Delivering Value recently asked Bridget Messer, Harland’s director of Delivery Services, for her thoughts on how increases in 2007 U.S. Postal Service rates will affect financial institutions and what can be done about it.
DV: Why is the U.S. Postal Service (USPS) increasing its rates for parcels?
Messer: The story is complicated, but there are two primary drivers. The USPS has announced a long-term strategy to reduce costs and maximize automation. They see their future as “flat” —shipping letters, catalogs, magazines and direct mail. Related to this strategy, they have announced they will stop subsidizing small parcels with First Class mail. The rationale behind this increase is to bring their prices up to their actual cost, something other expedited and ground carriers have lobbied for over the years. This case was presented to the U.S. Postal Board of Governors, which has held several hearings and is supportive of the increase.
DV: Why all the hype?
Messer: Most of the press around the rate change is centered on more visible consumer changes like the “forever stamp.” But unless you are in the business of sorting and shipping small boxes in high volumes, like we are, most consumers will not have heard about the more dramatic changes associated with parcels.
DV: How are banks and credit unions reacting?
Messer: One of our clients said, “I’ve been managing checks for over 15 years, and there is no precedent for this kind of USPS increase.” We’ve been printing checks a lot longer than that, and we concur. Another client asked, “Why did the government allow this?” Most banks and credit unions have had to address this increase by adding a dollar or two to the price of each personal check box.
DV: How does this rate change compare to other shipping costs?
Messer: This single event is the most dramatic shift in cost structure for our business in 2007. We face other issues in our industry including energy-related costs and material costs, but none compares to this.
The Postal Service commits to continue taking out $1 billion from its cost base each year through 2010 while employing equally aggressive measures to grow its business.
Parcels have and will continue to have higher rates than flat packages because of slower sortation rates and higher carrier time.
DV: What does this mean for financial institutions?
Messer: Financial institutions are faced with increased delivery costs in the neighborhood of $1 or more per box of checks. However, the specifics will depend on the terms you have with your check vendor.
DV: What will be Harland and Liberty’s response?
Messer: In the short term, this cost increase is almost impossible to avoid. However, this has accelerated our own R&D around delivery that could lead us into new packaging or even new paradigms associated with shipping checks. Some of these ideas will require time and investment. We are also working with alternative carriers who might be better able to compete with the USPS at the new rates.
DV: What tactical suggestions do you have for financial institutions to help offset this price increase?
Messer: Depending on your check volume and how many free check orders your program provides, this increase may be significant. In some early conversations, we have clients considering:
DV: What strategic changes might you recommend to banks and credit unions?
Messer: Now may be a time to philosophically rethink your check program in order to make it more “account profitability-centric.” For example, if you are not using HarlandImpact℠, our in-box targeted messaging solution, now is the time. Our case studies show that targeted messaging in the box can have a far greater impact on account profitability more than off setting this cost increase.
Contact your Harland or Liberty account executive if you would like to discuss any tactical or strategic changes to your check program.