Here are some of the more interesting items in this year’s data:

• First class single piece volume fell by 3%, or 1.3 billion pieces.  Total first class volume was only down by 0.5%, but that’s because volume actually increased in the discounted Automation Presort category. Consider this- the average revenue from each first class single piece item was 47 cents. Average revenue from each Automation Presort piece was less than 32 cents.
• Standard mail was up by 1.5%, or 1.5 billion pieces, and once again there was more standard mail than first class overall. Average revenue for each piece of standard mail was 19.4 cents.
• Priority mail volume was up by 4.1%. Priority is one of the highest profit margin services the USPS offers, but is still represents a relatively small piece of the pie, at about seven percent of total mail revenue.

What it all boils down to is this- like it or not, the high revenue, monopoly-status volume is continuing to decline. The lower revenue, less stable advertising volume will continue to increase. (Less stable? Yes- bank statements have to be mailed every month- catalogs can be cancelled if the economy suddenly turns sour) Right now the conventional wisdom seems to be that hard copy, mailed ads and catalogs can drive both mail order and online sales. That’s an equation that’s subject to change, however, as the web mindset matures- given the cost difference between electronic and postal ad delivery, it might not take much to arrive at a tipping point where electronic delivery of advertising sweeps hard copy delivery away.

Meanwhile, package and expedited delivery services continue to show healthy growth, but not enough to entirely make up for the loss of first class revenue. 

And in the background, the likelihood of arbitrated labor agreements and the dimly seen shape of postal reform add to the suspense…

Revenue, Pieces and Weight (RPW) reports

And sometimes interrogatories seem to serve no purpose but to make a point- here’s one, submitted to APWU witness Kathryn L. Kobe by the Major Mailers Association. Kobe had testified that “it seems highly unlikely that the mail that is converting to presort mail is equivalent to the average collection mail that is coming from individual households, nonprofit organizations, and small businesses”. The MMA posed the following questions:

Please assume that you are a dutiful niece who for years sent monthly letters to your Aunt Minnie. Assume further that all these letters exhibited the cost attributes similar to an “average” First-Class single piece letter. Now, in 2005 you and your Aunt Minnie discovered the Internet and you substituted your 12 monthly letters with 12 monthly emails. Please confirm that, as far as the Postal Service is concerned, those letters are lost to the system and First-Class Single Piece has lost 12 “average” Single Piece letters. If you cannot confirm, please explain.

Please assume that you also enjoy calling your Aunt Minnie as well, and in 2005 you decided to sign up for a cell phone. The cell phone company sent you 12 monthly bills in 2005, all of which qualified as Automation letters. Please confirm that, as far as the Postal Service is concerned, those letters are new to the system and First-Class Automation has gained 12 pieces that are similar to an “average” Automation letter. If you cannot confirm, please explain.

Please confirm that, as far as the Postal Service is concerned, the 12 “average” Single Piece letters lost and the 12 “average” Automation letters gained represent a “shift” of letters from First-Class Single Piece to Presorted. If you cannot confirm, please explain.

In discussing proposed consolidations, USPS spokespersons have focused on overnight delivery standards, while the APWU has raised a host of other issues, from collection box cutoff times to delivery times. That has allowed the union to argue that all it’s concerned about is the welfare of our customers, not the convenience of its members. Regardless of how you feel about that, you can’t deny that it worked in Rockford.

If Rockford and the other AMP controversies demonstrated a broadened view of ’service’, the LA case show that one piece of paper can drastically narrow the focus. Henry Waxman doesn’t care what LA’s overnight EXFC score was in Quarter 3- he wants to know why there was six day old first class mail in the inventory on May 4, 2006.

In a nutshell, the potential problem is that subscribers who currently enjoy overnight service to and from their Netflix service center might find themselves with 2 day service. If you’re the kind of Netflix subscriber who typically watches the DVD the day you get it, and sends it back the next day, you’re going to have a longer wait between movies.

Example- I have overnight service to and from my Netflix plant. I get a movie on Monday, and send it back Tuesday. Netflix gets it Wednesday, and ships out another DVD, which I get Thursday, assuming I’m not being ‘throttled’.

Now lets say the PO changes it’s network setup so that the service standard between me and Netflix is two days. I watch my DVD Monday, send it back Tuesday. Now Netflix dioesn’t get it back until Thursday. They send my next disc that day, and I get it two days later, on Saturday.

Do the math- assuming Netflix and the PO are both on time, with overnight service I get a new disc every three delivery days (i.e. Monday through Saturday). Switch to two day service, and it’s one every five delivery days.

There are 302 delivery days in a normal year, subtracting Sundays and holidays. So a quick turnaround subscriber who gets about a hundred DVD’s a year with overnight service would see that drop to about 60 with 2 day service.

That’s what it means for subscribers- what it means for the company is that in areas where service standards lengthen, a larger portion of their DVD inventory is going to be in transit, and unavailable.

So the question comes down to whether or not a postal plant consolidation is actually going to change service to my Netflix center.

Here’s an example- one plant set to be consolidated is Springfield, Mass. The Netflix center serving Springfield is in Worcester. You can use the USPS Service Standard software (available from the Postal rate Commission web site) to verify that mail between Worcester and Springfield is supposed to be delivered overnight.

The proposal, however, is to shift Springfield’s mail to Hartford for sorting. Using the software, double click on Hartford, and you’ll find that the service standard from Hartford to Worcester is two days. That doesn’t necessarily mean that Springfield to Worcester would automatically go to two day service, but it would certainly make it a strong possibility. (On the other hand, Hartford to Worcester is only 57 miles, so the USPS could consider upgrading Hartford-Worcester to overnight rather than downgrading Springfield-Worcester to two days. The devil would be in the details.)

In parts of the country where the distances between plants is greater, the chance of service standards slipping would presumably be greater.

Netflix is one of the few companies whose entire business model is based on first class mail. As they say in their letter of intervention:

Intervenor is an online DVD rental service providing more than 4 million members access to DVD movies. Members select movies to rent at the Netflix website (www.netflix.com) and receive delivery of their movies via First Class Mail. These rented DVDs are then returned to Netflix using First Class Mail. Intervenor’s service could be impacted by the changes described in this proceeding. 

That’s putting it mildly!

Speaking of Netflix, the ‘Hacking Netflix’ blog has a link to an interesting article about the inner workings of a Netflix shipping center in North Carolina.