We know there is a lot going on in the world, but the announcement by the Postal Service that they would not be raising postage rates in January is news that has not been picked up by the media. Everybody knows the Postal Service is broke. Or is it, really? What is going on?
It’s the Economy
Good economic news no longer grabs headlines. The popular story line is that economic growth is just not good enough. That may be true for electoral politics, but it certainly is not true for businesses and consumers. Despite recent stock market gyrations, the leading economic indicators continue to show gains. More credit is available to households, households are spending more (although carefully), and more households are being formed. Total mail volume so far in 2014 (Q3) is about the same as it was for the same period last year (instead of declining).
It’s the Last Rate Increase
Few really liked it (nobody wants to pay more), but it seems to have worked. Operating revenue increased by $327 million for the quarter, up 2.0 percent from last year. Although the volume of First-Class Mail declined 1.4 percent, revenue was up 3.2 percent due to the impact of the exigent rate increase. There are some indications that the rate of conversion to online banking is slowing, at least for a while.
Package revenue was up 6.6 percent, as volume grew 7.7 percent. The Postal Service continues to experiment with new price discounts (while other carriers are raising rates) and services such as Sunday delivery, Same Day Delivery and even grocery delivery. While these new services are not yet a significant revenue factor, they represent a new willingness to grow the business. The Postal Service has unveiled a well-thought out comprehensive plan to further improve its package delivery services. The Postal Service is well-positioned to take advantage of every earlier demand for e-Commerce holiday shipping volumes.
It’s Direct Mail
Direct Mail volume increased almost one percent, and revenue increased a bit more than five percent. This was due, again, to the earlier rate increase. Hard fought mid-term elections are likely to drive local mail volumes, and the prospects for increased direct mail volumes are likely. Several studies indicate that local direct mail is still an effective tool for smaller businesses.
The core operating costs, focusing on labor, barely increased compared to last year. The Postal Service is keeping its operating costs down, even though they have faced opposition to many of their cost reduction initiatives. They simply have continued to manage their operations effectively – despite occasional local glitches.
It’s Effective Management
The Postal Service has done a very credible job of managing its cash flow, liquidity and other financial issues under extremely difficult conditions. Service performance and customer satisfaction remain reasonably high. The conversations coming from the Postal Service have shifted a bit, as they now talk about the need for significant investments necessary to grow the business, especially in the package market.
It’s Employee and Labor Relations
The unions have contributed to the success of the Postal Service through several agreements in the last round of labor negotiations. While postal labor relations are often complex and sometimes contentious, the Postal Service now has a bit more flexibility and a slightly lower average wage rate. Health care contributions from postal employees will be increasing in the coming season at a higher rate than the postal contribution.
Why is this not News?
The usual story line is that the Postal Service is failing. It is not, and the commonly accepted wisdom is wrong. Good news doesn’t grab the headlines, and it’s hard for many people to grasp after literally years of bad news. Nothing else seems to work right these days, but the Postal Service does.
This does not mean that the Postal Service is out of the woods yet. First-Class Mail is still on a downward trend. The USPS still needs Congressional action to remove the artificial financial burden they placed on the organization in 2007. It needs increased market and operational flexibility (companies can close bank branches, gas stations, hospitals, and grocery stores, but the Postal Service can barely manage to close a post office). The organization needs to collaborate more closely with their industry partners to develop innovative new capabilities. The point is, the Postal Service is still, after all these years of adverse headlines, a viable organization. Let’s start looking forward.