Monday, December 5, 2011

Who Is Going To Replace the Postal Service?

With news the last week so that the USPS is planning to slow down 1st class mail, one has to wonder who could fill the void. After all, huge volumes of mail count on that next day delivery.

Actually the facts were astonishing to me. 42% of mail reaches its destination within 1 day and just about all 1st class mail makes it within 3 days. That is a major portion of the mail that would now drop from 1 to 2 or 3 days. What about if the postal service stops Saturday delivery? Mail something on Thursday for a few blocks away and it might take until Monday or Tuesday to arrive.

Actually it might not be a huge deal as most people using the mail don't expect next day delivery. Still it's a reduction in service that undoubtedly some people rely on. Less services will reduce the benefit of the $3B cuts in costs. Why not focus on cutting the costs of keeping existing services? Less benefits for employees, reducing redundant processing facilities, and closing offices in small cities. Just don't cut the service that everybody has relied on for decades.

One has to wonder how the postal service plans to survive by reducing service. Is the service too costly or are the costs and efficiencies the problem? All it is talking about are the savings, but how many customers will find an alternative whether electronic bill payment or streaming videos versus Netflix (NFLX) via mail.

Unfortunately, what the public is not hearing from the USPS is innovative ways to deliver mail faster and with less costs. The postal service just doesn't seem to understand that sending items via the mail is not the ideal solution so charging more and making it take longer will only push drive away customers.

Ultimately the post office has to find a solution to cutting it's losses. Losses estimated to hit $15.5B next year. Please though, figure out that an income statement has both sales and costs. The sales won't stay stagnant!

Some details via CNBC report:
  • The changes would provide short-term relief, but ultimately could prove counterproductive, pushing more of America's business onto the Internet. They could slow everything from check payments to Netflix's  DVDs-by-mail, add costs to mail-order prescription drugs, and threaten the existence of newspapers and time-sensitive magazines delivered by postal carrier to far-flung suburban and rural communities.
  • Currently, first-class mail is supposed to be delivered to homes and businesses within the continental U.S. in one day to three days. That will lengthen to two days to three days, meaning mailers no longer could expect next-day delivery in surrounding communities. Periodicals could take between two days and nine days.
  • About 42 percent of first-class mail is now delivered the following day. An additional 27 percent arrives in two days, about 31 percent in three days and less than 1 percent in four days to five days. Following the change next spring, about 51 percent of all first-class mail is expected to arrive in two days, with most of the remainder delivered in three days.
  • The consolidation of mail processing centers is in addition to the planned closing of about 3,700 local post offices. In all, roughly 100,000 postal employees could be cut as a result of the various closures, resulting in savings of up to $6.5 billion a year. (Don't see much talk of wage and benefit cuts instead)
  • After five years in the red, the post office faces imminent default this month on a $5.5 billion annual payment to the Treasury for retiree health benefits. It is projected to have a record loss of $14.1 billion next year amid steady declines in first-class mail volume. Donahoe has said the agency must make cuts of $20 billion by 2015 to be profitable.
  •  Maine Sen. Susan Collins, the top Republican on the Senate committee that oversees the post office, believes the agency is taking the wrong approach. She says service cuts will only push more consumers to online bill payment or private carriers such as UPS or FedEx, leading to lower revenue in the future.
  • ESPN The Magazine and Crain Communications, which prints some 27 trade and consumer publications, said delays to first-class delivery could ruin the value of their news. Their magazines are typically printed at week's end with mail arrival timed for weekend sports events or the Monday start of the work week. Newspapers, already struggling in the Internet age, also could suffer. (How much revenue will be lost when these publications have to be terminated without weekend and next day mail?)


Some other points of view from Henry Blodget and Aaron Task on Daily Ticker. I'm much more in the camp of Task. Don't really understand Blodget's view about the higher prices. Nothing is stoping the government from changing the rate structure to make a distinction in the cost structure.  Want it delivered one day quicker pay $1 or pay the $.45 for the longer delivery. Something in that range seems more appealing. Maybe the separation would just cost more to process though.

Also, shrinking isn't the answer. The answer is more efficiency, but that doesn't mean offering less service.






Ultimately I don't know who would benefit the most. Billpayers...no real benefits. A good chance of more payments being made via debit/credit cards online so maybe a V (Visa) or MasterCard (MA). The delivery companies such as FedEx (FDX) or UPS (UPS) could expand service or even capture more next day air business. All of these stocks are too big to profit from these changes

Some dark horse exists that might benefit. Possibly a online marketing firm that finds a better substitute for the mailer/flyers delivered each day.... stay tuned.


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