Understanding Postal: USPS Faces Unprecedented Economic Stress

As the USPS faces significant financial stress and mail volume continues to decline, catalogers must exercise vigilance on postal issues. While some of the changes the USPS is pursuing as a result of its unprecedented economic state are positive, others can do tremendous harm to catalogers and other
direct marketers.

Like many businesses, the USPS is experiencing financial stresses unlike any in the past. This includes a $751 million net income loss in January, compared to a $44 million net income loss for the same period in 2008. Total mail volume declined by more than 16 percent during that time.

The volume of flat-sized pieces, such as catalogs, being mailed is at its lowest point since 1997, with a decline of 7.6 billion pieces since 2006. As a result, the USPS had to revise deployment plans for the Flats Sequencing System equipment, which processes and sorts catalogs and other flat-size pieces into delivery point sequence.

Some Good News
On the positive side, mail volume loss, particularly for flats, is leading the USPS to consider new ideas more aggressively — namely some new products, services and discounts designed to retain and generate mail volume.

One example is the new saturation mail initiative to be included in the May 2009 annual pricing change. For the first time, the USPS will include a significant price discount for growth in total mailed saturation volume or growth in market coverage within a defined market. The volume growth must be documented from the prior year to qualify for a significant per-piece price credit for the incremental volume over the one-year program period.

Push for Mail Volume
A joint USPS/industry work group has laid out ideas and recommendations to help retain and grow marketing mail volume. These include volume incentives, peak/off-peak pricing, the elimination of unnecessary mail preparation and entry requirements that present obstacles to using the mail for marketing purposes, reducing design restrictions, and bundled media offers.

Catalogers with other ideas to help the USPS grow or retain their catalog volumes should contact the Postal Service’s new marketing group directly, or work through their service providers and/or trade associations.

Also on the positive side, the USPS is redesigning its Bulk Mail Center (BMC) facility and transportation network, a move that had been considered for the past few years. While the USPS has decided it can’t outsource the operations, largely because of volume losses, it plans to quickly move forward with consolidating and streamlining these facilities.

The move is designed to not only improve service for many mail categories, including catalogs, but also to significantly reduce USPS costs. The current BMC network has been in place since the ’80s and no longer supports the current mail preparation and entry environment.

Creative Still Restricted
On the negative side, the USPS is continuing to make changes to improve its operational efficiencies. In a global sense, that’s a good thing. But when it means narrowing mail design options, that’s bad.

And the USPS has accelerated its publication of proposed, and in some cases final, rule changes that restrict the design options for catalogs and other mail, including address placement; address font/spacing; flexibility of the piece; polywrap requirements that would reduce the maximum size of the piece; requirements for inserts, design of booklets and self-mailers; and incorporating change of address information.

Noncompliance with many of these requirements results in significant postage increases through assessment of penalties or ineligibility for discounted prices.

Remain Vigilant
Industry associations, service providers and catalog companies have pushed back against these changes, advising the USPS that these types of changes will lessen the value proposition of mail vs. other media.

While there has been success on some of the proposals, catalogers need to be aware that the USPS continues to look for ways to optimize its automated processing, which may mean more rules that inhibit creative designs.

Like an injured animal, the Postal Service’s actions may become more unpredictable and less thought-out as it continues to face an unprecedented financial downturn. Changes it might have been reticent to consider in the past will get more serious consideration in the coming year.

Catalogers must stay tuned in to the Postal Service’s direction and proposals, and provide the USPS with frequent feedback on how changes will impact their businesses and use of the mail.

Kathy J. Siviter is president of Postal Consulting Services, and has 11 years experience in all areas of postal operations. You can reach her at (703) 237-1740 or kathys@postalconsulting.com.