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.
Monday, November 9, 2009
Job Cuts or Wage Cuts
According to Hellmail, TNT, the Netherlands postal operator, and its unions are expected to agree to a new offer for its contract soon. The agreement results in pay cuts of between 2 and 3.5% and layoffs of less than 1,000 employees. Much of the pay cuts will come from a proposed reduction in Sunday pay.
Prior to the agreement TNT had placed on the table the possibility of laying off 11,000 employees. This proposal was made after the Union had rejected a 15% pay cut in March, 2009.
The driver behind the contentious negotiations is the rapid drop in mail volumes at TNT. TNT like all postal operators have been hurt by both a severe recession and declining demand due to electronic competition.
TNT's contract may present a framework for upcoming negotiations that the United States Postal Service have with their unions. The Postal Service faces similar economic and competitive challenges to what drove TNT to offer sizable pay cuts, threaten massive layoffs and eventually agree to modest layoffs and small cuts in pay.
The Postal Service differs in that it has not previously made as extensive an effort to streamline and optimize its network and has less flexibility in the use of full-time and part-time employees. Therefore it enters the upcoming round of labor negotiations needing significantly more contract changes that what TNT was willing to accept. Without binding arbitration, the US postal unions and the Postal Service, just like TNT and its unions, would have to make the choice between cutting jobs and cutting real compensation levels.
With binding arbitration, the outcome is less certain. However, given the difficulty of selling eliminating long-standing contract provisions to their members, postal unions and the Postal Service are likely heading toward an arbitrated contract agreement where an arbitrator will be asked to make the choice between jobs and compensation.
Prior to the agreement TNT had placed on the table the possibility of laying off 11,000 employees. This proposal was made after the Union had rejected a 15% pay cut in March, 2009.
The driver behind the contentious negotiations is the rapid drop in mail volumes at TNT. TNT like all postal operators have been hurt by both a severe recession and declining demand due to electronic competition.
TNT's contract may present a framework for upcoming negotiations that the United States Postal Service have with their unions. The Postal Service faces similar economic and competitive challenges to what drove TNT to offer sizable pay cuts, threaten massive layoffs and eventually agree to modest layoffs and small cuts in pay.
The Postal Service differs in that it has not previously made as extensive an effort to streamline and optimize its network and has less flexibility in the use of full-time and part-time employees. Therefore it enters the upcoming round of labor negotiations needing significantly more contract changes that what TNT was willing to accept. Without binding arbitration, the US postal unions and the Postal Service, just like TNT and its unions, would have to make the choice between cutting jobs and cutting real compensation levels.
With binding arbitration, the outcome is less certain. However, given the difficulty of selling eliminating long-standing contract provisions to their members, postal unions and the Postal Service are likely heading toward an arbitrated contract agreement where an arbitrator will be asked to make the choice between jobs and compensation.
Sunday, November 8, 2009
150 plants and 400,000 employees
On November 5th, former Deputy Postmaster General Michael Caughlin suggested that the Postal Service in order to survive must have a much smaller footprint with possibly 150 plants and 400,000 employees. He made his remark in response to a question of Representative Danny Davis at the hearing of the Federal Workforce, Postal Service and the District of Columbia Subcommittee of the House Committee on Oversight and Government Reform.
While the hearing was about potential sources of new revenue, the question and the answer suggested that revenue generating options suggested by the panel will not generate the $3-5 billion in additional revenue that the Postal Service will need to be truly a viable enterprise. His answer further suggested that the Postal Service's current approach to cutting costs, while more effective than they have been in the past does not do enough to shrink the operating network down to either current levels of demand or even lower levels that are expected in the years to come.
Given former DPMG Caughlin's experience, his response should be a considered a serious hypothesis about what a true redesign of the Postal Service would look like. His response raises an important question that opponents of shrinking the network will raise. Can the Postal Service maintain service levels if the network of processing plants shrinks to less than half of its current size?
To answer that question in the affirmative, and it can be answered that way, requires a major rethinking of the design of processing and transportation networks. If the Postal Service was to shrink to 150 processing facilities, two thinks would clearly change, the distance (and travel time) between processing facilities and delivery units would grow, and the time that mail is handled within each of the facilities must shrink.
For example, if the originating and potentially delivery facility moves from 10 miles to 90 miles from the delivery unit, then the time available for processing originating mail from open dump and cull to delivery point sequencing drops by 4 hours, assuming an average travel speed of 40 miles per hour. Fewer processing facilities means that facilities will be further apart, so critical dispatch times will likely be earlier to ensure on-time arrival.
Therefore the primary driver of 150 facility network would involve designing a facility that can handle turn-around times half of what they are today. Lower volume levels aid in cutting total sortation time. But new thinking about the use of automation and material handling systems must focus on reducing time as much as labor expenses. The 150 facility network would likely require larger facilities on average that can handle all of the sortation and material handling equipment that would be needed to cut handling time within each processing facility.
The 150 facility network would also require removing two key assumptions that drive all current network modeling. 1) Existing facilities must be used. The 150 facility network will likely have major processing facilities in locations further from population centers than current plants, with locations driven by access to the interstate highway system or major air facilities. It is possible that larger urban centers will retain some DPS sortation but only if it reduces total handling time. 2) The standard work shift within a plant is eight hours. The 150 facility network will likely have work for no more than 1 full time and 1 part time work shift. To the extent that DPS sortation remains close to delivery units, then that shift will likely also be part time. The proportion of full-time jobs could rise if divisions between crafts and all restrictions that prevent a person from having two different "jobs" within eight hours were eliminated.
The shift to a smaller network could have some significant management benefits. A smaller network is simpler to manage. While every node must operate as precisely as the finest Swiss watch, controlling variations from best practices would take less time to implement. Reducing time in plants requires a 6-Sigma, zero-defects, or whatever the current buzz-word is for eliminating errors that increase time and costs can be more quickly implemented in 150 facilities than in 350.
The shift to a network that is as much focused on reducing in-plant time reflects current mailer demand to both improve mail delivery reliability and reduce the time it takes to turn an idea into a delivery. Most importantly, the Postal Service has to be as reliable as e-mail when it promises a delivery date for all of its advertising customers to ensure that their direct mail campaign most effectively complements their broadcast, e-mail or Internet display advertising campaign.
There is one major drawback to implementing a 150 plant Postal Service, which is greater than the logistical and management challenge of shrinking the network; the elimination of 200,000 postal jobs at a rate between 20,000 and 40,000 per year in an implementation plan. Shrinking the network at that rate would create a far louder political outcry than even the first round of base closings. Shrinking the network at that rate would also create significant severance or early retirement costs and the Postal Service does not have the cash to pay them.
So this leads one back to Representative Davis's implied question: Can the Postal Service be saved? DPMG Caughlin's response illustrates that saving the Postal Service will require serious and unpleasant steps. The scale of the change that he suggests, as well as the limitations of revenue generating ideas of all stakeholders, should force Congress to think more boldly as they try to find a new business model and regulatory framework that can save the Postal Service.
While the hearing was about potential sources of new revenue, the question and the answer suggested that revenue generating options suggested by the panel will not generate the $3-5 billion in additional revenue that the Postal Service will need to be truly a viable enterprise. His answer further suggested that the Postal Service's current approach to cutting costs, while more effective than they have been in the past does not do enough to shrink the operating network down to either current levels of demand or even lower levels that are expected in the years to come.
Given former DPMG Caughlin's experience, his response should be a considered a serious hypothesis about what a true redesign of the Postal Service would look like. His response raises an important question that opponents of shrinking the network will raise. Can the Postal Service maintain service levels if the network of processing plants shrinks to less than half of its current size?
To answer that question in the affirmative, and it can be answered that way, requires a major rethinking of the design of processing and transportation networks. If the Postal Service was to shrink to 150 processing facilities, two thinks would clearly change, the distance (and travel time) between processing facilities and delivery units would grow, and the time that mail is handled within each of the facilities must shrink.
For example, if the originating and potentially delivery facility moves from 10 miles to 90 miles from the delivery unit, then the time available for processing originating mail from open dump and cull to delivery point sequencing drops by 4 hours, assuming an average travel speed of 40 miles per hour. Fewer processing facilities means that facilities will be further apart, so critical dispatch times will likely be earlier to ensure on-time arrival.
Therefore the primary driver of 150 facility network would involve designing a facility that can handle turn-around times half of what they are today. Lower volume levels aid in cutting total sortation time. But new thinking about the use of automation and material handling systems must focus on reducing time as much as labor expenses. The 150 facility network would likely require larger facilities on average that can handle all of the sortation and material handling equipment that would be needed to cut handling time within each processing facility.
The 150 facility network would also require removing two key assumptions that drive all current network modeling. 1) Existing facilities must be used. The 150 facility network will likely have major processing facilities in locations further from population centers than current plants, with locations driven by access to the interstate highway system or major air facilities. It is possible that larger urban centers will retain some DPS sortation but only if it reduces total handling time. 2) The standard work shift within a plant is eight hours. The 150 facility network will likely have work for no more than 1 full time and 1 part time work shift. To the extent that DPS sortation remains close to delivery units, then that shift will likely also be part time. The proportion of full-time jobs could rise if divisions between crafts and all restrictions that prevent a person from having two different "jobs" within eight hours were eliminated.
The shift to a smaller network could have some significant management benefits. A smaller network is simpler to manage. While every node must operate as precisely as the finest Swiss watch, controlling variations from best practices would take less time to implement. Reducing time in plants requires a 6-Sigma, zero-defects, or whatever the current buzz-word is for eliminating errors that increase time and costs can be more quickly implemented in 150 facilities than in 350.
The shift to a network that is as much focused on reducing in-plant time reflects current mailer demand to both improve mail delivery reliability and reduce the time it takes to turn an idea into a delivery. Most importantly, the Postal Service has to be as reliable as e-mail when it promises a delivery date for all of its advertising customers to ensure that their direct mail campaign most effectively complements their broadcast, e-mail or Internet display advertising campaign.
There is one major drawback to implementing a 150 plant Postal Service, which is greater than the logistical and management challenge of shrinking the network; the elimination of 200,000 postal jobs at a rate between 20,000 and 40,000 per year in an implementation plan. Shrinking the network at that rate would create a far louder political outcry than even the first round of base closings. Shrinking the network at that rate would also create significant severance or early retirement costs and the Postal Service does not have the cash to pay them.
So this leads one back to Representative Davis's implied question: Can the Postal Service be saved? DPMG Caughlin's response illustrates that saving the Postal Service will require serious and unpleasant steps. The scale of the change that he suggests, as well as the limitations of revenue generating ideas of all stakeholders, should force Congress to think more boldly as they try to find a new business model and regulatory framework that can save the Postal Service.
Wednesday, November 4, 2009
The Future of the Postal Sector
Besides my presentation, the rest of the program is packed with speakers that should initiate the coming debate on future business models for the Postal Service. The topics cover viewpoints from many stakeholders, academics, comparable industries and should give attendees a good understanding of the challenges that the Postal Service faces in the years ahead. The workshop will cost $390 for those in the private sector and $200 for government and postal employees. To register follow contact the Center for Research in Regulated Industries. (The link is to the registration form.) The entire agenda is as follows:
Welcoming Remarks - Ruth Goldway, Chairman, Postal Regulatory Commission
The Future of the Postal Sector: the Elephant in the Room - Michael Crew, CRRI Professor of Regulatory Economic and Director – CRRI -
New Business Models for Tough Problems - Alan Robinson, President, Direct Communications Group
Lessons of the Great Recession from Electric Utilities - John Caldwell, Chief Economist, Edison Electric Institute
Operational Responses to Mail Volume Declines - Patrick R. Donahoe, Deputy Postmaster General and Chief Operating Officer, United States Postal
Service
The Future of USPS from a Union‟s Perspective - Fred Rolando, President, National Letter Carriers Association
USPS in Good Times and Bad: Results from an Aggregate Economic Model - William Miller, Economist, Postal Regulatory Commission
The History of Tomorrow - David C. Williams, Inspector General, Office of Inspector General, United States Postal Service
The Voice of the Customer - Jody Berenblatt, SVP Global Postal Strategy and Enterprise Operations, Bank of America
Public/Private Relationships – Creating a Successful Postal Alliance - Carl W. Asmus, Vice President – International Market Development, FedEx Service
Optimal Value-Added Discounts in the Future of the Postal Service - Paul Vogel, Deloitte and Touche
Managing Declining Demand: Lessons from the Railroads - David Levy, Partner, Venable LLP, and Matthew Field, Associate, Venable LLP
The Future of the Postal Service: Mail and Environment
Larry Buc, President, SLS Consulting, Inc.
Future Business Model for USPS - Mary Anne Gibbons and Linda Kingsley, Senior Vice Presidents, General Counsel and Strategic
Planning, United States Postal Service
Q&A/Concluding Discussion - Michael Crew
Welcoming Remarks - Ruth Goldway, Chairman, Postal Regulatory Commission
The Future of the Postal Sector: the Elephant in the Room - Michael Crew, CRRI Professor of Regulatory Economic and Director – CRRI -
New Business Models for Tough Problems - Alan Robinson, President, Direct Communications Group
Lessons of the Great Recession from Electric Utilities - John Caldwell, Chief Economist, Edison Electric Institute
Operational Responses to Mail Volume Declines - Patrick R. Donahoe, Deputy Postmaster General and Chief Operating Officer, United States Postal
Service
The Future of USPS from a Union‟s Perspective - Fred Rolando, President, National Letter Carriers Association
USPS in Good Times and Bad: Results from an Aggregate Economic Model - William Miller, Economist, Postal Regulatory Commission
The History of Tomorrow - David C. Williams, Inspector General, Office of Inspector General, United States Postal Service
The Voice of the Customer - Jody Berenblatt, SVP Global Postal Strategy and Enterprise Operations, Bank of America
Public/Private Relationships – Creating a Successful Postal Alliance - Carl W. Asmus, Vice President – International Market Development, FedEx Service
Optimal Value-Added Discounts in the Future of the Postal Service - Paul Vogel, Deloitte and Touche
Managing Declining Demand: Lessons from the Railroads - David Levy, Partner, Venable LLP, and Matthew Field, Associate, Venable LLP
The Future of the Postal Service: Mail and Environment
Larry Buc, President, SLS Consulting, Inc.
Future Business Model for USPS - Mary Anne Gibbons and Linda Kingsley, Senior Vice Presidents, General Counsel and Strategic
Planning, United States Postal Service
Q&A/Concluding Discussion - Michael Crew
Eight Challenges for a Postal Business Model
The recent economic challenges have forced nearly every country to rethink its national postal operator's business model and the regulatory framework within which the national postal operator must conduct business. On November 20th, I will be making a presentation at a workshop on the Future of the Postal Sector that will
- detail these challenges,
- illustrate how various postal operators and other entities have dealt with these challenges, and
- identify and critique potential business models that may be chosen for a national postal operator.
- Maintaining Mail’s Importance to the Economy – The mail industry is responsible for over eight million jobs and $800 billion in economic activity. The business model can accelerate or retard economic growth depending on how well it serves customers that need mail delivery.
- Minimizing Financial Risks to the Federal Treasury – At the end of the third quarter of 2009, the Postal Service’s obligation to the Treasury for debt, retiree health benefits and workers compensation payments is $ 72.7 billion.
- Ensuring Financial Self Sufficiency – Since the passage of the Postal Reorganization Act, financial self sufficiency has been an objective of postal policy but was never defined much beyond the concept of accounting break even. While the Postal Accountability and Enhancement Act (PAEA) has as its objective that revenue and retained earnings of the Postal Service should be sufficient to endure financial stability, the current operating losses and limited cash reserves suggest that the Postal Service faces a significant challenge of being truly self sufficient.
- Adjusting to New Market Realities Serving Wholesale Customers – With the decline of the Postal Service’s business handling transactions and correspondence, both the Postal Service’s ability to provide universal service and its financial viability will depend upon meeting the service needs of its wholesale customers that send 500 or mail pieces at a time and will in the future generate more than 70% of revenue and 80% of the volume that the Postal Service handles.
- Adjusting to New Market Realities Serving Retail Customers – Over the next decade the Postal Service will see demand from retail customers declining below the 30% of revenue it is today. Adjusting the retail interface and operating network serving these customers creates significant financial, operating and political challenges.
- Adjusting Operating Costs to New Competitive Realities – The market realities of serving postal customers requires a leaner processing and transportation network that matches the demand for mail service and a modernized retail network that provides better access at a lower cost.
- Funding Transition and Modernization Costs – Rationalizing Postal Service operations to reflect new market realities in wholesale and retail markets will require substantial cash outlays to cover the costs of right-sizing the network and workforce, modernizing the retail network and optimizing the processing network. The business model must find ways to raise this cash when operating losses, retiree health care payment schedules, and debt to cover prior-year losses provide few options
- Creating a Workforce for the Long Term – The new market realities and the operating and retail networks that serve them can provide good jobs for postal employees. However, the existing civil service based employment law framework, labor agreements and consultative requirements with management associations all reflect significantly different market and operating realities and the labor-management environment that existed four decades ago. Furthermore, the existing employment compact provides employees from top to bottom few rewards for dealing with the pain associated with transitioning to new market realities.
Saturday, October 31, 2009
Pricing Volume Mail
In my last post, President Burrus' Dilemma, I created significant concerns among mailers that my proposal to the APWU supported their idea to eliminate worksharing. Anyone proposing increasing rates 25% on the Postal Service's best customers in an environment where mail, and in particular First Class mail is at a real price disadvantage with electronic competitors is arguing for organizational suicide.
What I was trying to do was suggest that if the APWU wanted to make a proposal to handle mail now sorted by the private sector that would offer a better value to the Postal Service's customers, I would be glad to help. Given the current economic and competitive landscape, any APWU proposal would have to offer postal customers a better value or preparing such a proposal would be a waste of time and energy.
I would like to use this post to clarify my thinking on pricing volume mail to give my readers a better understanding of how difficult APWU's task of designing a product that offers a better value really is.
The Postal Service's rate structure is complicated and the use of worksharing discounts further complicates thinking about pricing. The primary problem is the word "discount." It suggests that the customer is getting a deal when in fact they are buying a more basic product from the postal service for a lower price. It also suggests that single-piece customers and volume customers are part of the same market for mail and that single piece prices are a real alternative for volume customers.
The alternative way of thinking of postal rates is to start with the basic service as the basis for all pricing. To how this alternative would work, below are two price charts listing prices as they are currently shown and the alternative bottom up alternative.
Current First Class 1 ounce rates table
In looking at the above list, the product that provides the largest margin is unbarcoded volume mail. The Postal Service charges 7.9 cents to barcode and sort this mail. Mailers have the choice of finding a presorters who will do it for less than that. The highest price the Postal Service could charge these mailers would be what the private sector charges for similar services. This is likely to be much less than the 7.9 cents the Postal Service now charges for this service. Assuming that the private sector charges half of the difference to cover their costs and profits, then the Postal Service could not charge more than 3.95 cents to compete. This is a lot less than the 10.4 cents that President Burrus offered in his challenge to mailers, and is why his response, while possibly appealing to his members was non-responsive to Senator McCaskill.
What this exercise further illustrates is why such a proposal could not be accomplished within the current regulatory structure or with the current business model. Allowing the Postal Service to truly compete would require some major changes. These include:
What I was trying to do was suggest that if the APWU wanted to make a proposal to handle mail now sorted by the private sector that would offer a better value to the Postal Service's customers, I would be glad to help. Given the current economic and competitive landscape, any APWU proposal would have to offer postal customers a better value or preparing such a proposal would be a waste of time and energy.
I would like to use this post to clarify my thinking on pricing volume mail to give my readers a better understanding of how difficult APWU's task of designing a product that offers a better value really is.
The Postal Service's rate structure is complicated and the use of worksharing discounts further complicates thinking about pricing. The primary problem is the word "discount." It suggests that the customer is getting a deal when in fact they are buying a more basic product from the postal service for a lower price. It also suggests that single-piece customers and volume customers are part of the same market for mail and that single piece prices are a real alternative for volume customers.
The alternative way of thinking of postal rates is to start with the basic service as the basis for all pricing. To how this alternative would work, below are two price charts listing prices as they are currently shown and the alternative bottom up alternative.
Current First Class 1 ounce rates table
- 150 pieces of barcoded mail sorted to the same 5- digit zip code - $0.335
- 150 pieces of barcoded mail sorted to the same 3- digit zip code - $0.357
- 150 pieces of barcoded mail sorted to the same distribution center - $0.360
- Barcoded mail that is unsorted (the residual rate) - $0.382
- Unbarcoded volume mail - $0.414
- Single piece mail (shown for comparison purposes) - $0.440
- 150 pieces of barcoded mail sorted to the same 5- digit zip code - $0.335
- Sorting 3-digit sorted mail to the 5-digit zip code - $0.022
- Sorting distribution center sorted mail to the 5-digit zip code - $0.025
- Sorting unsorted barcoded to the 5-digit zip code - $0.047
- Barcoding unbarcoded volume mail and sorting to the 5-digit zip code - $0.079
In looking at the above list, the product that provides the largest margin is unbarcoded volume mail. The Postal Service charges 7.9 cents to barcode and sort this mail. Mailers have the choice of finding a presorters who will do it for less than that. The highest price the Postal Service could charge these mailers would be what the private sector charges for similar services. This is likely to be much less than the 7.9 cents the Postal Service now charges for this service. Assuming that the private sector charges half of the difference to cover their costs and profits, then the Postal Service could not charge more than 3.95 cents to compete. This is a lot less than the 10.4 cents that President Burrus offered in his challenge to mailers, and is why his response, while possibly appealing to his members was non-responsive to Senator McCaskill.
What this exercise further illustrates is why such a proposal could not be accomplished within the current regulatory structure or with the current business model. Allowing the Postal Service to truly compete would require some major changes. These include:
- Basing all volume prices on the price for the product that involves the least amount of Postal Activity. All other products could be purchased as options. For standard mail, finely sorted mail drop shipped to the lowest practical level would be the basis upon which all prices are based.
- Removing all links between single piece rates and volume rates. This approach requires treating single-piece and volume products as separate markets with totally different approaches to product pricing.
- Allowing volume based rates. By offering rates bases on the volume of individual mailings and total annual mailing volumes, the Postal Service could offer prices that reflect the impact that volume has on business relationship costs. This is similar to volume requirements for sale rates but differs in that there is no requirement for marginal increases in volumes. Volume based rates are a requirement for contract rates to provide additional handling at prices below list.
- Allowing private contract rates. In order for the Postal Service to compete with private sector firms offering sortation or other mail handling services, those prices should reflect local competition for these services. The published rates for providing additional handling services would reflect rate that any volume customer could get without negotiations. In this way, the Postal Service would offer its services to corporate customers in the same manner that its private sector competitors do.
- Specific financial self-sufficiency/profit objectives. The Postal Service cannot have the authority to offer contract rates that differ from published rates without a requirement that prevents it from offering prices below not only costs but below costs plus a reasonable margin. At a minimum it must be subject to the same profit discipline of its private sector competitors.
Friday, October 30, 2009
President Burrus's Dilemma
In August, APWU President William Burrus was asked by Democratic Senator Claire McCaskill to identify "the substantial steps the APWU is willing to take to assist the Postal Service in weathering its severe financial crisis? In crafting a response, he was faced with a dilemma: how does the APWU appear responsive without proposing anything that will affect upcoming contract negotiations with the Postal Service?
He could not offer any response that required changes in contract provisions as that would put the APWU in a weakened bargaining position even before negotiations have started. Instead he repeated his challenge to mailers and the Postal Service: "The American Postal Workers Union has challenged the postmaster general to discontinue the excessive discounts the USPS offers to large mailers, and instead to compensate postal employees for processing letters and flats at a cheaper per-piece rate. This would reduce the Postal Service’s costs; improve efficiency, and make better use of underutilized equipment and employees. As an added incentive, we propose to process parcels at no charge." (Answer to question 1, third paragraph) Unfortunately for the APWU, President Burrus's response will not appear to be responsive to Congress.
The Dead Tree Edition has clearly laid out the case that Postal Customers will make in refuting President Burrus's proposal in its post, "Mathematically Challenged Burrus Proposal Doesn't Add Up For USPS." Mailers look at President Burrus's proposal only as a significant increase in rates. The greatest increase would be born by those mailers that currently can sort mail while they print. These mailers are mostly likely now paying on average 35.1 cents for First Class mail. For these mailers, President Burrus's proposal represents a 25% increase in postage prices without changing the work that either the Postal Service or the mailer performs. Even the least business savvy member of Congress will understand that raising postage prices by 25% for a major group of customers will drive business away and make the current financial difficulties even worse.
President Burrus's proposal does provide the framework for developing postal products that will both make mail more attractive to some customers and provide jobs for unionized postal workers. These products would serve those customers that cannot sort mail while they print, or cannot sort mail while they print with sufficient density to pay the lowest postage rate the Postal Service offers. His proposal states suggests that the APWU would support the development of products for mailers that produce mail in quantity that requires physical sortation prior to delivery sequencing at rates less than the full letter rate of $0.44. Given that his first proposal of 43.9 cents is unlikely to have any takers among postal customers, President Burrus and his staff at the APWU has to come up with a more realistic price to sort mail currently physically sorted by private sector firms.
In a previous post, "Could the USPS Turn a Jobless Recovery into a Job Full Recovery?", this blog laid out the basic parameters of such a product. If the APWU, or for that matter any other postal union, is serious about competing for the physical sortation of mail now sorted in the private sector, they could contact me at the e-mail listed on this page and I would be glad to assist them in putting together a proposal that they can take to the Postal Service and eventually the Postal Regulatory Commission that would secure more jobs for postal union members.
This post created some consternation among postal stakeholders. A subsequent post, Pricing Volume Mail, clarifies the challenge of developing a product to compete with private sector sortation of mail.
He could not offer any response that required changes in contract provisions as that would put the APWU in a weakened bargaining position even before negotiations have started. Instead he repeated his challenge to mailers and the Postal Service: "The American Postal Workers Union has challenged the postmaster general to discontinue the excessive discounts the USPS offers to large mailers, and instead to compensate postal employees for processing letters and flats at a cheaper per-piece rate. This would reduce the Postal Service’s costs; improve efficiency, and make better use of underutilized equipment and employees. As an added incentive, we propose to process parcels at no charge." (Answer to question 1, third paragraph) Unfortunately for the APWU, President Burrus's response will not appear to be responsive to Congress.
The Dead Tree Edition has clearly laid out the case that Postal Customers will make in refuting President Burrus's proposal in its post, "Mathematically Challenged Burrus Proposal Doesn't Add Up For USPS." Mailers look at President Burrus's proposal only as a significant increase in rates. The greatest increase would be born by those mailers that currently can sort mail while they print. These mailers are mostly likely now paying on average 35.1 cents for First Class mail. For these mailers, President Burrus's proposal represents a 25% increase in postage prices without changing the work that either the Postal Service or the mailer performs. Even the least business savvy member of Congress will understand that raising postage prices by 25% for a major group of customers will drive business away and make the current financial difficulties even worse.
President Burrus's proposal does provide the framework for developing postal products that will both make mail more attractive to some customers and provide jobs for unionized postal workers. These products would serve those customers that cannot sort mail while they print, or cannot sort mail while they print with sufficient density to pay the lowest postage rate the Postal Service offers. His proposal states suggests that the APWU would support the development of products for mailers that produce mail in quantity that requires physical sortation prior to delivery sequencing at rates less than the full letter rate of $0.44. Given that his first proposal of 43.9 cents is unlikely to have any takers among postal customers, President Burrus and his staff at the APWU has to come up with a more realistic price to sort mail currently physically sorted by private sector firms.
In a previous post, "Could the USPS Turn a Jobless Recovery into a Job Full Recovery?", this blog laid out the basic parameters of such a product. If the APWU, or for that matter any other postal union, is serious about competing for the physical sortation of mail now sorted in the private sector, they could contact me at the e-mail listed on this page and I would be glad to assist them in putting together a proposal that they can take to the Postal Service and eventually the Postal Regulatory Commission that would secure more jobs for postal union members.
This post created some consternation among postal stakeholders. A subsequent post, Pricing Volume Mail, clarifies the challenge of developing a product to compete with private sector sortation of mail.
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