Saturday, July 11, 2015

Is the Postal Service Primed for Amazon Prime Day?

Next Wednesday is Amazon Prime Day, a huge promotion that one postal expert predicts will overwhelm the U.S. Postal Service.

Amazon is celebrating its 20th anniversary on July 15 with a one-day online shopping event that will offer “more deals than Black Friday” to members of Amazon Prime, including those who sign up for a free 30-day trial membership.

“It will be interesting to see how USPS handles what is sure to be a major onslaught of Amazon package deliveries, with Amazon Prime two day shipping after the one day sale,” writes Lisa Bowes of Intelisent, a company that advises direct mailers. “Will Prime Day impact delivery for other classes of mail? My guess is – probably so…”

A look at the numbers indicates she is correct – that the Postal Service will struggle to handle the surge of Amazon packages without hurting delivery of other types of mail, even with massive overtime.

In a filing this week with the Postal Regulatory Commission, Amazon said it had 15 sortation centers at the end of 2014, with more on the way, that each prepare “tens of thousands” of packages per day to be handed off to the USPS for final delivery. That indicates that USPS delivers several hundred thousand “Parcel Select” packages to Amazon customers on a typical day. 

The e-commerce giant uses a variety of package-delivery services, but clearly the Postal Service is the favorite because of its ability to deliver to residential customers seven days a week at relatively low cost. Amazon has built an extensive logistics network that bypasses most of the Postal Service’s own network and delivers packages early every morning directly to the USPS’s destination delivery units (DDUs), where letter carriers pick up mail to be delivered later that day.

Membership: 30 million-plus and growing
An RBC Capital analyst estimated 10 months ago that Amazon had 30 to 40 million Prime members in the U.S. The numbers have probably been growing since then, and Prime Day seems likely to boost the membership roster.

Suppose that about 20% of existing U.S. Prime members take advantage of Prime Day and are joined by another 5 million who get a trial membership to take advantage of the deals. And suppose each Prime Day participant orders an average of two items, with half of them destined for “last-mile delivery” by the Postal Service.

That would mean letter carriers would handle 12 million packages, roughly 20 times their normal Amazon volume and more than double their normal daily volume for all Parcel Select packages. (That 12 million number is what we statistical experts call a SWAG, a Sophisticated Wild-Ass Guess. The actual numbers may be much higher or much lower, but with some reasonable – to me – assumptions, you can get a ballpark ideal of how Prime Day might affect postal operations.)

Amazon will have its own logistical challenges but also has opportunities to ease the pain. If the items likely to be hot sellers are spread throughout its network of distribution centers, it can probably hand off many of them to the Postal Service on Thursday, the day after Prime Day, rather than hitting the agency with one big wave on Friday the 17th.

It can also pull other levers, such as making exceptions to the two-day guarantee for certain items, especially those ordered late on Prime Day. And it can highlight deals on digital downloads (e.g. movies, music, e-books) instead of those requiring physical delivery.

The Postal Service has limited ability to handle a huge one-day surge, especially at what is usually a slow time of year when many career employees are on vacation and there are fewer temporary and part-time workers than during the Christmas rush.

Amazon Prime Day and its aftermath may be a challenging test of the Postal Service’s efforts to play in the e-commerce big leagues while still providing traditional mail delivery.

Related articles:

Saturday, June 20, 2015

USPS Grocery Delivery Coming to the Big Apple

Postal workers may begin early-morning delivery of groceries for Amazon in the New York metropolitan area by the end of this month.

Amazon grocery totes awaiting USPS delivery
The U.S. Postal Service filed a statement with the Postal Regulatory Commission on Thursday saying it “intends to expand the Customized Delivery market test to the New York City metropolitan area, on or shortly after June 29, 2015.” The USPS market test of grocery delivery on behalf of Amazon started last fall in the San Francisco area and spread to San Diego early this year.

Amazon’s “AmazonFresh” delivery service is already available in parts of New York City, with a fast-delivery promise: “Place your order by 10am and have it by dinner, or by 10pm and have it by breakfast.” And it already has an apparent pricing advantage in the Big Apple, undercharging three rival grocery-delivery ventures by at least 17%, according to a Nomura Securities International study.

The Postal Service will presumably take on some of those early-morning deliveries. It has told the PRC that its market test involves having non-career city carrier assistants deliver to a customer-designated location between 3 a.m. and 7 a.m. “without disturbing the recipient.”

The agency is already testing or about to test other rapid-delivery services in New York involving fresh fish, bottled water, and cut flowers.

Despite some objections about unfair competition with private enterprise, the PRC in October authorized a two-year test of Customized Delivery. But it has not acted on the Postal Service’s request to remove a $10 million annual revenue cap on the program.

Related articles:

    Monday, June 8, 2015

    USPS's Court Victory Could Cost Mailers Billions

    July 30, 2015 update: The PRC went with the Postal Service's minimum -- $1.2 billion (or $1.191 billion, to be exact). The USPS will collect that amount from mailers via an extension of the exigent surcharge. That means the surcharge is slated to expire somewhere around April 2016 instead of August 2015. But remember that, in Washington, "temporary" taxes tend to become permanent.

    Despite news reports to the contrary, the only thing clear about Friday’s appeals court decision on postal rates is that the U.S. Postal Service won and mail-dependent industries lost.

    Worth 49 cents -- or 47?
    Sure, the Postal Service didn’t get everything it asked for – namely, making the 4.3% exigent surcharge permanent. But a ruling that is likely to bring in more than a billion dollars, at the expense of mailers, can hardly be called a loss for the USPS.

    As detailed in an article I wrote today for Publishing Executive (See Get Ready for Roller-Coaster Postage Rates.), the one thing the federal judges didn’t like about the current surcharge is the “count once” rule for determining how much the recent recession cost the Postal Service.

    They court sent the Postal Regulatory Commission back to the drawing board to come up with what could be called a “count multiple times” rule.

    Minimum cost: $1.2 billion
    If the count-once rule is transferring “only” $2.8 billion from mailers to the Postal Service via the surcharge, we can only imagine what the “count many times” rule will do given that the recession lasted several years.

    The Postal Service said today the additional amount is a minimum of $1.2 billion. That's the equivalent of about 8 months of the current 4.3% surcharge. And postal officials will argue for a much larger amount.

    Some writers assume that, instead of allowing the surcharge to expire this summer, the PRC will just leave it in place until it brings in enough money to satisfy the “count many times” rule. Or that, as the Postal Service requested today, the PRC will at least leave the surcharge in place until the new revenue target and surcharge are approved.

    But it’s not necessarily so simple. Unlike the appeals court judges, the PRC commissioners are no doubt aware that canceling the surcharge and then reinstating it weeks later would be disruptive for both the Postal Service and for mailers. (Just think of the public’s confusion if the price of Forever Stamps drops to 47 cents and then bounces back to 49 cents only a few weeks later.)

    But the commissioners have to proceed cautiously and allow for due process, especially given the propensity of both postal officials and mailers groups to appeal PRC decisions regarding exigent rate hikes. They will have to wade through reams of mind-numbing econometric analyses before arriving at a revenue target for the new surcharge.

    They may not be able to finish their work before the current surcharge expires. And even a perfectly reasonable assumption – that the USPS will not be overcompensated if the current surcharge is left in place until the details of “count many times” are worked out – may be open to legal challenges.

    Nothing, by the way, says that the new “count many times” surcharge has to be 4.3%: The PRC could decide to make it higher so that the Postal Service is fully compensated for its recession losses in a timely manner.

    And when the new “temporary” surcharge is supposed to expire, Congress might decide to make it permanent as a way of dodging real postal reform. I’m reminded that, back in January, my fortune-telling friend Madame Marie predicted that the surcharge would not disappear this year, adding this gem of political science: “What, you think I have crystal ball or something? All I know is, don’t ever bet on government getting rid of a temporary tax or fee.”

    Wednesday, May 20, 2015

    When 30 Equals 33: America's Bizarre Methods of Calculating the Weight of Paper

    My fellow Americans mostly seem allergic to anything having to do with the metric system. Can’t remember how many teaspoons go into a tablespoon? Is our country falling behind in science because we’re handicapping our kids with the “English” measurement system. Doesn’t matter.

     “WAM: We ain’t metric!” my countrymen kneejerk. After all, if you give those socialist, one-world-government Europeans 2.54 centimeters, they’ll take 1.60934 meters.

    But when it comes to specifying the weight of paper, even some red-blooded Americans throw up their hands and say “What’s that in GSM?”

    There’s never been a better time for U.S. buyers of graphic paper to understand what GSM (grams per square meter) means – and how messed up our own system of basis weights is.

    Publishing Executive just published a piece I wrote noting that U.S. prices for magazine-quality paper are at record high levels in comparison with European prices. That means it’s a great time to look overseas for paper, especially since North American mills are gearing up to raise prices again in July. But to get the best deals, you might need to understand how the rest of the world talks about paper weight.

    I’m reminded of a colleague’s story about buying 33# SCB paper (lower quality than coated paper but better than newsprint) from a non-U.S. mill. When the shipment arrived at a U.S. printing plant, the printer notified my colleague of an error: The rolls were marked “30#” (pronounced “30 pound”), indicating the paper was about 9% lighter and thinner than intended.

    The mill’s sales office had correctly translated the order from 33# to the more universally understood 48.9 gsm. But the mill was only used to making newsprint for U.S. customers, so it thought 48.9 gsm translated to 30# in Americanese. The paper was OK; the label was just wrong.

    From Catalyst Paper's "How We Make Paper"
    A page of 30# newsprint, you see, weighs the same as a 33# page of magazine-quality paper (and of other publication grades that use the “book, text, offset” method of calculating basis weight).But two same-sized sheets of 48.9 gsm always weigh the same, regardless of whether one is copy paper and the other wallpaper or tissue or newsprint.

    The U.S. has 11 different systems for calculating the basis weight of paper. Standard resume paper is 20# bond – generally a nice stiff, opaque sheet. It’s also more than 2½ times the weight of 20# coated paper, which is an extremely thin, translucent paper that is likely to be used in dictionaries or Bibles.

    Confused? Wait, it gets worse. When magazine publishers refer to 80# cover stock, they usually mean something that, logically enough, is double the weight of the 40# coated paper they might use on their internal pages. The rest of the world would say the publisher is using 59 gsm text stock and 118 gsm cover stock.

    But “80# cover” can also refer to paper that is measured based on the “cover” method of calculating basis weight rather than the “book, text, offset” method. It weighs 216 gsm. Thus, even when Americans are speaking to Americans, a request to use 80# cover stock can easily result in the pressroom printing covers that are too heavy for the saddle stitchers that are supposed to bind the publication and too expensive for the publisher's budget.

    Many overseas mills are accustomed to making paper for U.S. customers, knowing, for example, that 40# coated paper should be 59.26 gsm. And if they make a lot of paper for U.S. customers on a steady basis, they might actually make a “true 40#” that is indeed targeted at 59.26 gsm.

    But rather than manufacturing a special batch of paper for the U.S. market, many mills will just make 60 gsm, which is a common weight for European magazine papers that comes out to 40.5# in Americanese. That results in using more paper and having higher postage and freight costs versus true 40#. But it’s not a reason to avoid overseas paper.

    For my fellow American buyers of magazine grades like coated and supercalendered papers, as well as for book papers, here’s the key formula: 0.675 gsm is equivalent to 1# of basis weight. European mills typically offer weights that are about 1.3% above the U.S. equivalents – e.g. 45 gsm (30.38#) in place of 30#, 51 gsm (34.43#) in place of 34#, or 60 gsm in place of 40#.

    A good rule of thumb is that such weight differences will cost publishers about 2%, a bit more if the copies are mostly mailed, a bit less if many are sent via the newsstand system. So if I’m buying 40# coated #5 paper for 40 cents per pound, I might consider a price of 39.20 cents for 60 gsm to be competitive, but not a bargain.

    And since that 60 gsm was recently selling for something like 33 cents in Europe, I know the manufacturer has plenty of incentive to be more than just competitive in the U.S. market.

    A footnote about Canadian paper: Canadians have pretty much converted to the metric system, but their mills sell so much paper into the U.S. that they usually spec it to U.S. standards and practices. Thus, Canadian paper is pretty much like U.S. paper except that it occasionally throws in a random “Eh?” at the end of a sentence.