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USPS Collapsing–A good read for SingPost Investors

There are a lot of dividend investors looking to pick up SingPost at a lower price. Current price of $1.03 is near the price that I got vested last year.

At InvestmentMoats.com, we mentioned that we think SingPost’s main business is declining.

We find that this could be a good read to contrast against Singpost’s declining mail volume as well.

  • USPS Business Model is so broken that it is collapsing
  • With the rise of e-mail and the decline of letters, mail volume is falling at a staggering rate
  • It relies on first-class mail to fund most of its operations, but first-class mail volume is steadily declining—in 2005 it fell below junk mail for the first time. This was a significant milestone. The USPS needs three pieces of junk mail to replace the profit of a vanished stamp-bearing letter
  • USPS has been unable to cover its annual budget, 80 percent of which goes to salaries and benefits. In contrast, 43 percent of FedEx’s (FDX) budget and 61 percent of United Parcel Service’s (UPS) pay go to employee-related expenses
  • Three decades ago, most postal services around the developed world were government-run monopolies like the USPS. In the late ’80s, the European Union set out to create a single postal market. It prodded members to give up their monopolies and compete with one another. The effort roused an industry often thought to be sleepy and backward-looking.
  • Many countries closed as many of their brick-and-mortar post offices as possible, moving these services into gas stations and convenience stores, which then take them over—just as the USPS is trying to do now, only far more aggressively. Today, Sweden’s Posten runs only 12 percent of its post offices. The rest are in the hands of third parties. Deutsche Post is now a private company and runs just 2 percent of the post offices in Germany. In contrast, the USPS operates all of its post offices.
  • Some of these newly energized mail services used the savings to pursue new business lines. Deutsche Post bought DHL, a package deliverer that competes with FedEx and UPS.
  • Many used their extra cash to create digital mail products that allow customers to send and receive letters from their computers.
  • USPS needs to create products for its wired customers if it wants to play a role in the future of communication. He acknowledges some foreign digital services are in early stages, but they are in demand, and in some cases the digital technology reduces delivery costs.
  • The service now predicts that total mail volume will decline from 171 billion pieces annually in 2010 to 150 billion in 2020. That’s a best-case scenario. The worst-case, according to its own projections, is 118 billion.

The US Postal Service Nears Collapse >

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Panzer

Monday 29th of August 2011

Hi Drizzt

I think it's useful to compare to other postal operators in other parts of the world. Based on the information that the European post offices only own 2-12% of their post offices, I think Singpost can go more towards leveraging on other retailer operators e.g. Petrol kiosks and convenience stalls which wouldn't mind taking over some of the postal services for a commission.

Currently, they still rent/lease lots of retail outlets which may not make sense going forward.

Singpost does offer new products e.g. James personal credit partnering with GE Money. But their main post business is actually junk mail now rather that personal post since hardly anyone posts personal mail messages unless it is to send phyiscla stuff to each other without having to meet up.

I should try to attend their AGM to understand management's thinking going forward.

Be well and prosper.

Drizzt

Tuesday 30th of August 2011

yeah good points Panzer. Do they really lease that much? they do own a few of the post offices as well but i suppose the strategic ones are leased.

Last year while researching, mail junk mails are still very much in style. But we have to see this 2 future years annual report. It will tell us whether those investments make sense.

Musicwhiz

Sunday 28th of August 2011

Thanks for the good read, Drizzt. So would you draw parallels between SingPost and USPS? What aspects of SingPost's business do you think are declining beyond salvation? And do you feel that the current dividend yield can be sustained?

Thanks in advance for your views.

Drizzt

Sunday 28th of August 2011

honestly, dividends can be sustain now. but when you lose the big margin business and replace it with low margin business, do you think they can replace the declining domestic posts?

Drizzt

Sunday 28th of August 2011

hi Musicwhiz, i think the problem for USPS is a bigger issue with financing retirement plans like all US companies. But they have shown that they are like all government linked company which are reisistant to change.

SingPost i believe do not have this problem. But the question is whether they did study the success model by being asset light and focus on services. Do note that there isn't much mentioned on a move to logisitcs which Singpost is trying to do.

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