Friday, August 28, 2009

Should the Postal Service Close All Post Offices?

Note: This blog post contains my first attempt to include pictures and videos. If you are having trouble viewing the videos they are all on YouTube and can be found by searching DHL and either Packstation or paketbox. I would appreciate feedback on workarounds for readers behind corporate firewalls from the more technically minded to the problem that many are having viewing the videos. For those that cannot see the videos at work, multiple readers have indicated that the blog is readable through virtually all ISP's on home computers. Thank you for your understanding. I will remove this paragraph once a workaround is found.

The Postal Service created a major political storm by proposing to close less than 700 retail locations. In addition to forcing every member of Congress to deal with irate citizens and Postal employees, the Postal Service must go though a laborious regulatory and public outreach process to make a rather small tweak in its retail network.

Deutsche Post, the German post office has just proposed closing its remaining company owned post offices. Does this mean that there is no retail access to postal services? No, in fact Deutsche Post guarantees that every town with greater than 2,000 population have a postal retail facility and in urban areas, no customer would be more than 2 kilometers (1.24 miles) from a retail facility.

How does Deutsche Post do this?

1. Deutsche Post simplified its pricing structure for all letter and parcel products used by retail customers. The prices can be found on two Deutsche Post web pages.

Letters flats, and smaller light weight parcels

Parcels of any weight with size maximums beyond those set for parcels under 2 kilograms (4.4 pounds) with certain size maximums

Deutsche Post's price list for shipments of parcels of any size contains only seven different prices for shipments within Germany and only 20 different prices for shipments anyplace in the world. (If you look at the website, Deutsche Post uses the word "paket" for parcel and "p├Ąckchen" for small parcel.) It does this by nearly eliminating a customer's need to weigh the parcel that they are shipping. If a customer does not have the weigh a parcel to get a precise weight, they do not need a retail facility to weigh and price the shipment.

For domestic cards, letters, flats, and flat shaped parcels up to 2" thick there are five total rate levels . Besides the single rate for cards, there are four other rates: standard letters, heavy letters, standard flats and thick/heavy flats. Letters over 2 ounces are priced within one of the two flat categories.

For domestic parcels, customers only need to know the parcel's dimensions and whether the parcel weighs less than one of four weight band maximums. (Most parcels are handled by the DHL subsidiary.)

* 2 kilo (4.4 pounds) and no larger than 23.6" x 11.8" x 5.9" (60cm x 30 cm x15cm)
* 10 kilo (22 pounds) and no larger than 47.2" x 23.6" x 23.6" (120mm x 60mm x 60"
* 20 Kil0 (44 pounds) and no larger than 47.2" x 23.6" x 23.6" (120mm x 60mm x 60"
* 31.5 kilo (69 pounds) and no larger than 47.2" x 23.6" x 23.6" (120mm x 60mm x 60

For international parcel shipments, Deutsche Post has a pricing structure with a similar simple structure that has a total of 18 possible rates. Small parcels (parcels whose dimensions are such that width+ height+ length <= 35.5 inches) have two rates depending on whether they are destined within the European Union (EU) or the rest of the world. Larger parcels have rates within four weight-based price bands that are determined by destination country. Countries are grouped into four categories: the EU; rest of Europe; Middle East; and North America; and the rest of the world. For each country group, the weight based limits within each price bands are:

* 5 kilo (11 pounds)

* 10 kilo (22 pounds)

* 20 kilo (44 pounds)

* 30 kilo (66 pounds)

2.Deutsche Post contracts out all of its retail operations to either its former subsidiary, PostBank, independent providers of mail services or independent sellers of postage. Eliminating the need for precise mail weight simplifies the sale of postage. The simplicity of the transaction allows even the smallest kiosks and convenience stores can sell postage without the need for sophisticated point-of-sale terminals or revenue protection efforts that would be required with a more complicated tariff. Retailers can sell postage with the same level of effort they employ to sell scratch-off lottery tickets. By simplifying the product sold, Deutsche Post also simplifies the record-keeping, and security challenges with ensuring that non-corporate outlets do not pay for the postage sold, using models that work for lottery tickets and consignment items.

to the extent that weighing is necessary, a customer can go to an outlet that has a clerk that weighs the parcel. That is the service that the PostBank outlets can provide. However, the simplified tariff would allow a customer to go to an outlet that only sells stamps to buy the appropriate postage and determine the weight by using a scale the outlet provides for customer use, do the weighing themselves at home, or even just guess the weight prior to purchasing postage. The simplicity of the tariff allow individuals with limited training to determine the Deutsche Post postage stamp that would be appropriate for their letter, flat or parcel.

3.Deutsche Post has a significant technology program for self-service acceptance and delivery of parcels. They have developed two devices: paketboxes that can only accept parcels and packstations that can accept or delivery parcels. A simplified parcel tariff, on-line postage, and independent sellers of postage are clearly critical for the technology program to work. Paketboxes are larger version of the postal drop box and can be used for items that have postage already applied. Pictures on the web indicate that they are located in places not much different than where UPS or FedEx may have their drop boxes in the United States.

The video of the paketbox shows how it is used

Packstations are automated, large parcel lockers that can both collect and deliver parcels. They can deliver parcels to customers that are either not at home when the carrier arrives or for those customers that prefer to use the automated facility. They are located either in stand alone locations like cluster boxes in the United States or within buildings.

The following video shows how the packstation is used to accept parcels. (The process starts at the 20 second mark.)

The following video, most likely created by eBay and Deutsche Post, illustrates not only the use of a paketbox to tender a parcel and a packstation to pick up the parcel but the entire sortation process for parcels. The use of the paketbox by a customer and a Deutsche Post employee can be seen around 40 seconds from the beginning and the use of of the packstation can be seen at the 8 minute mark. All filming appear to have been done at PostBank or DHL facilities.

Could this be duplicated in the United States? Absolutely, but traditional thinking, regulatory processes and financial impediments prevent the Postal Service from doing so.

Traditional thinking prevents the simplification of the mail prices for retail customers to the extent that Deutsche Post has. The traditional approach to postal costing is to develop detailed tariffs with different rates for every characteristic of the item to be delivered that affects its costs. Shape based rates reflect a rationalization of this approach but did not change the complicated traditional weight and distance based tariff significantly. The Postal Service has two products that take a non-traditional approach to pricing: Express Mail envelopes and Priority Mail flat-rate boxes. The forever stamp is an example of a non-traditional way of selling postage for letters. While the market has shown that the success of these products in the retail market, traditional thinking prevent using these successes to expand the simplification of prices for retail customers.

Regulatory processes act to protect existing service locations, ways of serving customers and rate relationships. Changing to a simplified, self-service model would change where postal services are bought and parcels are tendered and would require abandoning any linkage between rates charged to retail customers and business customers of the Postal Service. By moving toward a simplified, self-service model, most traditional post offices would be unnecessary except to protect the jobs of existing employees and the social benefits that they now provide. As the current controversy over closing less than 1,000 post offices shows, both postal employees and citizens seeing changes in cherished routines are quite effective in making their interests known to Congress and the PRC. Similarly, de-linking the rate relationships between retail and business customers of the Postal Service would require overturning nearly forty years of regulatory precedent that has tried to balance the share of overhead that these two types of customers should bear, let alone how the overhead costs should be born among the various types of business customers. De-linking rates charged to retail and business customers would put the PRC in the uncharted territory of choosing market based rates over cost model based rates. The rulemaking on workshare discounts illustrates how wedded customers are to the regulator process, the concept that historical rate relationships matter, and the search for cost theories that would justify new rates and a regulator set advantage over competitors or the Postal Service. Weaning customers off of PRC protection and de-linking the prices of retail and business customers could create a ruckus just as loud as what now exists for closing a few post offices.

The Postal Service weak financial position and near-total lack of capital financing options leave a real retail restructuring beyond the reach of Postal Management. Over the next two years, the Postal Service does not have the cash to pay all of its mandated obligations for retiree benefits and will use most of an expanded borrowing capability to just cover operating losses. The financial requirements of a program that is the magnitude of what Deutsche Post did would dwarf the Postal Service's investment in Automated Postal Centers and would also have to deal with start-up costs of restructuring the concept of retail and covering costs of excessing both employees and facilities. Postal management position is not much different that scene in many Christmas movies where poor children can see the toys in store window but have no hope of seeing them under the tree.

Eliminating all post offices, therefore, is just a fantasy. Unfortunately, so is developing a modern customer-focused model for serving the Postal Service's retail customers.


Anonymous said...

Lets see all of Germany is the size of Arkansas? The German post office also lets you pay phone, electic bills,and other govermental and civic type transactions. What about communities less than 2000. There is no comparison between the USPS and any other postal administration. Like any other service of government we should not worry about making a profit and worry about getting mail serviced and delivered. The bosses in the USPS do not have a clue.

Anonymous said...

Postal Service does not have the cash to pay all of its mandated obligations for retiree benefits and will use most of an expanded borrowing capability to just cover operating losses.

This statement is only true because Congress passed laws to make this mandatory. If post office didn't have to do this; post office had a profit this year.

It is silly to thing what they do in Germany will work here. That is problem of post office. People who don't know thinking that since do it, it will work here.

get a clue