CEOs discuss how to head off postage hikes.
Neither snow nor rain nor heat nor gloom of night - nor even outdated regulations nor economic woes - will stray postal couriers from their rounds. The latter two additions to the oft-quoted postal service homily, however, threaten to bring a hefty rate increase that CEOs across industries, and particularly those in the media, say would endanger the health of their companies.
"It would be a killer," Cathleen Black, president of Hearst Magazines, told participants in a roundtable on postal reform held in partnership with Pitney Bowes. "A 15 percent increase would mean a $300 million negative hit to the magazine industry, and represent a $15 million cost increase for my company alone. That's a very big nut."
"Our whole supply chain is in jeopardy," agreed Ann Moore, chairman and CEO of Time Inc. "We actually spend more on postage than we do on paper. Mail is our single largest line item expense, so this really threatens our business."
Magazine publishing is just one sector that would feel a significant impact. From financial institutions and health care providers to retailers and advertisers, a wide array of businesses rely heavily on the U.S. Postal Service (USPS) for marketing, promotion, product distribution and other essential services. For JPMorgan Chase, postage for its credit card arm alone already tops $750 million annually, while advertising company ADVO spends approximately $600 million a year on mail. In fact, 650 million pieces of mail are processed and delivered daily.
But the critical role that reliable, timely and affordable postal service plays in American business is just one of several factors driving the issue of postal reform. Already, electronic alternatives to business correspondence and transactions have taken a toll on First-Class Mail volumes, as has the growth of private package and mail delivery services.
"As consumer demand, use of the mail system and the competitive picture change, we have to be ready, willing and able to change with it," said John Potter, Postmaster General. "In the past, we had a monopoly on First-Class Mail. Today, the competition is very real. As it becomes easier to pay bills by telephone and over the Internet, we are starting to see people migrate away from the mail."
In operation for more than 225 years, the post office has proved surprisingly resilient in previous decades, weathering the advent of the telephone and fax machine, among other changes. In fact, the USPS has swelled into an organization with more than $69 billion in revenues, 38,000 retail outlets and more than 700,000 employees who deliver to 148 million-plus addresses.
Even today, the overwhelming majority of Americans remain attached to daily mail delivery despite the availability of alternatives. "We give onr consumers the option of choosing how they want to receive bills, and they still largely prefer hard copies by mail," said William Ellis, senior vice president of JPMorgan Chase Card Services, which mails 40 million card statements a month. "People are getting more comfortable with electronic delivery, but for the most part they're not there yet."
Yet a gradual decline in mail volume indicates this may be changing. First Class and Priority Mail volumes have been shrinking steadily over the past four years, with First-Class Mail dropping from 103.5 billion pieces in 2001 to 97.9 billion in 2004 (see charts, page 57). A rate increase would drop volumes further. That volume decline in turn threatens the efficacy of a system that relies at least partly on sheer size.
During the past five years, the post office has done its part to address the issue by adapting its operations. Aggressive cost-cutting, management policy changes including pay-for-performance, technological improvements and new products, pricing policies and services introduced since Potter took the helm in 2001 have fundamentally reshaped the USPS. …