The old compact includes four parameters:
- career long employment without the threat of layoffs;
- full-time jobs for all craft employees;
- explicit barriers between crafts;
- civil-service based employment law, compensation and hiring and dismissal processes.
The old compact held as long as strong customer demand and normal employee attrition allowed management to incorporate limited efforts to optimize the network and introduce automation at rates that would not require adjustments to the compact and still keep postal product prices at levels acceptable to both large volume and single piece customers. (In this context, acceptable is used in a manner similar to the idea that lines at the department of motor vehicles are acceptable.)
Also, national postal operators, operating within a monopoly and regulatory and policy constraints had little pressure to move postal prices from acceptable to competitive levels. Nor did they did do all of the research necessary to understand what makes its prices and services levels competitive for specific market segments (retailers, banks, insurance companies, local real estate agents, etc.) and so even if they felt the desire to offer a more competitive product as such information was considered unnecessary for designing and pricing products within the existing regulatory structure.
An alternative more-efficient, more-flexible employment compact was well known to policymakers and both postal management and union leaders. That compact, first employed by United Parcel Service (UPS) in the late 1960's as it expanded its parcel delivery network nationwide involved using mostly part-time workers to sort and load parcels and full-time workers to deliver them. While all of UPS's drivers and sortation center employees were unionized Teamsters, UPS retained great flexibility in its union agreements to adjust its workforce to both optimize employee time and adjust the total workforce as demand changed.
The compact was designed around the idea that the fastest way to move parcels by ground minimized the amount of time that parcels spent in any facility. The flexibility imbedded in its union contracts that allowed UPS to continually optimize employee time and adjust workforce size reflected the fact that the parcel delivery market was highly sensitive to economic cycles. Using lots of part time employees, and later fully automated facilities, UPS limited the number of sortation centers while continuing to provide better service at lower prices than either Railway Package Express or the Postal Office Department could at that time.
UPS has maintained its employment compact until today. The expansion of FedEx Ground nationwide stressed the compact by adding the complication of price and service competition. Competition required that UPS redouble its employee optimization, plant modernization, information system modernization efforts in order to reduce the labor component of delivering parcels. However, competition did not break the flexible framework that UPS created in the 1960's. UPS has had to bend somewhat in its mix of full and part-time jobs but still over 50% of UPS employees are part-time. UPS has changed its pension benefits for one-third of its full-time employees by withdrawing from the Central States Pension Plan but in doing so, it agreed to retain an equivalent benefit in a new UPS-Teamster managed corporate plan.
Today, national postal operators still tied to the old employment compact can no longer hide behind growing volumes and attrition of an older workforce to avoid tough operating decisions that require changes in the employment compact. As the proportion of transaction and correspondence mail, both single-piece and bulk, declines, mail becomes increasingly sensitive to economic cycles and competition from other advertising modes. The impact of this switch is greatest in the United States, where the use of paper checks to pay bills still remains the primary payment method among those over 40. Even these customers may soon desert the mailstream as their preferred method to receive and pay bills as incentives from banks and other creditors become too enticing to pass up.
Clearly the new framework must accommodate the following:
- Lower total volume levels;
- Much lower volumes of single-piece mail requiring sortation at origin;
- Total volume and revenue that is sensitive to business cycles.
- Volume and revenue that is sensitive to price such that the sender must generate a positive return for spending to design, print, and deliver a hard copy document or ship a parcel.
- Optimized processing and delivery operations that reflect the new characteristics of demand with costs at levels that permit product prices that allow mailers to earn a positive return on their mail spending Increased levels of customer service and sales efforts to identify and accommodate specific customer needs
The UPS employment compact could handle all of these factors. The challenge that national postal operators have is installing a similar compact. Without the ability to install a compact similar to UPS, efforts to optimize sortation and delivery networks through expanded use of information technology, and automation equipment installed in fewer, larger plants cannot be made financially viable. To the extent that a national postal operator needs to make significant capital investments to optimize the network, the lack of a new employment compact makes it nearly impossible for the investments to make returns to justify the spending. (To the extent that legislative actions prevent changes, national postal operators may put off optimization efforts that could provide a positive return even under the current compact and optimization efforts that require a change in the compact are not even considered.)
Royal Mail has developed an operating framework that exists in a leaked "Next Steps" document. In this document, Royal Mail outlines a vision for duty cycles based on 4 and 8 hour increments, increments that are nearly identical to those that UPS uses in the United States. While the public focus and rhetoric from both sides focus on issues of privatization or maintaining Royal Mail as a “public service,” in truth, the real conflict is over delaying the end of the old employment compact that postal jobs were full-time jobs with security for an employee’s lifetime.
The United States Postal Service faces similar issues for its delivery carriers (rural and city), clerks, mailhandlers, supervisors, and postmasters.The changes in the market have smashed the basis for the old employment compact and employees have real concerned about what comes next.
Clerks, mailhandlers and supervisors can see workloads declining; employees placed in standby rooms, and not help but wonder how much longer their plant or job will exist. Postmasters and retail clerks can see declines in retail traffic and the growth in postal franchise operations of non-US postal operators and wonder how much longer will the Postal Service use corporate post offices as the primary means of providing retail services.
What employees see is pain and they fear that postal management has nothing but pain to offer them. The economic downturn intensifies this fear as the thought of transfer, demotion, reduction in hours, or job loss raise anxiety about how bills will be paid, college education will be funded, and loss of connections to long-established relationships in one’s community. What employees don’t see at either Royal Mail or the Postal Service is something that they will gain in return for the pain to come. In many ways, what they perceive is not much different from what a young child sees when getting their first vaccination. They fear the pain of the shot and know of nothing else. How do doctors deal with this problem? They give the child a lollypop or small toy as a reward for dealing with the pain. By the time the child leaves the office, he/she may still have memory of the pain but have in their hands the reality of candy or a toy. The next time the child is vaccinated; they then know of the pain but know they will leave with something that is sufficient to deal with the shot.
What policymakers in the Great Britain and the United States have to fine is the reward for employees for dealing with the pain coming in the transition to new market realities. Employee unions and associations should also be looking for potential rewards that would enhance the new employment compact, including rewards that the current business model may not be able to offer, as policymakers and postal management have not publicly offered anything to ease the fear of changes to come.In the past, this blog has written about the experience of Conrail. Conrail had to significantly downsize its network, reduce its workforce, eliminate a number of railroad crafts and find a way to negotiate out of contracts that guaranteed jobs. Employees from top to bottom suffered greatly during the transition to a leaner and profitable railroad. At one point, employees even had to take a substantial pay cut to turn the company around. Employees did receive rewards for their pain.
The pay cuts were restored as soon as Conrail returned to profitability. Conrail employees received 15% share of Conrail stock in return for concessions in work rules and wages. The shares that employees received at the public offering price of $28.00 in 1987 were worth $214.67 when Norfolk Southern bought the company a decade later. Right now neither Royal Mail nor the Postal Service could offer employees any rewards that approximate what Conrail employees received for the change in their employment compact. As both postal operators face the possibility of new business models employees need to think hard about which models could include rewards sufficient for them to accept the pain that they are likely to endure in the transition to new market realities.