USPS Shenanigans

Buried on page A4 of today's Wall Street Journal is a short article by Corey Dade about the latest shenanigans on the docket at the US Postal Service. They're getting pretty creative in DC...makes you wonder if they've hired some high-priced consultants to help them come up with ways to try to defend their state-owned monopoly. And, their plans, as usual, are antiquated, bureaucratic and bad for consumers.

Fundamentally, the USPS is grasping at straws, looking for ways to validate its current Strategy, Structure and Execution instead of critically analyzing its approach and adjusting it so that they actually deliver (and capture) more value for customers, employees and investors (ie taxpayers).

As they say, my friends, membership has its privileges. I highly recommend – if you can swing it – that you start a business that is a monopoly. And, do your best to obtain government protection for that monopoly. Don’t get me wrong, there’s something truly amazing about the fact that I can drop a card with some photos of my daughter in a little blue box and a few days later they appear at the home of friends or family. All I’m saying is that the USPS has to apply the learnings from the real world in order to survive. And, while they are technically a monopoly, there are countless competitors cropping up – email, the Internet, FedEx and UPS, mobile phones. It is, in fact, this competition that is causing the organization to double down on its bad Strategy and even worse Execution.

Apparently, the powers that be at the USPS haven’t gotten the memo that cost-based pricing doesn’t work. The Journal article reported that revenue from first class mail dropped more than 4% in the first quarter of 2006 (v. Q1 2005). This indicates, in essence, a loss of market share. Customers are choosing other forms of communication…or perhaps no communication at all. The most disturbing fact is that fiscal Q1 for the USPS is October through December, most likely the highest volume quarter thanks to the holidays.

In response to this loss of market share and rising input costs, the USPS has decided to raise rates…again. The new rates will be effective in 2007 and will take the cost of a first class stamp to $0.42. Do they really believe that the increased profit from the price increase will offset impact of the (highly likely) subsequent loss of share? They really should check out the real world. Even the US automakers have learned that they can’t pass on their increased costs to consumers if they don’t have a superior product. (Take note, I’m not suggesting that the USPS model their response after the auto industry, just that arguably some of the most antiquated companies on the planet have figured this out…but not the USPS.)

And then there’s the issue of price inflation. Currently the USPS is second only to college tuition. If you look at rates between 1971 (when the USPS was officially established) and today, the price of a first class stamp has increased by approximately 6% per year. Consumer inflation typically chugs along at somewhere north of 3% per year. Maybe, just maybe, instead of raising rates, the USPS should examine and tweak its approach to better appeal to customers and streamline operations.

As if that’s not enough, Dade reports that the USPS is moving toward pricing by weight, shape and “other factors”, a la UPS and FedEx. He provides no specifics about what this means, but it can’t be good. People don’t really understand the current pricing. I seriously doubt that added transparency will come with the added complexity. This means that more people will have to actually go to the Post Office (there IS a fate worse than death) more often because they won’t know how much postage to use. The in-store experience at most Post Offices is nothing short of dismal, and more traffic will only make it worse. This, will likely drive consumers to switch to competitors at an even faster rate, which means an even greater loss of market share. And, if past performance is any indicator, loss of more market share will lead to more rate hikes. This, my friends, is a quintessential vicious cycle.

Now it’s time for the creativity: forever stamps. That’s right, the USPS wants to issue (for a limited time) first class stamps that can be used forever – regardless of future rate hikes. Now, in some ways this is a very appealing concept for me. Just last week, as I was mailing my employer taxes, I pondered the value of my current stamps (why don’t they print the amount on them anymore???) as well as the current rate (I can’t keep track of the seemingly endless hikes). I finally gave up and double stamped everything. I hate doing this because the USPS wins when I waste my stamps because I'm confused. But, the truth is, if I buy just one of these forever stamps, they win again. Bandits. Spending money today to horde stamps that I may or may not use in the future is just plain stupid. But, many of us will succumb to hedge the effect of future rate hikes…I can see my mom buying enough stamps to cover her holiday cards for decades to come…now that I think about it, at a 6% annual inflation rate, maybe we should all horde them. Maybe in 2025 there will be a thriving black market for forever stamps…