PC Postage is one of the fastest growth segments in the mailing industry and is something every type of organization may want to consider to handle at least some or all of their volumes. With advances in technology, as well as changes with the USPS and private carriers, there can be dramatic postage savings and operational efficiencies that may help to optimize processes.

What Is PC Postage? This segment is defined as being able to generate letters or packages through your computer without needing a postage meter. For letters and flats, you would print the postage either onto sheets of stamps (ordered through the vendor) directly onto the envelope or with a connected label printer. With packages, the detail is printed on a 4X6 inch label that includes the destination address, return address, and tracking barcode. Most applications are either web-based or have a small application that gets installed on the PC.

What Makes Up This Space? There are four main segments of the PC Postage industry and all of them are growing.

· Small Business Mailers – This is the largest segment, primarily designed to process letter mail with the occasional package. Think of a small law firm or office that does not want to go to the post office or have a postage meter.

· Enterprise Mailers – If your company has 20 or more locations, you may want an easy way to distribute postage. These tools will give you a central dashboard with visibility to all of the mail spends throughout your offices.

· Single Location Shipper – Your primary need is to ship packages through the USPS. Most likely you are doing e-commerce, shipping lightweight items to residences.

· API Connected Systems – There are over 400 third-party applications that will do a web connection (API) to one of the PC Postage providers to access their rates, label designs, and USPS submission tools. We believe this is the fastest growth area of the PC Postage segment.

What Is the Size of This Market? Based on a Freedom of Information Act request to the USPS, as of September 2015, there were 1,552,317 PC Postage users in the US, with an average annual growth rate of 11% (based on a five-year average). If we compare this to postage meters, there were 1,072,365 users with an average annual decline of five percent.

What Is Causing the Growth? There are many factors that are contributing to the growth that we will describe below.

· Converting from postage meters We have seen a very similar five percent annual drop in USPS non-presort letter-mail categories (shown in Figure 1) that we see with postage meters. This is because companies are moving their larger volumes from print to electronic (email or web presentment) or to in-house or third-party production centers. What is left is day-to-day mail, which may be better suited for lower-cost PC Postage options. We believe that about half of the decline in Postage Meter users is from companies switching to PC Postage, while the other half is based on lack of need for a solution due to low volumes.

· Companies need to add USPS to their shipping rooms Based on the reasons in Figure 2, many companies who used to ship exclusively through one of the private carriers are adding USPS to their mix.

o USPS package volumes are growing Based on a 15% estimated growth in e-commerce, as well as better tracking and delivery commitments from the USPS, package volumes for the core PC Postage categories have grown 111% since 2010.

o USPS may have lower rates on lightweight shipments going to residences. If you look at the chart in Figure 2, even if you have a large discount with the private carriers, it may not offset the residential, delivery area, and fuel surcharges imposed by those carriers. Also, this residential lightweight segment is having the fastest growth through our need to have everything shipped to our homes.

o Dimensional Weighing This means if you are shipping something light in a bigger box, the carrier may charge you based on the size of the box vs. the weight of the item. USPS and the expedited carriers all have dimensional weighing policies on items over a cubic foot. The big change occurred in 2015, when the expedited carriers started to assess dimensional rates on all boxes under a cubic foot, while the USPS did not follow suit. This could drive smaller items to be pushed to being charged at heavier weights, making the USPS even more competitive, as you can see in Figure 3.

· Technology changes are driving growth As what is the case of many sectors, changes in technology make things easier, and in this industry, this ease is focused on how to ship and process USPS packages. These are the main drivers in this space.

o Move to the cloud – All of the vendors in this space are moving their solutions to being cloud-based vs. needing to be installed on a computer. This is easier to implement and maintain.

o Low-cost multi carrier tools – In the past, if you wanted to compare different carrier rates easily, you needed to spend thousands on a system that was complex to install and customized strictly to your application. Now, there are multi-carrier cloud-based offerings starting at around $30 per month. These will let you ship USPS and the main expedited carriers from one system that can also have simple interface options to your business platform. We predict that this will be the fastest growth segment because of the need to rate shop packages.

o USPS Click-N-Ship no longer offering discounts – USPS has a web tool where you can set up an account and ship boxes without needing to pay a third party for a PC Postage solution. In January of 2016, the USPS made a change, no longer offering Commercial rates through the system and only offering the more expensive retail rates. This is a premium of about eight to 32% based on the weight and distance shipped. We expect many larger Click-N-Ship users will move to paid solutions based on the need for these discounts.

· API-connected partners are acting like sales reps for the USPS There are over 400 organizations with APIs connected to the PC Postage providers, and this is growing. At the same time, the USPS is aggressively offering Negotiated Service Agreements in an attempt to get these partners to spread the word about what they can offer. Some of these organizations will share their discounts with the client if they use their tools. This creates an industry that is promoting the USPS shipping story and how the Postal Service can help reduce shipping costs.

What Does the Future Hold? We believe space will continue to grow with very few headwinds. We know there will always be a need for the convenience of being able to mail items from your office, and as letter volumes continue to decline, customers will be looking for the least expensive and most flexible solutions. Shipping volumes are going to continue to grow, and the USPS can provide lower costs because it delivers to every address, every day. Finally, the technology will continue to improve, making it easier for customers to rate shop their different shipping options in the cloud. All of this is designed to help the consumer reduce costs and have more flexible options for their mail and parcels.

Adam Lewenberg, CMDSS, MDC, President of Postal Advocate Inc., runs the largest Mail Audit and Recovery firm in the United States and Canada. His team manages the largest mail equipment fleet in the world, and their mission is to help organizations with multi-locations reduce mail related expenses, recover lost postage funds, and simplify visibility and oversight. Since 2013, they have helped their clients save an average of 57% and over $25 million on equipment, fees, and lost postage. He can be reached at 617.372.6853 or adam.lewenberg@postaladvocate.com.