Have We Achieved 'Peak Mail'?
In the energy industry, a couple of years ago, there was active discussion of "peak oil"—the very point where half the world's known, proven oil reserves had been extracted and put to use, leaving less than half yet to be tapped or discovered. The thought then was that oil still available would become more dear (read, expensive) because our unrelenting global appetite for the stuff would far outstrip supply.
Of course, conservation, increasing fuel efficiency, and alternate sources of power could mitigate demand in such a way that the pricing effects of past-peak oil could be less severe. What if the world, in fits and starts, simply transformed to an economy that relied on other, less expensive, sources of energy (nuclear, natural gas, hydroelectric, geothermal, solar, wind, biofuels and the like). Perhaps this scenario is happening now.
In the U.S. mail industry, perhaps, too, we've reached "peak mail"—except there's no extraction and no finite supply here: simply the notion that pricing, and changing use and acceptance of mail by consumers and businesses, is driving demand elsewhere, and that we've entered an era of post-peak mail in volume.
In 2010, the Boston Consulting Group in its "Projecting U.S. Mail Volumes to 2020" report stated:
The U.S. Postal Service will experience profound declines in its volumes of mail and its net income over the next decade under its current business model, presenting a grave threat to its viability. Massive structural changes are required to avoid this outcome. We forecast U.S. postal volumes to decrease from 177B pieces in 2009 to around 150B pieces in 2020 under business-as-usual assumptions. Notably, volumes will not revisit the high-water-mark of 213B pieces in 2006 - on the contrary, the trajectory for the next 10 years is one of steady decline, which will not reverse even as the current recession abates. Expressing the decline in terms of pieces per delivery point highlights the challenge: we project pieces per household per day to fall from four pieces today to three in 2020 - driven by decreasing volumes delivered to an increasing number of addresses. We also project a rapid mix shift from very lucrative First-Class Mail to less-profitable Standard Mail. The volume decline and the mix shift, coupled with an increasing cost base, will cause profits to experience steep, unrelenting declines. Starting with the 2009 loss of $4B, we expect a steady string of increasing losses, culminating with an approximately $15B loss in 2020 (based on USPS and McKinsey cost forecasts). These declining volumes are unlikely to reverse.
So far—four years, and two years of data—toward 2020, this striking scenario is largely playing out: "USPS: A Decade of Facts and Figures." (See the chart in the media player at right.)
None of this is to say there is a diminished role for direct mail in a post peak-mail digital age. Quite the contrary, the role of direct mail is simply changing, gaining efficiency in targeting, response and engagement—and learning its space and place in an omnichannel marketing environment. In its various postage promotions for 2014, the USPS is testing and encouraging such innovation and integration.
In a recent presentation to the Direct Marketing Club of New York, Bruce Biegel of The Winterberry Group, saw direct mail spending in 2013 actually grow by 1.2 percent, and is projecting another 1.1 percent uptick this year. (Postage hikes in 2013, and coming in 2014, well exceed both these growth percentages.) "Direct mail should be growing because it works," Biegel said as he announced his findings and projections. "Digital doesn't do enough in customer acquisition." This is encouraging news following years of decline.
Volume, however, is not immune to increases in postage, paper and print costs, and to digital migration, and in this scenario, we are really in a situation where USPS infrastructure must continue to adjust to changing mail composition, shape, class and purpose—while continuing to serve all its stakeholders. First-Class Mail peaked in 2000, and Standard Mail in 2007—and we most likely never will return to such volumes ever again.