Ending Denominated Stamps

USA Today reported on December 28, 2010 that all First Class stamps in 2011 will be forever stamps.  Currently, forever stamps are only available in a limited number of generic designs. The switch puts commemorative stamps on a equal competitive plain as more generic stamps sold in booklets and sheets.

The shift reflects a final blow to the traditionalists and penny counters at the Postal Service that held onto denominated stamp concept far beyond the point that it made business sense for either First Class mail or for the Postal Service's commemorative program.  For those with some memory of the regulatory process, the forever stamp was pushed for many years by the Postal Regulatory Commission's Consumer advocate and approved in 2007 after long opposition from the Postal Service.  

The elimination of denominated First Class stamps should provide a limited boost to the Postal Service in three ways.

• Eliminating the purchase of 1 and 2 cent stamps when there is a rate change saves the Postal Service money.   If one assumes that it would take 1 minute of a postal clerk's time to sell stamps, it would cost the Postal Service on average 13 cents if the clerk was paid the federal minimum wage and received no benefits.   So in order for a purchase of low denomination stamps to be profitable, a minimum of 14 cents worth of stamps would have to be sold at a time.   Given that postal clerks are paid well above the minimum wage and have benefits, the break-even point for selling stamps (assuming the cost of the service was already paid for in the existing postage purchased) would be at least 40 cents.  So unless a person needs to purchase forty 1 cent stamps, the Postal Service would be losing money on each purchase at a retail counter.
• Eliminating the purchase of 1 and 2 cent stamps improves customer satisfaction and the quality of retail services.  By eliminating the need to buy these stamps, the Postal Service makes First Class mail easier to buy.   Consumers can buy stamps once and not have to worry about when the stamps will be used.  Also eliminating the need to buy low value stamps, improves the Postal Service's ability to quickly serve retail customers needing to buy all other services including higher priced parcel services.
• Eliminating denominations on commemorative stamps should increase their acceptance.   Consumers now can buy commemorative or generic stamps with an equal assurance that the stamps will be good for First Class mail for as long as they will need them.   This should have the effect of increasing sales of commemorative stamps and ensuring that the entire print run of commemorative sell-out.

Forever stamps represent one element in the Postal Service's program to simplify the purchase of its services.   Flat rate boxes, pre-stamped greeting cards, and pre-paid postage shipping cartons are other illustrations of this trend.    These steps all reflect an expansion of the convenience factor which is critical when vying for the business of time-strapped consumers

Web Sales - Who Delivers?

As we close another holiday season, the increasing importance of web based shopping becomes increasingly evident.  Marstercard Advisers reported that Internet sales rose 15.4%.  This increase is consistent with the results generated by the monthly surveys of retail activity conducted by the Commerce Department.   What the Postal Service, FedEx and United Parcel Service need to do is delve a bit deeper into the data as they begin to make their plans for handling the even larger volumes of parcels that will be delivered next year.

Mastercard Advisers estimated that total web-based sales were $36.4 billion in the fourth quarter of 2010.  However, Mastercard Advisers figures underestimate the total value of electronic and mail order sales that the Census Bureau will likely report early next Spring for both the holiday period.    The following chart illustrates the long term trend in e-commerce and catalog sales from retailers that generate most if not all of their business from catalog and e-commerce sales.  These figures most likely do not include the e-commence sales from some of the largest web retailers including Best Buy, Macy's, J.C. Penney's, Radio Shack, Target, and Walmart and dozens of others that sell most of their merchandise through standard brick and mortar outlets..  

These figures are still small relative to all retail sales other than gasoline, heating oil, and food and beverages sold in restaurants and bars.   In 2010, 7.4% of retail sales that could be purchased via the web or catalog and delivered were purchased in this way.   While a small proportion the share is a significant increase from 5.8% that such sales represented in 2009.  Expanded access to high speed web, shifting demographics, and new mobile-based means of ordering items to be delivered will likely increase the share of deliverable retail sales that are delivered to homes and offices.

The growth in e-commerce while strong across all sectors this season, appears to be strongest for products that are in many ways that create the most challenges for home delivery as they are lighter in weight and bulkier than shipments that the large parcel carriers handle for their business-to-business deliveries.    The Wall Street Journal reported that SpendingPulse reported that Web based sales from apparel specialty stores grew by 25%.   According to Bloomberg, Macy's, a large mid to upper end department store retailer saw its online sales in November grow by 32%.   The mix of products that Macy's needs delivered most likely reflects a large proportion of apparel and domestics (e.g. towels, and sheets) as those categories reflect the largest share of Macy's overall sales.

The private sector carriers have handled the challenge of delivering the increased volume of apparel and domestic items purchased for home delivery through a combination of operating and pricing changes. (The Postal Service handles a very small portion of these shipments without involvement of FedEx Ground, United Parcel Service, or another parcel consolidator.) These include:

• Shifting delivery of parcels under 2 pounds to the Postal Service.    FedEx Ground uses the Postal Service for nearly 30% of all of its deliveries and much of its volume growth reflects Postal Service delivered parcels.
• Increasing prices for home delivery.   Home delivery is more expensive than delivering to businesses due to the lower density of parcels delivered per address or stop and the distance between stops.    Home delivery charges have existed for many years but they have increased at a much faster rate than the base transportation rates that the carriers charge.
• Modification of the factor used to measure dimensional weight.  Both UPS and FedEx reduced the factor that they use to calculate dimensional weight.   This affects bulky shipments of apparel and domestics more than other product categories.  The dimensional weight factor will have the greatest impact on expedited shipments.

 For the Postal Service, the e-commerce trend requires that their delivery network and the tracking software and hardware used can seamlessly work with the sales and transportation networks of its partners.  Ensuring that the Postal Service can do this will require significant capital expenditures for vehicles, hand-held scanners, software and communications infrastructure upgrades.  If the Postal Service cannot raise the capital, then consumers will face higher delivery costs, and may reduce their purchases via all retail modes thereby slowing retail sales and economic growth for many years to come.  

Who Will Lead Postal Reform in the House?

Congressman Darrell Issa (R-CA), the incoming Chairman of the House Oversight and Government Reform Committee has recently announced the creation of three subcommittees in the next Congress and their chairman.  They are as follows:

• National Security, Homeland Defense and Foreign Operations, Chairman Jason Chaffetz (R-UT) - This subcommittee appears to have a similar jurisdiction to the National Security and Foreign Affairs Subcommittee.  This appointment moves Congressman Chaffetz, who was ranking member of the subcommittee handling the Postal Service, from primary responsibility for developing postal legislation

• Regulatory Affairs, Stimulus Oversight and Government Spending, Chairman Jim Jordan (R-OH) - This subcommittee appears to have a very broad mandate covering government regulations across both executive departments and independent regulatory agencies.  It is possible that this subcommittee could have some interest in the impact that the Postal Regulatory Commission has on the American economy.

• TARP, Financial Services and Bailouts of Public and Private Programs, Chairman Patrick McHenry (R-NC) This subcommittee will likely to focus on oversight of agencies dealing with the financial services industry and other industries in which the Federal Government has or will propose to make investment and ensure that both government and private enterprises are held accountable for how they spend taxpayer dollars. To the extent that adjustments to the Postal Service retiree benefit calculations are perceived as a "bailout" this subcommittee could take charge of this issue and for that matter any legislation designed to change the business model of the Postal Service.

It is always possible that the Postal Service will continue to fall under a catch-all subcommittee as it did this year that includes the District of Columbia and the Federal Workforce.  However, with the shift of Congressman Chaffetz to national security oversight, the other two Republicans that remain in Congress are unlikely to chair a subcommittee dealing with Postal legislation.  Congressman Bill Shuster  is in line to chair the House Transportation Subcommittee on Railroads, Pipelines, and Hazardous Materials where he will likely have to deal with railroad regulatory issues) and Congressman Brian Bilbray will not even be on the Committee in the next Congress.

The Washington Post notes that that the other five returning Congressman who will be assigned to the full committee already have Committee or subcommittee chairmanships lined up.  The Post indicated that responsibility could fall upon one of the freshman who will serve on the committee who has not been given a subcommittee chairmanship elsewhere.   They are: Justin Amash(Mich.), Ann Marie Buerkle (N.Y.), Scott DesJarlais (Tenn.), Blake Farenholt (Texas), Paul Gosar (Ariz.), Trey Gowdy (S.C.), Frank Guinta (N.H.), Mike Kelly (Pa.), Raul Labrador (Idaho), James Lankford (Okla.), Dennis Ross(Fla.), Tim Walberg (Mich.), and Joe Walsh (Ill.). 

Whether Congressman Issa chooses to put the Postal Service under one of the subcommittees he has already created or in a new subcommittee chaired by a freshman member of Congress is not known at this time.  His choice could have a big impact on how the House of Representatives frames legislative changes in the next Congress.

Can the Postal Service Do Direct Mail for Itself?

In order to promote its buy stamps by mail program, the Postal Service sent out a direct mail piece promoting its holiday stamps.   Only problem with the mailing is that it arrived too late for customers to order by mail or internet and receive the holiday stamps before the deadline for mailing Christmas cards passed.

While buying stamps by mail may be a great program, this mailing was a waste of money in the same way that advertising that arrives after a sale (or an election)  is a waste.  When this happens to an advertising mailer every vendor from the advertising agency to the printer to the Postal Service is challenged to find out why the mailing did not arrive in time to have the appropriate impact.  If there is evidence that the Postal Service did not meet its obligation, especially in the case of political mail, there are usually news stories that get picked up by many national media outlets.  

The marketing office that paid for the mailing should find out where the failure in the mailing process occurred.    Finding out why the mailing arrived late, and how Postal Service operations may have caused the late delivery, might help Postal management understand how service needs to improve to ensure that advertising mail remains a competitive mode for delivering advertising.

Best Christmas Stamps

It is not uncommon for countries to use cultural icons on their Christmas stamps.   One of the best examples are the Christmas stamps produced by Royal Mail that illustrate Wallace and Grommit celebrating the holidays.  They clearly put one in a festive spirit.

Here is a beautiful stamp from Luxembourg.

The simplicity of this design is fairly spectacular

In Australia, they issued a series of bird stamps linked with Christmas Island

Again from Australia, a set of stamps relating to Santa.

If you have other links send them on and I will add them to to the post

Increased Competition in the US Parcel Market

Yesterday, Transforce, Inc., one of Canada's largest transportation companies announced that it had reached an agreement to purchase Dynamex, North America's largest same day courier.  The purchase will more than double Transforce's revenue from parcel delivery with its total North American revenue after the acquisition running around $800 million U.S.

With this purchase Transforce now owns five companies that provide parcel delivery services in the United States and Canada.  

• Canpar - a traditional parcel carrier focused on business-to-business services with its largest market share in Eastern Canada
• ICS Courier - an express carrier serving all major markets in Canada.   ICS Courier's service description suggests that it service centers around fixed routes with consistent pick-up and delivery times.
• ATS Solutions - a parcel carrier that specializes in the logistics needs of brick ad mortar retailers in Canada
• ATS Health care - a parcel carrier that specializes in the unique needs of delivering drugs and other medical supplies reacquiring special handling to pharmacies, hospitals and medical clinics in Canada.
• Dynamex - a same day parcel carrier that manages two distinct parcel delivery businesses.  One business provides an on-demand delivery service which may include regular and one-off pick-ups and deliveries. The other provides a dedicated fleet for a single customer's parcel delivery needs.  Dynamex also provides same day delivery for Amazon in selected markets.

 The breadth of services that Transforce's parcel companies offer illustrate that services required by shippers go beyond what traditional parcel carriers offer.   The services that these companies offer illustrate just a couple of examples of how small companies can take market share away from much larger competitors by focusing on the specific needs of an industry or customer.

The combination of these five companies along with Transforce's extensive less-than-truckload service in Canada and business relationship with Estes Express should give shippers with trans-border parcel distribution needs more options.   In addition, Transforce's should be able to reduce Dynamex's overhead through combining back-office operations and eliminating duplicate information systems which should improve its margins and allow it to expand its footprint in North America.   

How will the 1.8% increase affect Bulk Rates?

One of the readers of this blog asked the question that is the title of this post.  To answer this question before the Postal Service files a case requires both a review of the exigent rate increase as well as some fairly simple calculations.  Here would be my working assumptions and are based on what would appear to make the most business sense from the Postal Service's perspective.  However there may be regulatory or legal restrictions that prevent using the the pricing authority in a way that would maximize the Postal Service's revenue from the available authority to raise rates.

• Bulk First Class Rates will likely rise by less than the 1.8% average for First Class as whole.  The size of the increase will be smaller than the average to allow for increases in single piece rates by full penny amounts and to raise First Class parcel rates  (and more than likely the extra ounce rates) in line with rate increases announced for Priority Mail.
• Bulk Standard Class Rates will likely see increases in parcel rates at least as great as rates announced for the Postal Service's competitive products.  If the Postal Service can cost justify the rate increases, I would not be surprised if the Postal Service tried to use as much of the the rate increase authority for Standard Mail that it can on Standard Mail Parcels which should hold other Standard Mail rate increases at no more than 1.5%.
• All other Bulk Rates are in classes that will likely see rate increases close to the average permitted by CPI index.

The other major change that a likely February increase will have will be the shift the timing of future annual rate increases from late Spring to February.  This will put rate increases of all Postal Service products closer to the time when most of its competitors also raise rates.

Developing a Flat Mail Distribution Network

The Postal Service is in the midst of deploying its automated FSS machines in a limited number of sites.   There has been significant criticism of the program given the significant decline in the volume of flat mail.   However, a map contained in a recent presentation by Quad Graphics suggests that the Postal Service's placement of FSS machines makes some sense if the goal is to create a network that is designed to optimize the transportation and handling costs without building a new flats distribution network from production location to delivery location.    

So here are the maps that allowed me to draw this conclusion

Quad Graphics Periodical and Catalog Printing Plants

 Similarities Between the Maps

What is clear from Quad Graphics map of plants is that catalogs and periodicals are printed in a limited number of locations.  The FSS Deployment locations are generally close to the location of the Quad's plants, although they tend to be in large facilities near the population centers that are closest to a Quad Graphics plant.

Completing the End-to-End Analysis

In order to complete a full end-to-end analysis, additional information on production locations and volumes would be needed from plants producing flats in significant volumes from the ten largest printers of catalogs, magazines and other high volume flat-shaped mail.   In addition, the Postal Service would need to add information on First Class single-piece flats and flats produced in smaller volumes but still eligible for discounts that are not produced by the largest printers in the United States. This information could then be analyzed along with transportation costs for moving flats from these plants to Postal Service plants, sorting the flats at origin plants and sorting the flat mail into carrier sequence order in high-volume flat sortation facilities that were optimally located given the location of production facilities and the ultimate destinations, and then transporting this carrier-route sorted flat mail to the delivery units.

This analysis would easily show whether the mailer (e.g. magazine publisher or advertiser) gets a better deal using an optimally designed flat-mail network or one that is designed using existing facilities that minimizes both capital spending and disruptions in where  Postal Service employees work.  This analysis could also show whether mailers do better with the current discount structure and the Postal Service's flats distribution network that uses a limited amount of automation or one with fewer drop-shipment locations but with a streamlined and more automated network.

The analysis could also be used to determine if the Postal Service could make flat-shaped mail more attractive by reducing the time it takes to move mail from printer to delivery.  If as I suspect, this streamlined network would reduce the time associated with moving mail, then mailers may find new uses for flat-shaped mail that require quicker concept to delivery time.

Unfortunately, given the financial problems of the Postal Service, this analysis would be little more than an academic exercise.   There is no money to build optimally located plants or handle the transition costs associated with moving employees into new plants, so the Postal Service must use facilities that have extra capacity even if they increase the total delivered cost of delivering flat-shaped mail.  

The fact that it is an academic exercise does not mean conducting the analysis, and a similar analysis for handling letter mail is not worthwhile.   In fact these analyses would be a critical step in understanding the full capital needs of the Postal Service and understanding that the financial problems of the Postal Service go far beyond a problem of not having sufficient cash to meet its current obligations.

Time for Mailers to Stand Up

These are hard times.   Over 15 million Americans are out of work, and over 6 million have been out of work for more than six months.   When the economy is tough, foodbanks become the primary source of food for thousands of people who do not have the resources to feed their families.  Living without is toughest during the Christmas season when all media is saturated with advertising encouraging spending.

One of the greatest programs to help provide food for the poor has been the National Association of Letter Carriers food drive.  For 18 years letter carriers have collected non-perishable foods from households which have gone a long way to fill the shelves at foodbanks.  This program has become so successful, that alternative sources of donations could not fill foodbank shelves without the National Association of Letter Carriers and sponsors that promote the food drive.

Unfortunately, in upstate New York the food drive was canceled this year due to the lack of a sponsor to promote the drive.   The Utica Observer-Dispatch reported that "corporate underwriters pulled funding in 2008 that was used to purchase about 1.5 million postcards used to notify residents about the food drive."  In 2009, the drive was held without sponsorship but collections dropped by 87.5%.   "Carriers in Rome, New York, had annually collected about 8,200 pounds of food. In 2009, when no notices were mailed, those carriers collected about 1,000 pounds.", Maureen Marion, a Postal Service spokeswoman told the reporter for the paper.

Without a sponsor, only word of mouth was available to promote the 2010 drive.   Given the lack of success in 2009 without postcards and other publicity, trying to do it this year was deemed futile so the food drive was cancelled.

Now how much money is needed to get this drive back in business? To tell the truth, I have no clue.   But I am sure there are many people who read this blog who know to the penny how much it would cost and might even have some idea regarding how much it would cost to reinforce the postcards with the use of web based advertising and social media.    Could there be a better advertisement for mail than a concerted campaign to use mail in conjunction with other media to feed the hungry? 

Time is short to get something going but I am sure the letter carriers in upstate New York would be glad to make the extra effort to collect the non-perishable food even during this heavy mailing season as they had done for the previous 18 years.  Who among the readers of this blog is willing to the get this food drive restarted in upstate New York.