No Surprise to See USPS Starting FY in the Red

By Jennifer Spitzer

Fall is typically a busy time of year for mail delivery, yet mail volume for October seems to support a grim projection for 2010. According to a report today from the Direct Marketing Association, total volume for October was down 17.3% compared to the same period last year and the net operating loss for the month was $221 million. The two primary categories that account for 90% of mail volume, Standard Class and First Class, were both down as well - 11.5% and 22.2% respectively.

Last month the USPS filed its 2009 year-end financial results. Despite $10 billion in cost savings efforts which included a $4 billion reduction in required payments for retiree health benefits, the USPS still posted a net loss of $3.8 billion for the year. I find it interesting that the reduction of retiree benefits was passed into law in fiscal 2009 to “allow the USPS to maintain fiscal solvency while continuing to provide affordable service”. If this is solvency, I’d hate to see what it would look like if they really took a hit.

Unfortunately for the USPS and the direct marketing industry, attempts to fix the financial problems are making matters worse. Current economic conditions have forced advertisers to work within very tight budgets. When you add back-to-back increases in postage rates over the last two years, what ends up happening is a reduction in what big mailers are able (or willing) to spend, driving overall mail volume and USPS revenue down even more.

Postmaster General John Potter said the USPS will not raise prices on Standard Class or First Class mail in the coming year. That’s the good news. The bad news is that the Postal Service is going into their new fiscal year already expecting a $7.8 billion net loss. And what’s worse is that the Postal Service will face the same financial woes year after year.

As direct mail marketers, we depend on the USPS to provide an affordable way to reach customers and prospects. We need good delivery service to help maintain good response rates. Afterall, direct mail still holds bragging rights for one of the best performing marketing tools available. Without immediate reform, there’s no financial light at the end of the tunnel for the Postal Service and marketers are going to suffer along with them.