The USPS and Apple.

It is about time. The Washington Times reported today that the Postal Service is finally making Click-N-Ship compatible with Apple Computers and the Safari Browser. Apple has a 9% market share. Apple now has a market share among consumers of at least 21%. Consumers are one of the target markets for Click-N-Ship, so this step is probably a year or more overdue.

Not being compatible with Apple computers will likely hurt the Postal Service during the peak consumer parcel shipping period starting now. Apple computers are expensive and therefore are likely more common in higher income households that are the heaviest users of mail services. These consumers are driven by convenience as much as price. If they find that shipping with UPS or FedEx is more convenient, and lines at FedEx Office, the UPS Store, Staples, Office Depot or independent shipping stores are shorter, they will use UPS or FedEx even if prices are somewhat more expensive.

According to the article, the Postal Service will have its Apple compatible Click-N-Ship operational by next summer. For the Postal Service's sake, lets hope its Iphone apps, Android apps, and Blackberry apps are as far behind competitor's similar applications.

The End of Mail? (Just Kidding)

In its 10-k, the Postal Service honestly reported that 2009 was a terrible year. Its forecast for 2010 is not much better as it projects:

• a loss of an additional 10 to 15 billion pieces of mail;
• an operating loss of 7 billion which means the USPS will have an operating loss of $1.5 billion before accounting for retiree health benefit payments;
• the need to borrow $3 billion in 2010 and borrowing needs in 2011 that will exceed its statutory borrowing limits; and
  
• a continuation of the freeze on construction of most new facilities, which severely limits its capability to optimize its processing and transportation network; and
• a cut in employee work hours of between 80 and 90 million on top of the 115,000 cut in 2009.

Many postal stakeholders are counting on the economic recovery to generate volumes better than what the Postal Service projects in order to stave off some the worst of the impacts on postal finances, rates in 2011, and postal jobs. Unfortunately, looking at mail volume trends over the past decade, and efforts by major mailers to adapt to customers who want access to information that traditionally was suggest that many years may pass before mail volumes stabilize.

This conclusion is drawn by looking at volume data over the past decade combined with information that the Postal Service published in its most recent Household Diary Study. The rest of this post presents the data upon which I drew this conclusion.

For the purpose of this analysis, it is useful to think of the Postal Service as serving four types of customers.

• Single piece mailers of payments
• Single piece mailers of correspondence
• Volume mailers of financial documents (e.g. bills, statements, proxy statements, etc.)
• Volume mailers of advertising and parcels (e.g. all mail other than First Class mail financial mail)

The following table shows the year to year change in mail volume for these four types of customers.



From looking at this table it is clear that the future of single-piece mail and in particular single-piece bill payments is bleak.

• Single piece payments now represent around 52% of single piece mail and its share of single piece mail declines as consumers choose other methods to pay bills. Single piece bill payments were declining at more than 6.5% year to year even before the recession began in 2007. (Note the recession began in the fourth quarter of 2007 which would have been the Postal Service's first quarter of 2008.)

• Single piece correspondence declined in every year but one would expect that a forecast of single piece correspondence would see annual declines of 1-2% less than declines in payments.

• The volume-tendered transaction mail column shows some moderate impacts of the economic cycle in 2007 through 2009. However, it is not clear how much of this change reflects the economic cycle, and how much reflects consumers who are no longer making payments by mail choosing to no longer receive their financial documents by mail either. A recovery in financial/transaction mail would normally follow the increase in the number of financial accounts households open as the economy improves However, there are serious questions about whether households will continue to prefer hard-copy mailed bills, statements, and reports in the future. For the cohort of households in 2015 headed by someone younger than 30 today, familiarity with the web and smart-phone technologies will make a preference for mail increasing less likely.

• The advertising mail column clearly shows a product that is sensitive to economic cycles. Volumes of volume-tendered advertising were growing when other mail products were stagnant or declining. When the recession hit, the bottom fell out of advertising mail volumes. Again, there is anecdotal evidence that some of the decline in mail advertising reflects shifts to electronic modes. Expectations of volume increases in the current recovery should by muted to reflect the availability of low-cost, impact-measurable electronic alternatives that did not exist when the Postal Service came out of previous economic downturns

So what would be reasonable working expectations to assess whether econometric forecasts generate reasonable results for the Postal Service of 2015?

• Single piece payment volumes will continue to decline by at least 6.5% a year as, service providers begin to mandate electronic payments, comfort with electronic alternatives grow with older Americans, and an increasing share of the bill-paying public never start the practice of paying bills by mail.

• Single piece correspondence continues to decline at a rate slightly less than that of payments. The most optimistic scenario would result in correspondence mail hitting a plateau sometime in the next 6 years.

• Volume-tendered financial mail will begin to decline even as the number of accounts that require communication of financial information grows. Fewer customers that do not use the mail to pay bills will receive their bills, statements and other financial documents by mail. The rate at which volume-tendered financial mail declines will depend upon the recipients’ preference for mail or electronic delivery, and the entry into the workforce of individuals that have since they opened their first checking account only used the web, smart phones, and ATM’s to receive and send financial information. Demographic factors will likely drive this decision as much as any incentives that mailers employ to encourage electronic delivery.

• Finally volume-tendered advertising volumes will depend on three factors. First the speed and extent of recovery will determine the overall amount of spending on advertising. Second, how the value of mail for the sender relative to other advertising modes changes as electronic forms of advertising improve their ability to serve needs of advertisers. Third, the ability of the Postal Service to adapt to new service requirements for the delivery of parcels and advertisements and in particular the ability of the Postal Service to ensure advertisers that both the mail and e-mail will arrive on the same day. The fact that all non-financial/transaction mail has grown at less a 1% annual rate since 2000 does not suggest that the Postal Service will see volumes grow at a faster rate in the face of emerging Internet competitors.

So what would be a reasonable, back of the envelope, forecast for mail volume in 2015?

• Single Piece First Class – 24 billion pieces down from approximately 33 billion handled in 2009.

• All Other Mail – 141 billion pieces up from approximately 139 billion handled in 2009.

(Authors note: 2009 numbers based on estimate of 2009 4th quarter. Currently the Postal Service reports that total volume in 2009 was 176 billion pieces, slightly more than the sum of the two figures for 2009)
If this forecast turns out to be right, then by 2015, single piece mail will drop from the 20% of volume today to around 15%.
The Postal Service will need to downsize its retail network, collection efforts, and origination sortation, and transportation from origin to destination facilities to what is needed to handle almost a third less volume. The destination sortation network would require some modest trimming as well, reflecting the decline in single piece mail.

Finally, in 2015 the Postal Service would be delivering about the same volume of mail to more households. With delivery density declining, the Postal Service's carriers would likely find themselves delivering less mail over their workday. Today's delivery optimization efforts would need to be intensified to deal with lower density.

Congress will likely require a public forecast from the Postal Service, the PRC and other entities with econometric skills and budgets. Congress would be well served if multiple analysts examine the future of mail volumes so that a consensus emerges about the scale of changes that required for the Postal Service to be financially self-sufficient in 2015 and beyond. The sooner these forecasts are made public, the sooner questions about network optimization, retail modernization, long-term needs for postal operating and management employees can be assessed.

USPS, UPS, FedEx Express and the RLA

The choice of labor law (Postal Reorganization Act (PRA) vs. National Labor Relations Act (NLRA) vs. Railway Labor Act (RLA)) going forward for the USPS may not be clear, FedEx has a clear preference for keeping the FedEx Express Service under the provisions of the RLA. FedEx Express's current position under the action has been under attack by United Parcel Service and the Teamsters who would prefer that that FedEx Express status be changed so that it would be covered under the NLRA.

The change is currently included in HR915, the House version of the FAA Reauthorization Act. This would make it easier for the Teamsters, or any other union, to organize FedEx Express employees. The Teamsters, UPS and FedEx have run aggressive lobbying campaigns. Both UPS and FedEx have courted support from various interest groups that received extensive coverage by Politico last summer.

UPS's position is clearly presented on its website. FedEx, in addition to posting its position on its site, has run a numerous set of web-ads (that may have appeared on television in Washington DC) making its position as a satire of UPS's white-board ads.


The future of this fight over FedEx Express's status, and the labor law under which it operates will depend upon action in the Senate on the FAA reauthorization bill and a possible House-Senate conference to follow. Aviation News has reported that further congressional actions is unlikely this year, so this fight will carry on into the 2nd session of the 111th Congress.

What this fight shows is that the RLA provides advantages to non-unionized firms in their effort to stop organizing efforts. As the employees of the Postal Service and UPS are both unionized, this advantage for management has little value to them. For these firms, preference for operating under the RLA, NLRA, or PRA would depend on whether they believe that the negotiating process under the RLA is better or worse than what they now have. Unions representing UPS and the Postal Service have to ask the same question.

Market-dominant airlines and railroads have had significant challenges adjusting labor contracts to fit new competitive environments and new transportation technologies under the RLA. This should caution management of market-dominant unionized firms facing a changing competitive landscape of using the RLA as a model for labor law in their industry. UPS and Postal Service unions should be equally cautious as less is known about how the RLA negotiation process may have helped or hurt airline and railroad employees dealing with an industry in transition.

Negotiating under the Railway Labor Act

In a recent post (Does Labor Law Matter for the USPS), this blog raised the point that the Postal Service, its labor unions, and other policymakers and stakeholders should think carefully about the potential impact of changing the Postal Service's labor law. One of the options that is available would have the Postal Service operate under the Railway Labor Act (RLA). The Airline Pilot's Association provides a detailed overview in question and answer format of bargaining under the RLA. It is presented below in its entirety. Readers interested in seeing all the questions in a list should follow the link the Airline Pilot's Association website.

What is the Railway Labor Act?
The Railway Labor Act of 1926 was the first major piece of labor legislation passed by Congress. Rather than applying to U.S. industry as a whole, the RLA applied to what was then the most critical piece of transportation infrastructure in the country – the railroads. The RLA was amended in 1936 to cover the emerging airline industry. At UPS, the mechanics, dispatchers, and pilots are the labor groups that are covered by the RLA.

What did Congress say was the primary purpose of the RLA?
Railroad management wanted to keep the trains moving by putting an end to “wildcat” strikes. Railroad workers wanted to make sure they had an opportunity to organize, be recognized as the exclusive bargaining agent in dealing with a company, negotiate new agreements and enforce existing ones. Both sides “won” with the passage of the RLA. Workers won the right to form unions, negotiate with the railroads and to have a grievance system imposed on the companies. The railroads won the right to keep commerce from being disrupted without going through a lengthy and complicated process.

Is the RLA the source of the “work now, grieve later” rule?
Yes. Congress decided that keeping commerce moving was vital to the public interest. As a result, Congress mandated that when disputes arise in the workplace, transportation workers covered by the RLA must “work now (i.e. transport the goods) and grieve later.” There are a few exceptions to this. Workers are not required to perform tasks that they reasonably believe to be unsafe. Workers are also not required to perform when the request is “clearly” a violation of the contract. (The courts have interpreted this to mean that if the company can make a reasonable claim that the contract justifies their request –regardless of whether they are right or wrong – then the employee should err on the side of performing the work, and grieving the incident later.)

What is the National Mediation Board?
The National Mediation Board is the federal agency created by the RLA to administer certain functions under the Act. The Board is primarily responsible for: (1) conducting union representational elections, and (2) supervising the mediation of contract negotiations. The Board is composed of three members appointed by the President. The law requires that at least one of the three members shall be from a political party other than that of the setting President. Currently, two Republicans and one Democratic comprise the NMB.

Who are the “mediators?”
The three presidential appointees who run the NMB employ a professional staff to assist them. Mediators are the staff members tasked by the Board with supervising the mediation of contract negotiations.

When do collective bargaining agreements expire under the RLA?
Under the RLA, agreements do not have expiration dates; instead they have amendable dates which are indicated within the agreement. IPA’s contract became amendable December 31, 2003. Until a mutually negotiated change is accepted by both parties to the agreement, the provisions of the original agreement remain in full force. This is commonly referred to as "status quo." Both the union and the company have a legal obligation to maintain the status quo until the process of the RLA has been fully exhausted.

How do parties initiate negotiations under the RLA?
The parties exchange notices of intent to change or amend the existing contract. These notices are referred to as "Section 6" notices. IPA and UPS have complied with this section by entering into a Letter of Agreement that provided for pre-amendable date negotiations and now post-amendable date negotiations.

What are "direct negotiations?"
Direct negotiation is the first step in contract negotiations under the RLA, during which the parties meet without the assistance of a NMB mediator. IPA has been in direct negotiations with UPS since October 2002 in the form of Interest Based Bargaining. Under our Letter of Agreement, these direct negotiations will continue until July 1, 2004. After that date, we will enter into mediation unless both IPA and UPS agree to extend the direct negotiations.

What is Interest Based Bargaining (IBB) and how does it relate to direct negotiations versus mediated talks?
IBB is simply a method of bargaining that is voluntary and offered by the NMB upon the request of the parties. IBB is a problem-solving method of negotiating which focuses on the common interests of the parties and finding mutually acceptable solutions to issues. A hallmark of IBB is a free flow of information exchange between the parties. A “facilitator” is appointed by the NMB to assist the parties in bargaining utilizing the IBB method. These services are made available to the parties based upon the NMB's resources and its judgment regarding the needs of the parties in each situation.

Will IPA and UPS continue with IBB when the negotiations move into mediation?
Maybe. If both sides request the continued use of IBB and the NMB agrees, then IBB could continue to be utilized for a portion, or all of, the mediated talks.

What happens if the parties cannot reach an agreement in direct negotiations?
If either party believes an agreement cannot be reached in direct negotiations that party can apply for mediation with the NMB. Upon application, the NMB will docket the application and assign a mediator to the case.

Can the parties file a joint mediation application?
Yes, parties may file jointly with the NMB for mediation services. If the parties jointly file, the NMB almost always immediately appoints a mediator. In our case, the LOA requires a joint application on July 1, 2004, which has been accepted.

What happens after the application is received by the NMB?
The application is first reviewed to ensure that it is completed properly, and if so, the case is then docketed.

How are mediators assigned to cases?
When an application for mediation is received, the Chief of Staff and Senior Mediators consult concerning case assignment. They consider a variety of factors, including individual work loads, mediator availability, schedules, desires of the parties, the history of a given mediator with the parties, mediator background, complexity of the case, and other factors.

What kind of background or experience do the NMB mediators have?
NMB mediators typically come from either labor or management backgrounds and have extensive labor relations experience in either the rail or airline industries.

During the mediation process, what is the role of the mediator?
The role of the mediator is to assist the parties with productive dialog on their issues. The mediator can and will use a variety of techniques to ensure this occurs.

Can the NMB determine where the parties will meet when they are in mediation?
The courts have held that the NMB has the authority to establish where the parties will meet while in mediation. Normally, however, the meeting site is mutually agreed upon among the parties and the mediator.

Can the NMB determine when and/or how often the parties will meet when they are in mediation?
Again, meetings are normally established by mutual agreement among the parties and the mediator, but during mediation the NMB does have the authority to dictate when the parties will meet, for how long they will meet, and when meetings will be recessed.

Does the NMB ever recess a case during mediation?
The NMB may recess a case for a variety of reasons. It might simply mean that either the parties or the mediator is not available for a period of time. It could also mean that the parties need time to think about their positions. Calling a recess is also a technique used by the NMB to put pressure on one, or both, parties to bring their proposals within a more reasonable range.

Instead of recessing a case, why doesn't the Board release the parties from mediation?
The RLA was designed to avoid strikes in the transportation industry that would substantially impact interstate commerce. In a typical year, the NMB mediates nearly 100 contract disputes in the rail and airline industries. If the NMB routinely released the parties from these disputes after only a few weeks or months of mediation, the public would be faced with 5 or 6 strike deadlines a month. This would be highly disruptive to the transportation system and contrary to the stated purpose of the RLA.

How long does mediation last?
There is no time limit for the mediation process. It can take just a few meetings, or several months, depending upon the complexity of the negotiations and many other factors unique to each contract negotiation. The NMB has the authority to decide when, and if, to end mediation. Under the RLA, the NMB ceases mediation efforts when it concludes that all reasonable efforts to reach a voluntary agreement through mediation have failed.

What is a "proffer of arbitration"?
When the NMB believes that further mediation efforts will not result in an agreement, it issues a proffer of arbitration, which is an offer to the parties to arbitrate any remaining issues.

Why doesn't the NMB make a proffer of arbitration when one of the parties asks for it?
Under the RLA, the NMB is responsible for making its best efforts to help the parties reach an agreement without resorting to self-help (e.g, lockout, strike). While it will listen to requests from the parties for a release, it is the NMB's responsibility to keep parties in mediation until it has expended all reasonable efforts to reach an agreement.

What happens if either party rejects the proffer of arbitration?
If either party rejects the proffer of arbitration, the NMB releases the parties from mediation and they enter a 30-day “cooling off,” or count down period.

What happens during the cooling off period?
During the 30-day cooling off period the NMB will normally call the parties back to the table for further discussions. While these talks can be called at any time during the 30-day time frame they are generally called at or near the end of the countdown period. These meetings are often referred to as "super mediation."

What if no agreement is reached during the 30-day cooling off period?
If no agreement is reached by the end of the 30-day cooling off period, the parties are free to exercise "self-help." This means that the carrier is free to impose its last offer, temporarily cease operations or engage in other self-help activity (e.g., hiring permanent replacements). The union is free to strike or engage in other self-help activity.

What is a “Presidential Emergency Board?”
During the 30-day cooling off period, the NMB makes a determination regarding the impact of a strike. Pursuant to Section 160 of the RLA, the NMB "notifies" the President that in its "judgment" the dispute between a carrier and its employees cannot be adjusted and "threaten[s] substantially to interrupt interstate commerce to a degree such as to deprive any section of the country of essential transportation service.” Once the President receives such notification, he may, "in his discretion, create a board to investigate and report on such dispute.” The NMB submits a recommended list of potential neutrals to the President. The PEB usually has 30-days to develop a proposed agreement and present that agreement to the parties for consideration. After the PEB delivers its proposed agreement, there is a further 30-day cooling off period.

What happens if either party rejects the PEB's proposed agreement?
If either party rejects the PEB's proposal, the parties may, after the second 30-day cooling off period, engage in self-help.

Is there any circumstance in which the parties are constrained from engaging in self-help after rejecting a PEB's proposal?
Yes. It is possible for Congress to intervene and legislatively mandate a settlement. If this is done, Congress most typically would simply take the recommendations of the PEB and write them into law. This would mean that a contract would be legislated by Congress and no strike or no membership ratification would be allowed.

FedEx Ground and Contract Drivers

FedEx won a major victory last week in its efforts to retain its current operating model at FedEx Ground. The Internal Revenue Service (IRS) dropped its tax assessments related to FedEx Grounds use of contract delivery drivers for the years 2004-2006. This follows a similar IRS decision for 2002. FedEx expects that the remaining assessments that it contests or 2007 and 2008 will be dropped as well.

The action by the IRS should remove any immediate threat at the federal level to FedEx Ground's use of 15,000 contract drivers. The IRS's actions do not affect suits brought by a number of state attorney generals that FedEx Ground's use of contractors violates state labor laws. (For more information see: Labor Problems at FedEx Ground.)

The state actions have potentially wider consequences as most local and regional parcel carriers, express companies, and couriers use a contractor model similar to FedEx. The trade association of these firms, the Messenger Courier Association of America (MCAA) has had the issue of contract drivers as one of their top policy issues for number of years. Their briefing paper details their position on the issue.

How Does Labor Law Matter for the USPS?

Currently the Postal Service operates under a unique labor law that is contained in the Postal Reorganization Act. This is in contrast to its competitors that operate under provisions of the Railway Labor Act (RLA) (e.g., Federal Express) and the National Labor Relations Act (NLRA) (e.g., UPS, printers, pre-sorters, etc.). There are numerous differences among the three laws that can be grouped into three major areas:

• How the laws affect the ability of employees to organize and form unions;
• The process of negotiating contracts including the ability of employees to strike, management to lock-out employees, and requirements for binding arbitration and other methods to prevent strikes and lock-outs; and
• The process of handling employee grievances.

United Parcel Service is unique among the major competitors in the United States courier, express and postal market in that they have unionized employees that fall under both the RLA (its pilots and aircraft mechanics) and NLRA (its delivery drivers, over-the-road drivers, and distribution center employees.) and that it negotiates with a single union (the Teamsters) regarding employees covered under the different laws. Learning about the preferences of UPS and the Teamsters in negotiating contracts and handling grievances under the two private sector labor laws could provide some guidance about what the impact would be on management and labor if the Postal Service's labor law was changed. (The issue of organizing a union is not an issue as UPS operate a unionized airline.)

The one question that looking at UPS's experience with the RLA and NLRA would not answer would be what would happen if a new business model gave Postal Service unions the right to strike and binding arbitration was not required. The binding arbitration provision was included because mail was considered an essential service and Congress did not want to introduce the right-to-strike to any group of federal workers.

Public transit is an example of another service for which work stoppages could harm the economic well being of the communities affected. Public transit workers fall under variations of the RLA, NLRA and postal-like labor laws that affect contract negotiations and the ability of unions to call a work-stoppage or management to lock-out employees.

Recent negotiations in Philadelphia with SEPTA and Washington DC with METRO illustrate how the different processes affect the communities involved and type of contract employees receive from an employer with limited financial resources and the impact that settlements have on transit fares. In Philadelphia, a contract was signed after transit workers struck for 6 days. In Washington, a contract was imposed in a binding arbitration process that does not allow for a strike. While the strike was unpleasant, and forced thousands of people to find alternative ways to get to work, school and other destinations, there does not appear to any long-term affect of the strike in Philadelphia. In both cities, increases in compensation costs in the new contracts and lower levels of ridership due to the economy will likely result in higher transit fares.

The upcoming postal labor contact negotiations will be coming within a postal market environment that is more difficult than what transit agencies now face. In fact, the market environment is probably more similar to what transit agencies and their predecessor companies faced from the late 1950's though the 1960's as Americans moved to suburbs and switched from public to automobile transportation for most personal trips. In both instances, the change in the competitive environment forces labor and management into negotiations regarding changes in long standing contract provisions and expectations about pay increases and employee benefits. Determining whether the current method of negotiating contracts or alternatives used by UPS ground, UPS aircraft mechanics public transit workers in Philadelphia or public transit workers in Washington DC would ease the process of concluding negotiations successfully with the least harm to the mail market is now worth considering.

Driving the Customer Away

The Postal Service has many problems not of its own making. What it doesn't need are postal employees creating new ones that could drive its largest customers away. Mary Ann Bennett provides a detailed illustration of how that is happening today.

In her article, Ms. Bennett details how postal inspectors are using data gained from the introduction of the Intelligent Mail Barcode (IMB) to identify mailers associated with mail that did not meet standards even though the mailers had followed all proper procedures to ensure that mailing lists were updated to include the most recent move updates provided by the Postal Service.

She noted that mailers targeted are initial adopters of the IMB. The IMB allows the inspectors to identify the sender of the mail. Late adopters of the IMB are not at risk because the Inspection Service cannot find them. Given that the problems with move update exists for both early and late adopters of IMB, the IMB makes finding problems with mailings as easy for the Inspection Service as shooting fish in a barrel.

Unfortunately for the Postal Service, the Inspection Service's actions ruins any effort the Postal Service makes to improve its relations with its largest mailers as it tries to make a major shift in addressing and barcoding requirements. Once they were investigated and fined by the inspection service, the mailers, which Ms. Bennett wrote about, redoubled their efforts to shift their communications from mail to electronic delivery. The net effect of the Inspection Service's efforts was a loss in business and revenue far greater than the revenue recovered in their audits.

In many ways, the situation that Ms. Bennett describes, reminds me of the problems in customer service that led to the bankruptcy of the Converse company. In the 1960's and early 1970's, Converse was the dominant athletic shoe company in the United States with two of the biggest names in shoes, Chuck Taylors, and Jack Purcells. Converse was the official shoe of the NBA and many colleges. Converse lost its position in that period for a number of reasons. Most importantly its key customers, stores that sold its shoes, found the company difficult to deal with and its upstart rivals Adidas and in particular Nike easy to work with.

A survey comparing every factor affecting customer satisfaction, including payment terms, easy of sale, attentiveness of the sales rep, return policies, shipping speed, order accuracy consistently showed that Converse made the retailers life more miserable than its competitors. Over time, shoe stores decided that value of sales from stocking Converse shoes was not worth the hassle of dealing with the Converse company. Converse sales dropped, it lost its lucrative relationship with the NBA and eventually went bankrupt. In bankruptcy, Converse was bought by Nike, the upstart that beat it by offering a competitive product that retailers wanted because of superior customer service.

The Postal Service needs to take a serious look at what its Postal Inspectors are doing. Otherwise, it could end up like Converse, bankrupt and looking for a buyer.