The United Parcel Service, with its fleet of unfashionable brown trucks and brown-uniformed drivers, picks up big boxes, moves them around the world and then drops them off. Founded in 1907, the company is in many ways a quintessential bricks-and-mortar business, the kind that the new economy of the Internet was supposed to overshadow.
Yet when UPS offered shares to the public last week, investors greeted the new stock with an enthusiasm usually reserved for dot-com ventures whose founders' parents, and perhaps even grandparents, were not even born by 1907. UPS's shares quickly shot from $50 apiece to $70, and the company is now worth about $85 billion.It was the largest initial public offering in history, making the early valuations that Wall Street placed on darlings like Amazon.comand Yahoo! look almost old-fashioned.
At first glance, it appears to be a stirring vote of confidence in snail mail, a debunking of the myth of a paperless society and a harbinger of good things for the U.S. Postal Service. Neither the telephone nor the fax put a dent in the amount of mail people send. Now, perhaps, the Internet will fail to, as well.
The underlying message, however, is more complicated, and it indicates that the concept of mail is indeed on the verge of changing radically. Mail is really two different things -- letters and packages -- and their fortunes are quickly diverging. One is likely to be all but replaced by e-mail eventually. The other, contrary to some initial expectations, will only grow in importance.
But the Internet could eventually usher in a day when almost all those envelopes will contain advertisements, and the majority of mail people really care about will come in packages. The rest -- letters, bills, money and even photographs -- will arrive through the computer, mail experts agree. Already, according to Jupiter Communications, Americans are sending 122 billion e-mails annually, more than half the number of pieces of mail that the Postal Service handles each year.
The Postal Service's rivals, by contrast, are watching their business grow, as UPS's record-setting day showed. With information shoving aside industry as the fastest-growing sector of the economy, the country today is far more reliant on small goods that can be shipped from point to point. "A billion dollars of GDP created by Microsoft weighs less than a billion dollars of GDP created by Ford Motor Co.," said Paul Schlesinger, an analyst at Donaldson, Lufkin & Jenrette.
At the same time, electronic commerce causes more items to be shipped individually, rather than taken home from the store, and it leads to more returns. Thus the recent success of UPS and Federal Express, and investors' confidence that the two will be making good profits in the decades to come.
The picture isn't so rosy for the Postal Service. It relies on the sending and paying of bills for $17 billion, or almost 30 percent, of its revenue. These pieces of first-class mail, often sent short distances from, say, an electric company to a house in the same metropolitan area, help subsidize the organization's ability to charge just 33 cents for a letter that travels from Santa Fe to northern Vermont and costs more to transport.
But that subsidy won't be around for long. Next year, Internet portals like Yahoo! and a number of large banks will begin allowing people to receive many of their bills over the World Wide Web, pay them with a credit card or directly out of their bank accounts and never lick an envelope. "That's serious business," Bob Krause, the Postal Service's vice president for e-commerce, said, anticipating the loss.
As a result, the volume of first-class mail is likely to decline for the first time in the Postal Service's history, starting in 2003, according to the General Accounting Office. "The Postal Service may be nearing the end of an era," a GAO report concluded in October.
Without that $17 billion in revenue, or a substitute for it, the Postal Service would have to raise its prices significantly or perhaps even cut back on its six-day-a-week service, Krause said. The latter would be a historic shift that Congress is unlikely to allow. The operation of a post office, after all, is one of the powers the Constitution specifically grants the federal government.
"People like having their own little post office, especially in small towns where it is the center of town," said Stephen Moore, an economist at the Cato Institute who was a member of a Reagan administration commission that tried unsuccessfully to privatize the Postal Service. Other people like knowing a letter they send will be physically held by the recipient, be it a faraway parent or a lover, and that it won't end up being forwarded all over the Internet.
The overall threat to the Postal Service is serious, however, and that is why it is furiously trying to expand its business. In November, it began allowing consumers to return items bought over the Web by printing a postage label from their own computers and billing the suppliers. It also wants to set up an electronic post office where people could conduct secure transactions over the Web.
But the efforts could fail for any number of reasons, including the political debate over whether a federal agency should compete with private companies. If those efforts fall short, some of Postal Service's more than 800,000 jobs will be in jeopardy. And the relatively low price of sending an envelope to any home in the country would rise, much as the stock of UPS might.
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