sales to consumer's homes. 

The description of Macy's sales in the press release provides an indication as to how important web-sold and home-delivered sales are to Macy's

Sales in the first quarter of 2011 totaled $5.889 billion, an increase of 5.7 percent, compared with sales of $5.574 billion in the same period last year. On a same-store basis, Macy’s, Inc.’s first quarter sales were up 5.4 percent. Online sales (macys.com and bloomingdale's.com combined) were up 38.3 percent in the first quarter. Online sales positively affected the company’s same-store sales by 1.3 percentage points in the first quarter. Online sales are included in the same-store sales calculation for Macy's, Inc.

A back of the envelope calculation provides a rough idea what this growth means to FedEx, UPS and the Postal Service.   

• For on-line sales to have such a large impact on Macy's total same store sales, home web-based and home-delivered sales has grown from 14.5% to 18.4% of Macy's retail revenue.  
• If one assumes that an average shipment has a $200 invoice amount, Macy's first quarter home deliveries grew from just under 4 million in 2010 to 5.4 million.    
• If Macy spends on average $7 per shipment, then it spent nearly $40 million on parcel delivery and express charges in the quarter.

Macy's illustrates how the business of FedEx, UPS and the Postal Service is changing.   Increasingly parcels that would have been delivered directly to stores are shipped less frequently or in fewer boxes.  

Instead, shipments need to be sent from warehouses to homes.   All three carriers are working to adapt to this change.  

One of the results is the growth of the Postal Service's Parcel Select and Parcel Select Return services as these services fit the needs of Macy's for inexpensive and reliable home delivery.   The challenge for the Postal Service is to try to figure out how it can improve its ability to integrate the last mile with the first miles of other carriers to reduce the time from order-to-delivery and make the customer's delivery experience as good as the products Macy's sells.

Mail: Filling the Gap in Web-based Local Advertising

Advertising Age has reported that Living Social and Groupon's expansion has focused on metropolitan areas.  Nielson Data indicates that users of Groupon and Living Social user, in fact, are at least 10% more likely to live in metropolitan areas greater than 400,000 people.

Areas such as Washington, D.C., Kansas and Illinois (home to Groupon's headquarters) top the state list of above-average Groupon users, while D.C. (home to Living Social headquarters), Nevada and Maryland rank highest in people more likely to use Living Social than the average online adult. West Virginia, Iowa and Kentucky index as the lowest users of Living Social, while West Virginia, Arkansas and Delaware skew less likely to use Groupon, according to the Nielsen data.

These sites favor urban areas because the economics of selling advertising profitably is better when there are many customers for a particular offer.  This is the same reason that Living Social has a great success with national advertisers.  Living Social's $20 Amazon card for $10 in January was a best-ever seller, with 1.4 million cards, or $14 million in sales, topping Groupon's estimated $11 million swift sale of $50 Gap cards sold for $25 last August. A recent Fandango deal of two movie tickets for $9 raked in $1 million in sales.

The business model of Groupon and Living Social provides lessons on the current limits of web-based advertising for local businesses.   The smaller the market, the more difficult it is to find sufficient local and national advertisers to make marketing the service profitable.  In addition in smaller markets selling enough ads to make the website attractive to potential customers on a daily basis is more difficult.  That is why they are just now experimenting in markets of 250,000 plus.

The challenge that Groupon and Living Social have in less-populated markets most likely exist on the fringes of metropolitan areas and in small geographic markets.  This is where mail comes in.   Mail can target both sparsely populated rural markets and micro-markets in urban, suburban, exurban, and rural areas. 

The use of mail has little to do with how the sale will be made as mail can just as easily encourage a phone, in-person., mobile or online sale. With the use of QR codes, mail can get a customer right to product information or checkout as fast if not faster than services like Groupon and Living Social. 

Mailers and the Postal Service have a real challenge complementing new web-based marketing options and ensuring that mail can compete effectively in micro-markets that demand high levels of service and reliability that Standard Mail's old name "Third Class Mail" never implied.  This is the reason why the Center for the Study of the Postal Market has joined with others to create Postal Vision 2020, a symposium on the future of the Postal Service in a digital and social media age. 

Postal Vision 2020 will bring those that are working to develop the future including Jeff Jarvis, author of What Would Google Do and Larry Webber, author of Everywhere: Comprehensive Digital Business Strategy for the Social Media Era are both bringing their expertise on the changing nature of communications to provide ideas for those in both the digital and print communications world about how the changing world of communications affects the options that the Postal Service has to ensure a self-sufficient future.

Postal Vision 2020 will be held June 15, 2011 and the Marriott Chrystal Gateway Hotel in Arlington, VA. To learn more click on Postal Vision 2020 logo.

Good News in Print Consumables: Good News for the USPS?

In its First Quarter 2011 earnings announcement, Presstek, a manufacturer of printing equipment that serves the needs of shorter run printers, just provided the Postal Service another indication that improvement in advertising mail revenue may have legs.  

The positive indication came from the growth of consumables used on installed Presstek equipment.  In the press release, Presstek Chairman, President and Chief Executive Officer Jeff Jacobson stated, "The sale of consumables accelerated during the latter part of the quarter, providing us with our highest quarterly total revenue performance in four quarters."  In the conference call he indicated that the growth in consumable sales has continued through April and the first week in May.

Presstek is even seeing improvements in its equipment sales.  Mr Jacobson said,""In addition, we have seen an increased level of equipment sales activity during the early part of the second quarter of 2011, and expect to report both sequential and year-over-year equipment revenue growth for the quarter."  The growth in the sale of printers indicates that printers have begun to feel sufficiently confident in their business to begin making significant capital investments.

Presstek's conference call included a note of caution regarding the growth of mail printed by smaller printers.   Presstek noted that  finding capital remains a business impediment for smaller printers.   These companies are more reliant on bank loans and bank lending remains tight.

Why Do Printers Have to Know About Social Media

While reviewing the latest quarterly reports from Presstek, a major supplier to printers that produce advertising mail, I came across a great introduction to social media.  Now why would a manufacturer of printing equipment create an introduction to social media? Simple, Presstek wants their customers to be as effective as possible in selling print services and in particular selling print services to digitally savvy customers. (For Presstek, increasing printing sales means more sales of consumables and eventually printing equipment.)

"Surviving and Thriving with Social Media: a Social Media Primer for Printers" is a great introduction to social media for anyone trying to take the first step into using social media to market their products or services.   In a beautifully presented format it illustrates how various types of social media are being used to complement traditional marketing approaches.

The primer will do little more than wet the reader's imagination regarding the marketing ability of social media.   In particular the primer shows that social media clearly is an effective tool to reinforce the most effective and yet most expensive part of sales, in-person contacts between a sales representative and an existing or potential customer. 

The challenge facing users of social media is transforming the various outlets (e.g. Facebook, LinkedIn, YouTube, Four Square, Blogs, etc.) from broadcast communications (i.e. placement of a blog post, You Tube video, a Facebook news items) to an interactive communication (i.e. a give and take between a company or salesperson and potential customers on a Facebook page, or twitter conversation, or comments on a blog.)  The amount of time this transformation takes place depends on the size of the market that a company serves and its ability to get customers to participate.

In an odd way, old-style printed advertising, including correspondence with current or potential customers can play an important role in getting customers involved in a company's social media marketing efforts.   Customers need to know where to go and why and mail is often the most effective means of getting a social medial campaign rolling.

This unusual link between social media and print media illustrates one of the reasons that both those whose livelihoods have long depended on mail and print media and those whose careers started with social media need to learn more about this link. Postal Vision 2020, a symposium on the future of the Postal Service in a digital and social media age, is bringing some of the greatest thinkers regarding the internet, social media, and mobile communications to talk about the future of the United States Postal Service.  For companies like Presstek, the future of the Postal Service is critical as many of their customers use their presses and consumables to print mail.   To the extent that social media changes the type of mail that is printed, the printing run of particular mailings, or the total volume of mail sent, then it affects Presstek's business.   Postal Vision 2020 will provide a starting point for thinking about the future of mail in a social media age, a critical issue for the printing, paper and direct marketing industries.    Postal Vision 2020 will be held June 15, 2011 and the Marriott Chrystal Gateway Hotel in Arlington, VA. To learn more click on any of the links.

The Futue of Retail Is Delivery - Sears and K-Mart

Today Sears announced its first quarter outlook.   It's announcement illustrated that retailers that rely on brick-and-mortar sales are in trouble.

The key figures:

• Same store brick-and-mortar sales - down 4.1%
• Internet sold and delivered sales - up 22.4%
• Overall US sales - down 3.6%

The impact of internet sales suggests that Sears gets 98% of its U.S. sales in retail stores.  Sears is nearly a pure brick-and-mortar retailer.  Unless it can improve its competitive position on the web and change its brick-and-mortar strategy to complement in-person sales strengths, it will have a real challenge to return to sales growth.

Sears's problems provides an example why companies that sell exclusively on the web now get 20% of all deliverable retail sales are growing rapidly, and those using the brick-and-mortar strategy have less promising futures.

Sears's first quarter outlook show the increasing increasing importance of parcel delivery services and e-commerce. The future of the United Parcel Service, FedEx and the United States Postal Service will increasingly be linked to how well they serve retailers selling services through broadcast, direct marketing, web-based and social media. Recent reports by the Inspector General of the Postal Service suggests that there may be a digital role within the postal ecosystem that could improve the efficacy of web and and mobile based communications for commerce that could improve the prospects for the parcel delivery industry. It is for this reason that an upcoming conference, Postal Vision 2020 will be bringing together some of the greatest minds in e-commerce, social media, digital and print communications to discuss the future of print and digital communications. The symposium to be held June 15, 2011 and the Marriott Chrystal Gateway Hotel in Arlington, VA. To learn more check out Postal Vision 2020 .

To Grow Mail Volume: Create Delivery Day Specific Standard Mail

A recent story in the Asbury Park Press illustrates how Standard Mail service standards may discourage advertisers from using the mail.   Monmouth County had a school election on Wednesday April 27.   As is the practice, the county mails out sample ballots prior to voters prior to the election.  The ballots were tendered to the Postal Service late on Tuesday April 19th and the clock formally started on April 20th. 

As of the day before election day,  "trays of ballots were still sitting at the Eatontown processing center for most voters in Freehold Township and Manalapan and pockets of voters in Eatontown, Middletown, Tinton Falls and Spring Lake."

The problem that Monmouth County had is the same problem that small and occasional advertising mailers have.  They assume that the service commitment is better than it really is because mail sent in the past meets commitments at the quickest end of the service window. They generally have no clue that Standard mail has a broad service commitment window.

In the case of the election mailing, prior mailings were dropped on "Wednesday prior to the Tuesday election; the ballots are stuffed in mailboxes by Friday or Saturday."  So it looked like the "real" service commitment was two to three days.   Unfortunately for Monmouth County the service commitment was two to nine days and mail was still being delivered six delivery days later, which was election day.  Th



The actual service commitment for standard mail is so broad that it has little meaning for mailers that require a tighter window and most likely hinders its use by many mailers that want to advertise a date specific event or sale.   While the Postal Service may think that First Class mail is the alternative that advertisers should use if they have a need for a tighter window, most advertising mail and in particular mail like the election mail that comes from a sender with a very limited mail budget is likely to find that First Class mail to be too expensive.

The Postal Service should use the experience of  Monmouth County to expedite the development of a new product Standard Mail Product, scheduled delivery day mailings.   This product would have a delivery commitment on one or two specific delivery days.  In the case of Monmouth County, the commitment would be on the Saturday after it was officially tendered on Wednesday, a delivery day that has relatively low mail volume. This is one day slower than the service commitment  of First Class mail  More importantly it represents a commitment to delivery on a s specific day and not an as-soon-as-promised rolling commitment that First Class day offers.   It is also different from regular Standard mail which has a broad service commiment.

While it would seem that specific commiments would be more expensive to provide, they actually could reduce the Postal Service's costs. Using the Monmonth County mailing as an example, the date the mail is to be tendered as is the general size of the list of addresses or carrier routes that will receive the mail is known far enough in advance for the Postal Service to both work with Monmonth County to pick the most cost effective delivery date and plan its own resources to handle the mailing.  The more information that the Postal Service has on mail that is to be delivered in advance, and in particular a week or more in advance, the easier it is to scheudle employees to sort transport, and deliver the mail.   Scheduled mail becomes the base load for the both plant operations and delivery. 
 
Mailers that are concered about costs and Postal Service managers looking for new profitable revenue need to look seriously at scheduled Standard Mail.   Experimenting with this product around elections held next fall in many states and municipalities create a perfect market test to see how the product could work in practice and improve the attractiveness and profitability of Standard mail.