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United Parcel Service Inc
When he hears about planned U.S. Postal Service cutbacks and closings in 2012, Michael Weiss doesn’t think they’re going to affect his business. Like many service providers, Weiss’s digital strategy consulting firm, Figure 18 in Westlake Village, Calif., operates almost entirely with electronic tools and increasingly conducts business over the Internet. “I take payments and do all my financial transactions online,” says Weiss, 42. ”I just negotiated a six-month contract that went back and forth online and we both signed it digitally. We never even printed it out.”
The shift away from first-class mail is one of the reasons the postal service has been pressed to come up with a series of cost-cutting measures, including possibly eliminating Saturday mail delivery. A legal requirement that the service must prefund health-care retirement benefits for future retirees is another burden—one that many post office employees and supporters protest as unfair.
Business owners who will perhaps be hurt most if the cutbacks planned for next May actually take place are the 21 million-plus “nonemployer firms.” That’s the term the Census Bureau uses to define the self-employed, sole proprietors who account for nearly three-quarters of all U.S. businesses and about $972.7 billion in annual business revenue, roughly 3 percent of total U.S. business activity.
Kristy Wiggins-Gilbraith, who was laid off from her job as a pharmaceutical consultant in 2010, relies on income from the natural bath and body products company she founded to stay off unemployment. Others become eBay (EBAY) sellers or run small enterprises from their kitchen tables to contribute extra income to households struggling to stay in the middle class.
Postal cutbacks could be devastating to businesses like Wiggins-Gilbraith’s venture, Green Beetle Bath, which she says brought in about $50,000 this year. “I rely 99 percent of the time on the Postal Service to ship my products, unless the customer requests next-day service,” says Wiggins-Gilbraith, 36.
The postal service’s free boxes and online portal for flat-rate shipping and tracking have been essential, she says. Because flat-rate shipping covers packages up to 75 lbs., she often can persuade customers to buy more than they planned, she says. “I can do all my transactions from the comfort of my computer, and if customers purchase on a Thursday, I can usually guarantee they’ll get their order by Saturday,” she says. If delivery times slow considerably, she is likely to have to ship more items by UPS (UPS), she says, which might cost $13 to $18 per order, compared with $7 for postal rates.
Izzy Goodman, 53, president of Complete Computer Services, will face a similar dilemma. The family-owned company, founded in 1983, does website design and search engine optimization. But the lion’s share of its $100,000 annual revenue comes from selling printer ink cartridges, many to small business customers. Goodman ships ink via first class mail and can usually get the same delivery time within 1,500 miles of his Far Rockaway (N.Y.) office as he would using postal service priority mail, he says.
If mail processing centers in the Northeast are eliminated, he will likely have to ship everything via priority mail or private carriers. “Because I’m able to keep my prices low, a lot of small companies buy from me. But I’m competing with name-brand suppliers. If I have to raise prices to pay for FedEx (FDX) shipping, my customers will just go to the store to get their ink,” Goodman says. “I sell a printer head cleaner; it’s a $7 item with $3 shipping. I can’t raise shipping to $6 on a $7 item.”
While many small retailers are only now contemplating problems in 2012, cutbacks have already changed the way the Seeds of the Month Club does business. The two-year-old company was founded by Mike Podlesny in Burlington, N.J.; he anticipates it will top $200,000 in revenue this year shipping 300 varieties of garden seeds to 20,000 members around the world. The business is growing rapidly, adding about 15 new members a day. Still, Podlesny worries about a letter he got informing him that his business mail processing hub, at Belmar, N.J., is scheduled to be closed. Bulk mail processing, which is what Seeds of the Month uses, is being transferred to Philadelphia, which will slow delivery times.
To continue using bulk mail, Podlesny, 40, will have to move his mailing dates up five to seven days to assure that seeds arrive in sync with seasonal planting schedules. The change will mean a time crunch, but “we’ll just have to make sure we stay ahead of it,” Podlesney says. He is grateful that bulk mail rates are scheduled to remain the same—for now—since he spends about $3,000 a month on postage.
The prospect of a U.S. Postal Service that will be diminished, or perhaps even eliminated entirely, angers John Paul Engel, 43, the chief executive of Knowledge Capital Consulting in Sioux City, Iowa. The closure of his local post office cost him about $40 in gas this year and took up 200 extra hours of his time, he says. Although his marketing and public relations company operates mostly online, like Weiss’s, he uses postal mail for business prospecting and client thank-you cards, he says. “My father was a mail carrier, so this issue is dear to me. Congress should be ashamed of themselves.”