Changes To First Class Mail Could Slow Return Gifts

December 6, 2011       Mark Hrywna      

Extending the time it takes to deliver First-Class mail could delay how quickly nonprofits receive charitable contributions while an overall plan by the United States Postal Service (USPS) could mean charities have to transport their mail farther.

The USPS is studying 252 of its 461 processing facilities for potential closure as First Class mail volume continues to plummet. Volume was down to 78 billion pieces last year, which is expected to be halved again by 2010. On Monday, USPS officially requested an advisory opinion from the Postal Regulatory Commission (PRC) on the service standard changes. The move would save the USPS some $2 billion, all but eliminating overnight delivery and moving to a 2- to 3-day standard for destinations in the continental United States.

While social media and online fundraising get all the buzz, direct mail fundraising still constitutes the overwhelming majority of the money raised by the nation’s nonprofits. Organizations that are processing and caging donations via First Class mail will see a slower return, affecting the velocity of gift volume, said Lori O’Brien, director of national development for Youth Villages in Memphis, Tenn. “I suspect that it could be a slowdown of cash flow velocity,” she said.

When it comes to fundraising, Youth Villages uses First Class mail for some major donor appeals and foundation grant applications, but the vast majority of is sent by Standard mail. For those major donor appeals, they’ll have to anticipate another day or two onto the delivery window and add additional days to the return date, she said.

Nonprofits can expect some effect on the gift end, as most donations arrive via First Class mail. “At the very least, we’ll see a slowdown on gift returns.” That could affect large organizations that depend on a large volume of returns, O’Brien said said, especially if they use projected cash flow, so they could be affected more than smaller charities.

Julie Hambuchen, senior director of interactive and direct marketing for Portland, Ore.-based Mercy Corps, estimated about 6 percent of the organization’s mail is sent First Class, but doesn’t expect the slowdown in First Class mail to affect incoming donations enough to cause much concern.

Fewer processing facilities could mean slower output since more volume will be going to individual facilities, said O’Brien. “How much slower, it’s hard to quantify,” she said, but it’s not a stretch to think that it will impact all mail going through the system, including Standard Nonprofit. USPS envisions changing the current operation of mail processing facilities from being in use from midnight to 6 a.m. (six hours) to being in use from 9 a.m. to 3 a.m. (16 hours). That change also would require significantly fewer machines for a longer window of operation.

“It’s going to take more financial onus on the mailer because we’re the ones who have to pay for the trucking. If I’m no longer able to truck 40 miles to a postal facility, now I’ve got to truck 300 miles, well that’s going to be on me, not on the post office,” said O’Brien.

The 2- to 10-day service standard for Standard Mail is for processing mail, so once inside a facility, mail could physically sit in the plant for 10 days, said O’Brien. “Typically, we’ve relied on people not waiting the full 10 days. So what I see happening is that more and more they’re going to be able to say, we need to go the full 10 days before we process your mail,” she said.

The Postal Service has “all these plants to handle all this mail that’s declining every year,” said Tony Conway, executive director of the Association of Nonprofit Mailers (ANM). Nonprofits that prepare their mail for distribution and take it to a certain facility to enter the mail stream might have the biggest issues to address, Conway said. If the closest plant used to be 30 miles away will close, the next closest might be 200 miles away, he said.

Rather than just increase postage rates to match unneeded capacity, Conway said USPS is tackling their costs, which are “way out of line” for revenue projections. All its capacity is set up for First Class mail, which has been going away, he said. Anything urgent is probably going electronically anyway, so it’s a matter of whether USPS really needs to maintain a commitment to overnight delivery.

First Class postage is scheduled to increase effective Jan. 22, 2012, jumping from 44 cents to 45 cents. In general, postage rates will rise an average of 2.1 percent while the USPS continues to pursue a 5.6-percent exigent rate case that was denied by the PRC, in spite of continued opposition from mailers.

“The Postal Service must reduce its operating costs by $20 billion by 2015 in order to return to profitability,” David Williams, vice president, network operations, said in a statement. “The proposed changes to service standards will allow for significant consolidation of the postal network in terms of facilities, processing equipment, vehicles and employee workforce and will generate projected net annual savings of approximately $2.1 billion.” Overall savings from the network optimization initiative are projected to be as much as $3 billion by 2015.

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