The USPS and B2B Catalogs – Will postal rates increase?

 

If you run a B2B catalog company, chances are you have been following the continuing saga of the USPS wondering how future postage increases will affect your business.  The short answer is that the magnitude of postage increases in the near future will have a meaningful impact on your business; just how meaningful remains to be seen.

 

Essentially the future of your business model with your key silent partners, USPS, UPS, and/or any other private carriers you work with, depends upon the federal government and energy costs.   Both impact scenarios are not particularly good.

 

Let’s focus on the USPS.  Here are some background facts to ponder.

  • USPS is about $15 billion in debt….and sinking.
  • The USPS has more than 31,000 retail locations, more than Wal-Mart, Starbucks and McDonalds combined.
  • Combine that, its enormous workforce (571,566 full time, unionized employees, making it the country’s second largest civilian employer), and its overall revenue, and that means if it were on the Fortune 500 list, it would be No. 29.
  • Federal law currently prohibits closing of post offices solely on economic grounds. Current plans call for the closing of just short of 4,000 locations only. How business orientated is that?
  • The American Postal Workers Union recently signed a 4.5 year contract with seven un-capped cost of living increases and a 3.5% raise over the contract term. Go figure.
  • They don’t have a ten year plan, not even a five year plan. They appear visionless when compared to other leading postal services around the world. TERRY: THEY ACTUALLY DO HAVE A 10-YEAR PLAN THEY UNVEILED ON MARCH 2, 2010. IS IT A GOOD ONE OR A SOUND ONE? OF COURSE NOT, BUT THEY DO HAVE ONE.
  • First class mail volume, which is the USPS’s most profitable service, is evaporating as consumers get and pay their bills online. The glory days of first class mail are gone and not coming back.
  • Even the US Senate Federal Credit Union recently announced a service charge of $5/month for customers who wanted to continue receiving their monthly paper statements by mail.
  • First class mail is three times as profitable as standard mail, aka “junk mail”. (Read: Your Catalog!)
  • Total mail volume dropped 20% from 2006 to 2010.
  • FedEx and UPS have trounced USPS in express and ground shipping. The market share for each is 32, 53 and 15% respectively.
  • Most western Europe postal services are facing the same market dynamics but they are thriving:
    • Germany runs just 2% of its postal locations having outsourced the balance to other retail establishments.
    • The Finnish postal service sells many in-demand digital mail services as does Sweden/Denmark (PostNord).
    • PostNord’s EBITDA rose 43% last year to $490 million.
    • The profit margins of SingPost, Deutsche Post, PostNord and USPS were 26.25%, 4.89%, 3.6% and -13.58% respectively.
    • Needless to say, there are lots of “role models” around the world on how to fix the problem with the USPS.

 

So, given this time of record federal deficits and national debt, how long do you think the federal coffers will continue to support USPS?  Whatever your answer, I doubt it is more than five years, if that long.

 

What will happen? Short answer: Nobody knows.  What is likely to happen?  Here’s my considered opinion along with the potential impact to your B2B catalog business.

 

  1. Postal locations will shut and/or be outsourced.  This is a good economic move and no big deal to B2B marketers.
  2. First class mail will continue to drop.  This puts more economic pressure on USPS to raise postal rates.
  3. USPS will try to get move aggressive with UPS and FedEx. More competition will help keep rate increases in line.
  4. USPS labor costs and retirement costs are excessive by private industry standards.  Again, more pressure on rate increases.
  5. Saturday delivery will be cut.  Again, no big deal for most of the B2B catalogers that I know.
  6. Rate increases will continue to be higher than the normal inflation rate, as USPS seeks beyond-Consumer Price Index “exigency” increases, based on extreme circumstances. The the USPS situation certainly is extreme. Standard Flats rates (your catalog!) will increase faster.  A very big deal!

 

What should you do?

 

  1. If you’re not already a member, the best investment you can make right now is to join American Catalog Mailers Association. Other than yourself, this four-year-old organization is just about the only friend catalogers have in Washington. In a very short time, it’s existing members have achieved a remarkable 22X ROI on their dues investment. So join now, pay your dues, and reap the benefits ACMA (catalogmailers.org) has to offer.
  2. Regardless of the yearly announced rate increase, I would budget on an average of 7-10% postage increase per year for the next five years.  Increases will not be predictable or sane. Some years will be lower, some years will be excruciatingly higher. Remember, postage costs in the US, just like gasoline costs, are a relative bargain when compared to other countries.  But they only have one way to go – UP! And they will go up, but not as high as they could go if ACMA weren’t actively fighting for catalogers’ future.
  3. Continue to “test and invest” in alternative prospecting tactics.
    1. Online prospecting – SEM, PPC, web re-marketing, email , blogging and online video to name a few. Getting your fair share from organic search is one of the biggest opportunities I often see.
    2. Alternative media – inserts, trade ads, sponsorships, etc.
    3. Telephone – if you’re not doing so already, test telephone prospecting to your most responsive prospect mail lists.
    4. Assess the competitor express and ground shipping options between UPS, USPS and FedEx.  Giving all your business to one carrier isn’t your best option.
    5. Know what your contingency plan is for a year where we get another 20% increase in postage costs.  No smart operator should be caught surprised!
    6. Take advantage of prospecting incentives or additional summer sales or QR code or any other discounts the USPS offers; expect that you will not get much lead time on such opportunities.

 

If you have other suggestions, comments, ideas, questions or just need help, I’d be happy to talk with you!

 

Terence Jukes is president of B2B Direct Marketing Intelligence LLC, a strategic B2B direct marketing consultancy based in Fort Lauderdale, Fla., that services B2B catalog company clients in the U.S., Canada, France, the U.K. and Germany. You can reach him at tjukes @ b2bdmi.com or (954) 383-5221

Comments or questions are welcome.

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