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Trading Lessons

Deflation Hits Direct Mail Industry

Economics / Deflation May 23, 2009 - 02:21 PM GMT

By: Mike_Shedlock

Economics

On May 1, 2009 the US Postal Service issued a Notice of Market-Dominant Price Adjustment.


The Postal Service proposes to implement a Standard Mail Volume Incentive
Pricing Program (also known as the “Summer Sale”). The current state of the economy has forced businesses, particularly Postal Service customers, to pull back on important investments necessary for ensuring their continued prosperity. The precipitous decline in the use of Standard Mail for marketing products and services is an illustrative example of the unwanted choices many postal customers have had to make because of the economy.

The Postal Service believes it can, and should, find ways to help its customers increase their use of mail during these challenging economic times. With this in mind, the Standard Mail Volume Incentive Pricing Program offers an incentive to mailers to improve above their expected performance during the summer months, which is typically a low-volume period for the Postal Service and its customers.

This “Summer Sale” incentive program not only is designed to increase mail volume, but the timing of the program will take advantage of the Postal Service’s current excess capacity to deliver additional volume at relatively low cost during the summer months.

Thoughts on the "Summer Sale"

In response to the USPS Summer Sale, my friend "GJ" writes:

Deflation is hitting the direct mail industry. I know because I own a company in the printing and mailing industry. Yesterday I received the attached with the note below from the direct mail association in my area.

The post office is looking to have a post sale this summer because volumes are down so dramatically. Nothing like this has ever happened in my over 20 year career. Of course some of this is occurring because of technology but the majority because of the business climate in America.

Our industry has an incredible over abundance of press and mailing equipment and prices are dropping like a rock. Most companies have already downsized and we are still have not hit bottom. From my experience I think our industry is going to have to be cut dramatically in size to again become profitable.

Direct Marketing Association Supports Rate Cuts

It should be no surprise that the DMA Supports USPS 'Summer Sale' in Comments To The Postal Regulatory Commission.

DMA supports the summer sale. As the Postal Service states, the Summer Sale Program will (1) improve Postal Service finances, (2) help finances of its customers, and (3) provide the Postal Service with some intangible benefits. Specifically,

· The Postal Service will realize between $38 million and $95 million net revenue with administrative costs less than $1 million.

· Rebates will provide Postal Service customers with the latitude to explore additional ways to use the mail.

So, the US government decides businesses are not mailing enough, cuts rates in response, taxpayers realize benefits between $38 million and $95 million, and the DMA happily mails on.

It sounds like the perfect free lunch. I assure you it won't be.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2009 Mike Shedlock, All Rights Reserved

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