The Biggest Threat to Direct Mail: The U.S. Postal Service

Direct mail’s greatest danger is not the advent of e-mail, Web sites, paid search or banner ads. In fact, integrating online media into the mix helps ensure direct mail response.

No, direct mail’s greatest danger is the government-protected monopoly status of the USPS. This creates bureaucratic inefficiencies and the ever-increasing price hikes.

[Editor’s note: On Monday, July 26, The Affordable Mail Alliance called on the Postal Regulatory Commission to dismiss the USPS’s rate hike proposal filed on July 6, arguing that the proposed rate hike violates the cost controls Congress put in law in the Postal Accountability and Enhancement Act of 2006 which kept rate hikes tied to the rate of inflation.]

Each time USPS asks for a rate hike, marginal mailers—in other words, small businesses—are forced to find alternative marketing methods and larger mailers have to cut back.

That in turn adds to the death spiral that USPS has been caught in. It also means a grim future for thousands of companies and millions of jobs for marketers, retailers and business owners.

Here’s the problem: Although it is not funded by taxpayer dollars, the USPS is subject to Congressional oversight. Unlike other businesses that constantly adapt to the changing marketplace, USPS is not free to make changes to its business model at will. It must have Congressional approval. And, its monopoly protection has prevented competition that would drive down prices and create incentives for good service and cost containment.

Let’s take a look at the recent history of the USPS and what its regulation means for the future of direct mail.

GAO: Not a Viable Business Model

An April report from the U. S. Government Accountability Office (GAO) declared: “USPS’s business model is not viable due to [its]’s inability to reduce costs sufficiently in response to continuing mail volume and revenue declines.”

That echoed what we’ve already known for decades—or at least since the release of the stern 1988 Cato Institute report, “The Slow Death of the U.S. Postal Service.” Even then it was clear that mail service is “getting slower, more expensive and less reliable,” with first class mail moving 15% slower than it did in 1969.

That slow death has hastened over the last three fiscal years, as mail volume declined 36 billion pieces from 2007 to 2009. For the fiscal year 2008–2009, the postal service reported a crushing $3.8 billion net operating loss. The six months that followed ended in a $1.9 billion net loss.

Overall, the USPS is on track to lose another $7 billion this fiscal year.

Some of the mail decline is due to the recession, the advent of online banking and other electronic forms of communication. But that’s only part of the story,

Crushing for Business: Repeated Postage Hikes

Facing dire deficits and drops in mail volume, postage rates climbed an average of across all classes of mail of 5.4% in 2006, 7.6% in 2007, 2.9% in 2008 and most recently 3.8% in May 2009. This has been one blow after another to small businesses and direct marketers. Catalogers saw a 2.3% increase in 2009. But those who ship small parcels were the hardest hit with a whopping 16% rate increase.

You see, 150 billion pieces of mail delivered by USPS in 2009 were from businesses. So instead of treating these mailers like loyal customers, the USPS punishes them with higher prices as though they were at fault for the post office’s debts.

An Outrageously Expensive Workforce

The GAO report also reveals that labor makes up a full 80% of USPS’s cost structure. Nearly 85% of its workforce is covered by collective bargaining agreements. The average postal employee earns an impressive $83,000 a year in total compensation—and many are protected by “no layoff” agreements. And, that does not take into account health and pension benefits

In addition, the USPS covers a higher proportion of employee healthcare premiums and life insurance than other federal agencies do. But right now, USPS is about $90 billion short on its required retiree health benefit payments.

We Need Further Reform and We Need it Now

The only solution is to free the postal service from government control and allow competition. Because when private carriers compete, everybody wins. Services will improve, costs will go down and the postal service will find a way to survive in a competitive economy or it will suffer the consequences of failure.

Monopolies always do the same thing when the going gets rough: They cut services instead of improving them because there’s no incentive to earn more business.

To start, the Postal Regulatory Commission is conducting a six-month review to examine the impact of cutting mail delivery to five days a week—potentially eliminating Saturday home delivery. Some studies estimate that a five-day schedule could save from $1.9 billion to $3.5 billion a year.

Maybe that solution will work without resulting in an outraged public. But the USPS should turn its attention to where the fat really is. Shockingly enough, there are 36,000 post offices across this country—more locations than Walmart, Starbucks and McDonald’s combined. There is just no need for this many locations, but the USPS doesn’t have the freedom to adjust to the market.

And the government isn’t the only roadblock: Voters and politicians raise a fuss every time individual Post Office closures are proposed. But that doesn’t change the fact that there’s no money to fund these unnecessary locations.

President Obama said it himself: “UPS and FedEx are doing just fine…it’s the post office that’s always having problems.”

It’s time to end the monopoly. Deregulation and privatization will greatly benefit all mail customers and ensure a bright future for direct mail—targeted, accountable advertising that really works.

Craig Huey is president of Creative Direct Marketing Group Inc.