They Deliver : Specialty Mail Puts Its Stamp on Budding Industry

Nearly a year ago, Michael Graham and Joel Galles found themselves surrounded by several hundred pounds of international mail as they sat in the living room of their South Mission Beach home.

Perched upon sacks filled with letters, they faced the daunting task of sorting, stamping and bundling 700 pounds of mail destined for faraway places, from Cameroon to Yugoslavia.

Looking back at how he started Specialty Mailing, a San Diego-based international mailing business, Graham concedes there were better ways to spend an evening. But Graham’s bet that freeing corporate clients from such tedious labor would be a profitable enterprise has apparently paid off.

Now, Graham’s company has a 1,000-square-foot sorting facility in Sorrento Valley and three others in Los Angeles, Phoenix and Denver. The firm’s 10 employees collect, sort and process dozens of bags of overseas mail daily for corporate clients. By gathering and consolidating mail from several customers, Specialty Mailing enables smaller companies to take advantage of the U.S. Postal Service’s low, international bulk airmail rates.

During its first year of business, Graham said his company posted a profit on revenues of $500,000 and expects Specialty Mailing to double that sum by next year.

The post office is welcoming the emergence of Specialty Mailing and other so-called international mail consolidators because such firms help promote its relatively new, overseas bulk airmail rates and allow it to become more competitive in the booming international mailing industry.

In 1988 alone, domestic mailers spent more than $2.8 billion sending letters, catalogues and parcels overseas, according to the U.S. Postal Service. And that number, postal service officials say, is rising rapidly.

The postal service has long delivered business mail overseas by air transport at a bulk rate, but a minimum volume requirement--at least 750 pounds of mail--prohibited most businesses from using the cheaper air delivery.

“Until three years ago, the postal service delivered international mail primarily by ship,� said Ann Hanson, manager of commercial accounts for the San Diego division of the U.S. Postal Service. “That could take up to six weeks.�

Seizing an opportunity to offer better international mail delivery to corporate customers, private companies called “re-mailers� such as Sydney, Australia-based TNT Mailfast and San Francisco-based DHL, approached businesses and advised them to bypass the post office. For a lower rate, re-mailers offered to air-freight a corporate client’s mail overseas and to drop the mail into the foreign country’s local postal service system.

As re-mailers lured customers away, the postal service countered by offering two lower-priced international airmail delivery products: International Priority Airmail (IPA) for items including letters, statements and direct mail pieces, and International Surface Air Lift (ISAL) for printed matter such as catalogues, directories and periodicals.

But for a business to take advantage of the IPA rates of $7 to $8.50 per pound, it must send at least 10 pounds of mail. And to qualify for ISAL rates of $2.20 to $3.90 per pound, a client must meet a 50 pound minimum.

In addition, Barry Burns, the Postal Service’s international product manager in Washington, said that before clients can take advantage of the lower rates they must also sort and bundle their mail to post office specifications.

“We’ve been turning to such work sharing programs, that is, programs where some of the preparation that ordinarily you would expect the post office to do is done by the customer in advance,� Burns said. “Sorting by country, sacking . . . by having some of this done in advance we can pass along the savings to the consumer (in the form of lower rates).�

But not all clients want to spend their time sorting mail and smaller companies who only need to send a few pieces of mail overseas cannot qualify for the low rates. That’s where Specialty Mailing comes in, Graham said.

“Smaller companies don’t want to sit on their mail, waiting until they have enough to qualify for the low rates,� Graham said.

Graham explained that international mail must be sorted by country and often by postal sorting codes or province as well. Mail needs to be stamped and bundled and must also be sorted according to international price zones.

“Sure you can (sort and stamp) yourself, but sometimes,� Graham said, “it could be a nightmare.�

Specialty Mailing purchases postage from the Postal Service at bulk rate and then charges its customers a slightly higher rate--but lower than re-mailers’ rate--for the service it provides.

For example, a client who is unable to qualify for the postal service’s lower rates, would have to pay $14.40 to send a one-pound item overseas. A re-mailer might charge $12 to $13 for the same package. But Specialty Mailing, purchasing postage at the IPA rate of $6.80 per pound, would charge its customers $9.

Postal Service officials estimate that there are about 40 international mail consolidators nationwide, but nearly 75% of them are based on the East Coast, particularly in or near New York City.

According to Hanson, only a handful operate on the West Coast and Specialty Mailing is the only international mail consolidator working with the post office in San Diego, San Bernardino and Riverside counties.

But Postal Service officials say there are numerous mailing houses, which typically process domestic mail for corporate clients, that offer and are expanding into international mail. In addition, re-mailers such as TNT and DHL dominate the marketplace.

Postal Service officials, however, expect more consolidators to set up West Coast operations.

“The need for international mailing is growing every day . . . especially here in San Diego, where you have companies increasingly doing business with the Pacific Rim, with maquiladoras ,� Hanson said. “You also have universities and tourist attractions that try to draw people from around the world.�

Graham, 29, and Galles, 30, were working at TNT Mailfast, the international air mailing subsidiary of Thomas Nationwide Transportation, the Sydney, Australia-based multi-service transportation (air, railroad and ship) company, when they discovered their chance to launch their own business.

“We could see that the post office was going to try to regain their lost market share,� Graham said. “And when they made their move we knew there was going to be a need for a consolidator to serve as a conduit to the potential users (of the Postal Service’s program).

“We saw a middleman-type niche developing and that’s when we decided to break from TNT,� Graham added.�

In March, 1989, Graham established a Specialty Mailing office in Los Angeles and Galles launched operations in Phoenix.

In September, 1989, the pair expanded their operations to San Diego and for several months sorted mail in their South Mission Beach home. In early April the duo opened a Denver office and plan to open a Portland office in July.