Most people feel the Postal Service, though hapless at times, was helpless as current events overcame the direct mail industry causing massive declines in mail volume. Today, this loss in volume threatens the viability of the USPS. But were the recession and Internet diversion of commercial messages the cause of these precipitous volume declines? Or did the Postal Service play a lead role in the destruction of its core business?

In a paper published on the Postal Journal website, Robert Cohen and Charles C. McBride(2) found a direct correlation between mail volume and the fluctuations in GDP (gross domestic product). With GDP tracking actual mail volume over an extended period of time, they used the growth in GDP to represent the expected growth in mail volume. Cohen and McBride then calculated the difference between the expected growth (the GDP line) and the actual growth as the amount of volume lost due to substitution from the Internet and recent recession.

Unfortunately their math and most of their graphs are beyond my fading memory of a statistics course taken long ago. But their initial graph, showing the relationship between GDP and mail volume growth, caught my eye. I saw in this graph a direct correlation between important postal events and changes in the direction of the (mail) volume line.

Using Cohen and McBride's finding that "postal volume has been highly correlated with the Gross Domestic Product (GDP) since before the Twentieth Century" and reviewing Fig. 1 (download the PDF to see), it is possible to establish an accurate expectation of mail volume since 1995. Figure 1 shows that the substantial break between expected and actual mail volume originated midway through 1995, when there was no recession and the Internet's potential was a theoretical pipe dream. So what happened in 1995 and subsequent years that initiated, and then accelerated the misalignment of expected mail volume (represented by the blue GDP line) with actual mail volume (the red line)?
(Cohen & McBride, 2011)

On January 1, 1995, postal management implemented a significant rate increase with the cost of a 1st Class stamp increasing by more than 10%. It was also in 1995 that several of my customers first indicated that postage costs were getting too high and started dreaming of the Internet as an alternative. The following year the mailing industry learned a new term from postal management, "reclassification"! It is very clear from looking at the chart, that this one-two punch started the reduction in the rate of growth of mail.

On July 1, 1996 postal management delivered to the mailing industry the first of many "reclassification" or mailpiece redesign efforts. This was the dawn of the automated mailstream, where customers were forced to redesign their letter sized mail to meet the needs of postal processing equipment. Years later (from statements made by postal engineers during the booklet redesign fiasco) customers were told that the rules forced on the mailing industry in 1996 didn't really meet the specifications or needs of the machines being used to sort our letter mail.

Even though mail volume continued to grow through 2000, it grew at a much slower pace than its relationship to GDP would indicate. The gap between actual mail volume and its historic expectation continued to diverge until the middle of 2000 when mail volume stopped growing and started to decline. After 2000, the fluctuations in mail volume ceased to track GDP, as it had (according to Cohen and McBride) for more than 100 years.

This retrenchment at the turn of the 21st Century was bracketed by three significant rate increases. The first increase was implemented on January 1, 1999, the second on January 7, 2001, and the final nail in the coffin went into effect on June 30, 2001. By the implementation of the third rate increase, the mailing industry had been hammered continuously for four years with uncertainty and the rising cost of conducting business with the Postal Service. By July 2001 it was obvious to corporate management teams across the country that they "had to eliminate postage as an expense!"

I believe the Internet diversion, identified by Cohen and McBride in their paper, wasn't the Internet pulling customers away from the postal mail stream but the Postal Service PUSHING their customers on-line! The price increases and rule changes from 1995 through 2001, forced many smaller customers to find a cheaper easier message delivery system. Inertia in corporate board rooms was initially on the side of the Postal Service, but the continuing rate increases and draconian rule changes slowly overcame this inertia as larger companies were also forced to move their customer communications to the Internet.

The rate increase on January 8, 2006 effectively stopped the historic rise in actual mail volumes and, according to the Cohen and McBride graph, severs any correlation of mail volume to GDP. The rate increase of May 14, 2007, which delivered a significant increase in rates and massive redesign for flat mail, drove many mailers to substantially reduce their volumes if not abandon the postal mailstream altogether. The goal of this disproportionate rate increase and mail stream redesign was supposed to put flat mail in a position to cover its costs. Three and a half years later, flat mail still only covers 86% of its processing and delivery costs. The only thing the combined 2006 and 2007 rate increases and the 2007 rule changes accomplished was a 32% reduction in flat volumes!

As mail volumes were declining at a significant pace, the mail piece design purists at postal headquarters were again hard at work redesigning the letter mailstream, again! They gave us new booklet rules in 2009 that added processing costs and outraged postal customers in the middle of a deep recession. In 2010 postal engineers were pushing proposals for the purification of folded self-mailers. Since reclassification in 1996, postal engineers and their old bosses in the operations group have raised to mythical reverence the highly advanced postal management concept of increasing mail volume through the total and complete alienation of their customer base. Would someone please tell these intellectuals and management theorists that their jobs depend on processing the mail customers want to use and that it's easier to redesign sorting machines than to reengineer customers!

Up through 2007, postal management talked about the great strides they had made in managing the fiscal health of the Postal Service and its bright future. The Figure 1 graph in the Cohen and McBride paper shows that these people were delusional. Using the GDP line in this graph as the level of expected mail volume and then evaluating the level of actual mail volume; it is obvious that the USPS was heading for serious customer defections long before the Internet became a viable competitor or the current recession affected the direct mail industry.

The work of Cohen and McBride proves the Postal Service has significantly underperformed from 1995 through the present, even though overall mail volumes increased through 2006. Just think where the USPS would be today if it hadn't pushed ex-customers to grow the Internet with their communication dollars. According to the Cohen and McBride study, even with the economic downturn, the Postal Service should now be handling somewhere around 300 billion pieces of mail (the blue line) instead of just over 200 billion (the red line).

The difference in these two numbers represents the reduction in mail volume growth directly attributable to poor management and the continued lack of understanding of our industry and its customers by postal employees.

Todd Butler
Butler Mailing Services
eKEY® Technologies

Making postal delivery, an interactive experience!