The idea of business prosperity seems somewhat fleeting during the past 30 months and certainly many of us have dealt with more than our fair share of adversity recently. We have seen unprecedented declines in transactional mail volumes and accelerated migration to electronic and other forms of communications. At the same time, the USPS has implemented significant changes to improve mail preparation quality – be it increased address quality standards, transparency of the mailstream through Intelligent Mail barcodes or more stringent acceptance procedures – than at any point since the mid 1990s.

So… where do we go from here?

When the USPS released their results last year on the year 2020 vision for mail volumes there was certainly cause for concern. Their forecast calls for continued declines in First Class Mail and stability of Standard Mail (Standard A) with a shift in volumes from non-targeted media (newspaper, magazines) to targeted or personalized direct mail. My fervent hope is that the First Class declines that were forecast will prove to be more conservative than what is ultimately experienced but the implication is clear – mailers and presort providers (in particular) need to explore new ways to grow revenues and reduce costs to increase profits.

The most welcome news was the recent decision by the USPS Postal Rate Commission to decline the USPS exigent rate increase thus bringing postage rate stability, at least in the near term. The PRC left the door open for the USPS to come back and ask again; whether for a lesser increase based on inflation (CPI) or another exigent increase – but this will not occur until later.

More importantly, the PRC reiterated what many in industry have been saying (including BBH as a member of the 21st Century Mailers Coalition), that Congress needs to act to move the over-funding that is still being held by U.S. Treasury back to the USPS.

The PRC retained yet another group of actuaries recently who confirmed that this over-funding is at least $50 billion. A win here would be the single biggest opportunity for the industry to maintain long-term rate stability.

Despite the uncertainty, the good news is that there are opportunities on the horizon. I suspect that presorters who have already dipped their toes into the commingling of Standard A or First Class manifest mailings are already seeing some signs of hope.

Mailers are renewing their emphasis to compete more effectively with the current industry overcapacity situation. With postage representing more than 50% of the document cost in most transactional mail environments and nearly 90% in some environments (particularly Standard A), obtaining the lowest possible postage costs is the number one priority for being competitive.

We estimate that today somewhere between 55-65% of automated First Class mail is mechanically sorted or commingled while only 15-25% of Standard A is commingled. Changes to the USPS payment platform – specifically the ability to pay out of multiple CAPS accounts even for commingled mailings (a requirement for many customers) is a key enabler for what we believe will be a significant increase in standard mail sorting. Over the next few years, we expect to see the 15%-25% of sorted volumes rise towards 50%. This equates to billions of additional mailpieces that are candidates for sorting.

Take note, today’s business models for Standard A sorting are significantly different than what you may have been familiar with. The VAR model, which was commonplace in the past for the sorting of metered mail, has been replaced with a model of transparent postage costs and negotiated service fees.

** This article was originally published in the 2010 Q4 edition of the The Broadcast, BÖWE BELL + HOWELL’s sorting customer newsletter. If you would like to subscribe to the email list to receive these newsletters, please send an email to marketing@bowebellhowell.com.