What should a postal system do if people stop sending to each other letters (OK, they have already done that), junk mail, magazines, and other physical items? If you happen to be running a postal system, this question is probably on your mind. It is in New Zealand, as reported in the New Zealand Herald (June 9, 2010). Some of options they are considering are: (1) deliver the mail every 2nd day; (2) drop Saturday delivery; (3) increase prices; and (4) develop a two-tier mail system where premium letters cost more and are delivered more quickly; and (5) use electronic mail to make mail delivery more efficient.
A reduction in total volume wouldn’t be a problem if the postal service was already well over the scale needed for maximum efficiency. Apparently, the New Zealand postal system is not at a sufficient scale and so any reduction in volume will decrease its efficiency further. Given that New Zealand has about 4 million people spread out over two large islands, this is not surprising. But there is reason to believe this is an issue for even large countries with dense populations – delivering door to door is a labor intensive process, so if houses are not getting some mail on each delivery then that means the miles driven per unit of mail increases.
Let’s consider some of the suggested choices:
(1) Deliver every other day? What a mess for consumers! Say the rule is that the country gets mail on even days but not odd days and of course on holidays. So you get the mail on some Tuesday but not other Tuesdays, depending on whether the Tuesday is an even day or not. Assuming consumers can keep track of that system, it doesn’t seem to be helpful for efficiency. It is possible to hire people to work Monday to Friday, but working every other day is odd.
(2) Dropping Saturday delivery seems like a good start to me. It isn’t a dramatic reduction in capacity and it is a natural day to drop. It will help with Monday and maybe Friday deliveries, but it probably won’t build scale on Tuesday – Thursday deliveries.
(3) Increase prices is an obvious solution but of course, it will lead to further reductions in volume. One could imagine a spiral effect that leads to the demise of the physical postal system.
(4) Two-tiered system? I can’t imagine that they don’t already have this. And it isn’t clear how this addresses the issue of lower volume enough to matter.
(5) Drop delivery to homes, keep mail in central locations and notify people via email when they have received a piece of mail. To some extent they have already done this. When I lived in New Zealand I had to walk 500 yards to the “town’s” general store which held everyone’s mailbox for the town. In other words, instead of delivering to each person’s house, deliver close to each person’s house. The potential savings may be significant without a substantial decrease in the quality of the service. Relative to increasing prices, this option requires serious consideration.
Posted by mswd 
Matching Supply with Demand 