Private sector mailing industry fears for US Postal Service

September 25, 2011
| By Pete Daly |
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Some of the private sector companies in West Michigan that are a key connection between the business world and the U.S. Postal Service don’t necessarily agree on all of the major changes the USPS is considering in order to survive, but those executives are adamant about one thing: survive it must.

“All of us (in the mailing industry) are really interested in making sure the Post Office is really viable, as well as our customers. Our customers depend on the Post Office,” said Brian Quist, owner and president of Kent Communications Inc., which is known as KCI.

“A big part of the economy is supported by the mail,” added Quist from his headquarters at 3901 East Paris Ave. SE in Grand Rapids. KCI serves customers throughout the U.S., Canada and Great Britain.

“The Postal Service is absolutely vital to our economy and to the customers that we service,” said David C. Rhoa, president of Lake Michigan Mailers, a 34-year-old family-owned business that provides document processing and mailing services to businesses, institutions, organizations and local governments. It has in excess of 50 employees at processing centers in the Kalamazoo and South Bend regions.

The U.S. Postal Service announced in mid-September that it is “faced with a massive nationwide infrastructure that is no longer financially sustainable,” and is proposing sweeping changes that would cut up to $3 billion a year from its budget.

Postmaster General Patrick Donahoe has proposed eliminating Saturday mail delivery, closing up to 3,700 postal processing locations and laying off 120,000 workers, although their union contracts prohibit layoffs.

A report in The New York Times Sept. 4 said the Postal Service “may have to shut down entirely this winter” if Congress does not take emergency action to stabilize its finances. The USPS deficit this fiscal year is estimated to reach $9.2 million.

“We are forced to face a new reality today,” said Donahoe Sept. 15. “First-Class Mail supports the organization and drives network requirements. With the dramatic decline in mail volume and the resulting excess capacity, maintaining a vast national infrastructure is no longer realistic. Since 2006, we have closed 186 facilities, removed more than 1,500 pieces of mail processing equipment, decreased employee complement by more than 110,000 through attrition and reduced costs by $12 billion.”

One mailing industry group, the Coalition for a 21st Century Postal Service (www.savethemailsavejobs.org), claims the USPS “is facing imminent collapse.” The coalition says the USPS is “the linchpin of a $1.1 trillion American mailing industry” that involves 8 million jobs and represents more than 7 percent of U.S. GDP.

Supporters of the USPS are quick to point out that its revenue comes solely from its sales of postage; none comes from the taxpayers.

As for the massive downsizing, “any other business would have done this years ago. They have a number of restrictions that prevent them from doing so,” said Rhoa. He also stressed that the changes are “proposed changes,” and in some cases, Congress will have to revoke previous laws it has enacted.

Postal customers will be provided the opportunity to provide feedback on the proposals.

Rhoa said that, in a number of ways, the USPS “backs are against the wall and they need to make changes” that other companies would have done gradually over the years. “They’re having to do it all at once,” added Rhoa.

Quist said the root of the problem is that the Post Office “has basically been shackled by Congress.

“They want to have it both ways,” said Quist, referring to Congress. “They want to have it run like a business — and then they want to have all the jobs and facilities in their district protected, and obviously, I think, that’s an untenable position.”

A news release issued by Lake Michigan Mailers in July states that the Postal Service operates 32,000 “retail locations” — meaning post offices or postal service locations — and only 6,000 of those are profitable. It also noted that Donahue has said that more than 35 percent of USPS revenue comes from “expanded access locations” such as the service counters at Meijer and Wal-Mart stores, drug stores, office supply stores, retail chains and self-service kiosks. Donahue said it is clear that USPS customers “no longer require a physical post office to conduct most of their postal business.”

“We certainly support (the USPS) rightsizing the number of offices they have nationwide,” said Rhoa. He notes, however, that a law passed by Congress “prohibits them from closing a post office strictly for economic reasons.” He said that in some states, it almost seems as if there is a post office “a good golf swing” away from the next one.

Quist said he does not believe Saturday mail delivery is “mission-critical.”

“The primary concern of the industry is to make sure we have a healthy postal system, and if ending Saturday delivery is what postal management says they need to do,” Quist said he supports it.

Another proposal from the USPS does not have the support of Rhoa: the elimination of overnight delivery of First-Class mail. The USPS will ask the government-appointed Postal Regulatory Commission this fall for permission to make that change.

“This is a concern for us because it’s a concern for our clients,” said Rhoa.

Although he said he supports Donahue’s leadership of the USPS, he feels the postal service has “woefully underestimated the negative reaction business customers will have to slowing the delivery of overnight First-Class mail.”

Big users of the U.S. mail in the business world continue to be banks, credit unions, insurance companies — and especially government, which is often required by law to mail documents such as tax bills and notifications of government activities.

Even though many checks are electronically deposited directly to the payee’s account, said Rhoa, “banks still are a major user of U.S. mail, as are insurance companies, stockbrokers …” A client can get an electronic certificate for a stock trade but a lot of people still want confirmation mailed to them, he said.

“The mailing industry has changed over the years, but the people who are mailing in large quantities really haven’t,” added Rhoa.

Quist said the First-Class mail business for the USPS has continued to erode, while advertising mail has increased somewhat lately, even with all the advertising now possible on the Internet and via e-mail.

“The problem is the revenue side,’ said Quist. “The First-Class mail brought in much of the revenue, and advertising mail is lower-cost — it doesn’t bring in as much revenue (to the USPS).”

But the advertising or bulk-rate mail is a challenge because if the USPS raises those rates, some of that business will shift to the Internet and e-mail, he said.

Quist said KCI is “a major customer in West Michigan of the Postal Service.” KCI was launched by his father in 1975 as a mailing service, using machines to insert documents in envelopes for clients, address the envelopes and add postage. Over the years, KCI added mail-sorting services and would pick up mail from client companies and organizations and then pre-sort it and barcode it for USPS, which earned a postage discount.

Quist said “transactional mail” that KCI handles, such as tax bills, assessment notices, invoices and payments, is First-Class mail, for the most part.

KCI, which employs about 50, is one of the larger mailing companies in West Michigan and has expanded into other services such as printing, fulfillment and even Internet marketing, according to Quist. He said the recession reduced some of its traditional mail load so the company is slightly smaller than a few years ago. However, revenues aren’t down as much because of the marketing services KCI has added.

Quist said the USPS is “an organization that has been abused for a long time,” due to the patronage system of traditional politics.

As for its fate, he said, “The frustrating part of all this is, we’re relying on Congress to fix part of the problems.”

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