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« Experiments in Sleep Deprivation | Main | Parachute Packers »

The USPS - Timely As Ever

When large-scale email first got started, and fax machines had been around for a while, and FedEx and UPS were making large-scale nuisances of themselves from the Postal Service's point of view, some forgotten wag on NPR had a brilliant idea.

Make the postage stamp last forever.

You'd buy a stamp, and it would guarantee you delivery of a letter forever, like a little callable zero-coupon bond that you would redeem for whatever it was selling for that week. The Postal Service would have gotten a huge revenue injection that it could have used for modernization and technology, and they wouldn't have to keep reprinting "A" and 2-cent stamps every time they needed to raise the price.

Too bad they waited until today to actually float the idea. In the meantime, everything has conspired to reduce the idea from a serious business plan to a cute, labor-saving device.

For one thing, revenue from unsorted first-class mail has dropped faster than a Nolan Ryan sinker. According to official USPS financial reports, in 2000, Single-Piece flat letters and cards, and nonautomated presort First-Class, the kind you use one stamp for, accounted for 37% of Post Office revenue, or just under $24 billion out of about $64.5 billion.

Today, first class letters (postcards aren't deemed worthy of inclusion) account for $20 billion out of just under $70 billion, or 28% of revenue. Worse, such items used to accout for 29% of volume, and now are only 21%. The actual number of First Class letters handled has dropped by 20% in absolute terms.

Remember, this doesn't include metered mail from businesses, which probably comprise something like 50% of first class mail, and which wouldn't be eligible for the Forever Postage.

Worse, while the P.O. still has a reputation for outrunning its postage revenues, in fact, over the last 10 years or so, first class, first-ounce postage has been pretty consistently running behind the CPI. See below. The first chart is first class postage and the CPI normalized to the CPI's birth on 1/1/1947. Postage rates start out running away from, say, eggs, but over the last few years, percentage-wise, the CPI has started to catch up:

Here's the same data presented differently. It's the annualized percentage difference in increase between the CPI and postage rates. The magenta line is for the time period between rate increases, while the blue line is the cumulative difference since 1958, when rates first went to 4 cents. When the magenta line is below 0, postal rates lag the CPI; that corresponds to the blue line declining:

(The annualized difference is calculated this way. Say it's been 5 years since the last rate increase. In that time, the CPI has gone up 5% total, while the proposed rate increase is from 20 cents to 22 cents, or 10%. We start with 1.10 / 1.05, and then figure out what rate, compounded annually for 5 years, would get you there.)

This means that in 1994, with memories of the drastic hikes of the 70s and early 80s still fresh in people's minds, you could have made a case that you'd save money in the long run by buying a stamp and letting it moulder in your desk drawer for 20 years, through moves, floods, fires, rain, hail, sleet, snow, and dark of night. Now, with the cost of postage not even matching the CPI, much less a decent rate of return on any sane investment, you're better off buying that roll of stamps at Costco every year or so.

Or, you could just send an email.

UPDATE: It also occurs to me that there's no announced plan for what to do with whatever revenue boost does come from this idea. Either they haven't thought about that, or they're just not thinking in those terms.

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