Tuesday, October 18, 2011

Why Mailers Support Radical Downsizing of the Postal Service

If you want to know why major mailers are generally supporting major cost cuts at the U.S. Postal Service, consider this recent quotation from magazine-industry veteran Tom Martin:

“When you look at the Three Ps, in 2000, printing was 45 percent to 55 percent of costs, paper was probably 20-25 percent of your costs, and postage was between 30 to 32 percent of overall costs,” the Cygnus Business Media executive told Folio: magazine. “But now the printer is probably sitting with only 32 to 35 percent of overall costs. Paper hasn't changed that much on a percentage basis but the number that has changed tremendously is postage. That's probably sitting at 42-46 percent of overall costs depending on the magazine.”

Martin’s insight rings true not just for the B2B magazines in Cygnus’ portfolio but also for the large consumer magazines – and in fact for every mail-dependent organization. While everyone else in the ink-on-paper world has been slashing costs in the past decade, the Postal Service mostly just passed cost increases along to its customers and only in the past few years got serious about real efficiency gains.

That’s why mailers think the Postal Service is ripe for some serious downsizing. (But they had better be careful what they wish for, as Dead Tree Edition will explain tomorrow in Mailers Getting Cold Feet About Postal Service Cuts.)

As for Martin’s statement, here’s what’s happened to the “three Ps”:

Prices for publication printing have been dropping at about 3% to 4% per year (NOT adjusted for inflation) for more than a decade. Prices for coated paper have fluctuated greatly but are almost exactly identical (NOT adjusted for inflation) to what they were 10 years ago.

But USPS rates for most types of postage rose faster than the rate of inflation rate during the first half of the past decade and increased in line with the inflation rate the past few years.

Postal executives complain that their rate increases are limited “only” to changes in the Consumer Price Index. But most mailers have no sympathy for those complaints: They’re happy if they can avoid cutting the prices they charge and would be ecstatic if they had the kind of guaranteed price hikes the Postal Service enjoys.

Mailers believe the Postal Service only got serious about cost cutting when it was forced to do so – by declining demand for mail and the CPI-based price cap. And despite USPS’s aggressive downsizing the past couple of years, mailers still see a system that has far too many post offices, sorting facilities, and people (especially supervisors) than it needs to handle current or future mail volume.

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Greybelt said...

The USPS always refers to the CPI as their guideline for price increases. But the price decreases of their competitors, computers and communications technologies, are on a downward slope. So every time the USPS raises its rates, the gap between it and new media just widens. Here's the chart http://twitpic.com/72k6jm

Anonymous said...

Mailers will kill the golden goose. They cannot replicate the delivery network the Postal Service provides and the down-sized model they envision will not be able to contain costs and will likely provide deteriorating and unreliable service.
The advertising mail industry has convinced itself that the Postal Service exists solely for their benefit. That's a short-sighted view that will ultimately cost them the infrastructure that makes their business model possible.

Anonymous said...

Its pretty hard to control the cost of fuel...........maybe they need to take there magazines to ups or fedex and let them add a fuel surcharge and see what they charge. These people still dont get it....GAS is 3-4 dollars a gallon now!

Alan Robinson said...

In measuring the postage share of costs, does that include transport cost to the USPS or not.

The interesting question for me is how have transortation costs from the printer to the USPS changed over time. My bet is that it has risen at the same rate of other trucking costs which I think has been at CPI or better.

Alan Robinson said...

The Percentage of cost figures add up to more than 100% for 2000. Could you correct or explai

Anonymous said...

The USPS core market in the 21st century is delivering advertising
mail and parcels that UPS and Fed X do not desire or are not included in corporate pickup by these 2 firms. Parcels mailed at USPS retail unit are the main source. 6 day street mail delivery is a wasted cost as individuals and business do not depend on communicating or conducting business transactions via physical delivery to a street address. That time no longer exist in the 21st century. Sat. mail delivery is a no excuse wasted cost.

Anonymous said...

A 2011 employee reduction of 7500 management positions produced the following: Out of the 7500, 2000 (these people were eligible/close to immediate retirement) took the $20,000 incentive and retired. Out of the 5500 all but 31 transferred to other positions. Out of the 31(all within a year or more of immediate retirement)took max or close to max severance pay of 52 weeks and will retire on immediate retirement in a year or more. The mailers have a point.

Anonymous said...

Mailers should think twice about supporting downsizing at the USPS. What is already planned is streamlined business mail acceptance. Instead of having DMU's and those more highly paid Bulk Mail Techs verifying mail at the mailer's plants, the mail will be verified when it hits the dock or on the machines at the mail processing centers. Then, instead of a DMU Tech catching errors and giving the mailer a chance to fix them, the mailer will be charged for the errors on the entire mailing. Mailers may be the USPS "shareholders" in one regard but they don't own the company and make the rules - yet.

Anonymous said...

These mailers have been subsidized by USPS for so many years that they have forgotten what it means to pay their own way for once (with the increased postage)!Just a bunch of greedy crybabies.You are already in bed with the clueless PMG...you have been ripping off the USPS long enough!

Anonymous said...

First of all, any mailer with experience will know that any downsizing (as we saw in the last two years) results in horrible delivery times. Ticked off union employees being poisoned with the APWU rhetoric and transferred to other facilities equals blue-flu-type productivity.

Second, marketers who use mail need to get used to worse service. The camel's nose is under the tent with declining service standards already...do you really think that, in a 5-10 window, with declining demand for mail, the USPS will improve its service? NO...we are seeing the best we are going to get.

As for the APWU position that "mailers enjoy large discounts," we must have been in bed with Runyon in the late '80s also--he is the one who really started pushing automation. The APWU says that about every PMG! The APWU mindset--which trickles down to BMEUs, plant personnel and others who actually handle the mail--has clogged the works and contributed to the inefficiencies.

After all, why do you think the Newman character on Seinfeld was a postal worker and not a firefighter? All comedy is based on reality!