PMG Potter Unveils New USPS Business Model

Mar 03, 2010 2:08 AM  By

What’s the outlook for the U.S. Postal Service? Postmaster General John E. Potter predicts mail volume is going to fall further. But he has a plan to address this problem.

In his address today titled “Envisioning America’s Future Postal Service,” Postmaster General John E. Potter said that in just four years, the USPS has seen its mail volume fall from a record 213 billion pieces to the 168 billion it’s expecting for this year. That means for every five pieces of mail USPS handled in 2006, it will only handle four this year—a drop of 20%.

“We’ve looked at this data from every angle possible going forward and even brought in outside experts to help develop a forecast,” Potter said. “Their conclusions are very sobering: Mail volume is not going to come back.”

Potter said mail volume is projected to decline by another 20 billion pieces in the next 10 years. First-class mail is expected to fall by 30 billion pieces, while modest growth is anticipated for advertising mail.

The USPS lost $11.7 billion during the past three years, Potter said. “If we don’t address our fundamental challenges, we’re going to see those losses continue to grow.” In 2020, the Postal Service could lose $33 billion—just for that one year.

As a result, Potter said: “We have to change the way we do business now and keep changing with the times. Our health as an organization isn’t based on mail volume alone—it’s based on our ability to adapt to the changes in how our customers use the mail.”

So what is Potter’s plan? He’s starting with cutting costs, asking Congress to restructure its payments for retiree health benefits, which right now cost the USPS more than $5.5 billion a year.

“That’s a payment we just can’t afford,” Potter said. “And we can make this change without taking a penny away from your benefits.”

What’s more, as proposed last year, Potter plans to ask Congress to change the law so that the USPS can change mail delivery frequency to five days, a move that will save it more than $3 billion a year, he said.

“Many of our customers—from the biggest businesses to the family next door—have told us they support this change,” Potter said. “In fact, they’d prefer it to raising prices or going back to a taxpayer subsidy for the Postal Service.”

Indeed, says Jerry Cerasale, senior vice president of government affairs for the Direct Marketing Association, the USPS is in dire financial straits and must look at everything to survive.

“On five-day delivery, we are pleased that USPS will still process mail on the weekends and that [post offices] and box sections will be open on the weekend, as DMA had argued for months,” Cerasale says.

Potter also said that the USPS plans to bring new pricing flexibility to all of its products. Smarter pricing, he said, will help grow some categories and help manage mail volume challenges.

“And we do intend to use exigent pricing as a tool to help close a portion of the gap,” Potter added. A modest exigent price increase will be proposed, effective in 2011.

While many industry watchers were not surprised that the USPS is asking for an exigent price increase, most feel this is only going to compound the problem of declining mail volume. “Any increase will hurt catalogers and will probably cause a decrease in the number of catalogs in the mail,” says Don Landis, vice president of postal affairs for printer Arandell Corp.

The DMA is also concerned that rate increases will stifle volume, Cerasale says. The Boston Consulting Group estimated future volumes assuming postage increases at the rate of inflation; an exigent rate increase—one above CPI—undermines those estimates, he says. “DMA believes that a greater than CPI increase will harm all direct marketers who use the mail, especially catalogers.”