Friday, April 29, 2011

Did Darrell Issa Sabatoge the USPS-APWU agreement

In letter to American Postal Workers Union (APWU) members, APWU President Cliff Guffey identified that a key obstacle to ratification of the contract is rank and file anger with the efforts of Republicans to restrict union rights and reduce the pay and benefits of public and postal employees.   President Guffy's letter indicates that the tone that Republican members of Congress at the April 5th House Oversight and Government Reform hearing combined with the state legislative conflicts in Wisconsin, Illinios and Ohio created an environment in which rank and file APWU members are looking for a way to protest the treatment of unionized employees by Republican politicians.   The APWU-USPS ratification may have become the vehicle for that protest.

The press release quoting the letter lays out President Guffey's argument that the APWU-USPS contract is not the place to vent anger at Republican politicians.

Some very powerful politicians have set their sights on postal employees, APWU President Cliff Guffey has warned, and union members must respond decisively.

“Anti-labor members of Congress have said the union’s tentative Collective Bargaining Agreement [PDF - members only] is too favorable to workers,” the union president noted. “They favor contracting out virtually all of our jobs.

“I have a simple response,” he said. “I encourage every APWU member to get actively involved in union affairs — and to start by voting on ratification of the tentative Collective Bargaining Agreement. We also must get much more involved in the legislative arena.

“Don’t let these naysayers discourage you from voting.”

At an April 5 hearing of the House Oversight and Government Reform Committee, Chairman Darrell Issa (R-CA) and other Republicans repeatedly criticized Postmaster General Patrick Donahoe and members of the USPS Board of Governors for agreeing to the union’s demand during negotiations to retain protection against layoffs. They also said the Postal Service needed more freedom to close postal facilities and cut the workforce.

“This is an attack on our collective bargaining rights,” Guffey said. “The APWU and the Postal Service reached an agreement that would benefit both sides — and now anti-union legislators are attempting to undermine it.”

President Guffy is right to warn APWU members to not use their vote on the USPS contract to vent anger at Republican politicians.   APWU members need to look at the contract and decide whether they can live with the changes in workrules and in particular the possibility that many positions will follow a non-traditional full-time schedule.   They need to determine whether the changes in workrules and contracting-out provisions create opportunities for APWU members that did not exist before and could create opportunities for APWU members to work with the USPS to work with the Postal Service to create products that could compete with presorters.  They need to look at the contract and decide whether it increases or decreases the likelihood that they will have a job with the Postal Service until they are ready to retire given the change in the mix and volume of mail.   They need to look at the changes in pay and benefits for current employees and future employees and determine whether the contract provides them with sufficient protection from health insurance and general inflation as opposed to what could be imposed by legislative action in the current or future Congresses.  Finally, they need to evaluate the risks that exist from turning the development of contract provisions to an independent arbiter who will develop his decision around the time that the Postal Service defaults on payments for retiree health benefit and workers compensation liabilities.

Wednesday, April 27, 2011

The US Parcel Market: Hightlights from the UPS Conference Call

In its conference call yesterday, United Parcel Service provided a number of insights on the parcel shipping market and the customers that use UPS, FedEx and the Postal Service.

Revenue Generated Per Shipment is Rising

Kurt Kuehn, the CFO described the improvement in revenue as follows:

Revenue per piece grew 5% with the biggest driver being increases in base rates, as we get our prices back in line with the value we provide.

Higher fuel surcharges and package characteristics also contributed to the yield improvement. We are executing our strategy of focusing on the quality of revenue. The key objective of this strategy is to ensure that we are properly compensated for the value we provide customers. And this is paying off as evidenced by our strong yield gains.

Mr. Kuehn's statement suggests that customers have had limited leverage in resisting the 4.9% rate increases implemented January 3, 2011.  

Scott Davis, in response to a question of Ed Wolfe of Wolfe Trahan & Co. noted that UPS is taking a firm stance in pricing negotiations in order to get prices up to levels that they want.  The impact of this change in negotiating posture impact may be modest as many customers have multi-year contracts.

The shift in package characteristics that Mr. Keuhn mentioned that would yield more revenue per package most likely reflects an increase in the proportion of shipments that are delivered to a homes that which include delivery surcharges.  Mr. Keuhn later commented in questions that weight per package was stable so increasing package weight is less likely to be the source of the increase in revenue per package.  impact yield.  Given the growth in e-commerce, the shift to home delivery shipments is most likely have had a larger impact on package yield.

Package Market and GDP
In response to a question by Garrett Chase of Barclays Capital,  Scott Davis noted a disconnect between industrial production levels and demand for parcel shipping.   Parcel shipping demand did not decline as much as industrial production during the recession and is not rebounding as fast after.   This may be another indication of the importance of the link between parcel shipping and retail markets.

The Impact of Oil Prices on GDP

Scott Davis in response to a question by Nathan Brochmann of William Blair & Company provides the rule of thumb that UPS may be using to estimate the impact of rising oil prices on GDP.

I think the rule of thumb for economists are that if oil prices go up $10 a barrel, it's going to knock down GDP about 0.02% in the year 1, about 0.5% in year 2. We've seen about $30 run in crude oil, so that could certainly have an impact in 2012, knock out about half the growth.

UPS and Labor Costs

UPS delivery drivers are extremely expensive.   Kurt Keuhn states that 90% of  UPS drivers are paid at the maximum contract amount.   Normally, that would be between 80 and 82%.   The increase in drivers at maximum reflects the streamlining of the delivery network and limited delivery volume growth.   UPS has lower cost options for new drivers but hiring new drivers would take significant economic growth for that to happen.

UPS also indicated that its head count was likely to remain steady if economic growth continues at the current forecasted pace.  If it stalls, it could see some reductions as efficiency improvements reduce demand for drivers and parcel sorters.

Large verses Small and Medium Sized Shippers

Both Scott Davis and Kurt Keuhn noted that large global enterprises have recovered faster from the recession than small and medium sized enterprises in response to a question from Jon Langenfeld of Robert W. Baird.   They indicated that the real challenge facing these firms is access to credit which they expect to improve later this year.

Improvement in shipping volumes from smal and medium sized enterprises is important for the parcer and express carriers as these firms are offered smaller discounts off of list rates than larger firms.  Increases in the share of business from this market segment should help improve carrier yields (revenue per package) and profitability.  
B-2-B and B-2-C Markets
In a response to a question from Bill Greene of Morgan Stanley, Kurt Keuhn stated that B-2-C now represents one-third of United Parcel Service's volume.   He further stated that B-2-C is growing faster than B-2-B volume.

This response provides a further indication that 1) the increase in yield is driven by home delivery surcharges, and 2) UPS's business success is increasingly tied to the success of e-commerce.
Market Competition

Kurt Keuhn described the parcel and express market as "extremely competitive."  He went on to state:

Customers have multiple choices, and so we're out there competing like crazy. The comparisons to our competitors are a little confusing because some of them are use a different calendar. FedEx, for example had the December in their last quarter, which makes comparisons a little unusual. And we haven't heard yet from the post office, which is another very large player. We suspect they'll show negative results.

UPS clearly is concerned about competition from FedEx.   It looks at the Postal Service as a less significant competitor.   No mention was made regarding competition from regional and local parcel carriers or foreign-owned operators like Purolator International.   

The problems that the Postal Service is having competing in the parcel market are worth studying.   It is unclear whether the Postal Accountability and Enhancement Act provided the Postal Service with sufficient commercial freedom to set rates and negotiate with customers to allow its parcel business to grow at a rate equal to market growth.

United Parcel Service's most recent quarterly results show the increasing linkage between traditional delivery services and e-commerce.   The future of the United Parcel Service, FedEx and the United States Postal Service will increasingly be linked to how well they serve retailers selling services through broadcast, direct marketing, web-based and social media.   Recent reports by the Inspector General of the Postal Service suggests that there may be a digital role within the postal ecosystem that could improve the efficacy of web and and mobile based communications for commerce that could improve the prospects for the parcel delivery industry.   It is for this reason that an upcoming conference, Postal Vision 2020 will be bringing together some of the greatest minds in e-commerce, social media, digital and print communications to discuss the future of print and digital communications. The symposium to be held June 15, 2011 and the Marriott Chrystal Gateway Hotel in Arlington, VA. To learn more check out Postal Vision 2020 .

Tuesday, April 26, 2011

United Parcel Service Volume Down in First Quarter

United Parcel Service reported that it earned $885 million its first quarter of 2011.  Its earnings were up 66 percent from a year earlier when it earned $533 million.   UPS projected earnings are stronger than previously forecast. It now projects that its earnings will be between 17 to 24% higher in 2011 than 2010.

UPS's earnings growth came in all three of its operating segments, U.S. domestic package, international package, and supply chain and freight.  UPS's increases in revenue reflects both rate increases and increased fuel surcharges.  Its increases in profits reflect margin improvements in its U.S. domestic package and Supply chain and freight businesses.

UPS's parcel volume as illustrated in the following chart was down on a year to year basis.   UPS reported that "Premium product growth outpaced ground as UPS Next Day Air® package volume grew at a mid-single digit rate."  The overall decline in volume most likely reflects a decline in UPS ground volume.  It is unclear how much of the decline was due to weather, which held down total parcel shipping volume and may have shifted some volume to UPS Next Day Air®, how much was due to the continuing shift from domestic to global supply chains, how much was a shift in marketing and pricing strategies to expand sales of sales of higher margin next-day air services, and how much was due to loss of market share due to competition from FedEx Ground, Postal Service joint-line services (including UPS SurePost), and regional carriers.

Direct Marketing Agencies Among Leaders in Social Media

Advertising Age reports that advertising agencies are generating 28% of their revenue from social media.  Advertising agencies generated $8.5 billion in revenue from social media.  While 60% of that revenue came from agencies specializing in social media, direct marketing firms generated the second largest share of 23.5%.

The success of agencies specializing in direct marketing is not surprising as these firms have the experise in customer targeting and outcome analytics that is critical in making social media work.   Direct marketing firms may have a leg up long-term over specialty firms as their customer relationships and ability to integrate multiple modes of direct marketing, including direct mail, may provide a competitive advantage.

The success of traditional direct marketing advertising agencies shows the melding of traditional and social modes of direct marketing.   Recent reports by the Inspector General of the Postal Service suggests that there may be a digital role within the postal ecosystem that could improve the efficacy of social media and even possibly a digital role for the Postal Service that would ensure that digital and physical communications coexist .  It is for this reason that an upcoming conference, Postal Vision 2020 will be bringing together some of the greatest minds in social media, digital and print communications to discuss the future of print and digital communications.   The symposium to be held June 15, 2011 and the Marriott Chrystal Gateway Hotel in Arlington, VA.  To learn more check out Postal Vision 2020 .

Monday, April 25, 2011

Why Taking Early Retirement Incentives is a Good Idea

In a perverse way, the problems that OPM is having in processing retirement claims in a timely fashion creates a perverse incentive to accept an early retirement incentive.  As reports, the Office of Personnel Management is taking 117 days to get final retirement payments right.  The first $10,000 payment of the retirement incentive can cover a big chuck of the delayed payment of the full pension checks due over the four month delay.


The comments to this post show clearly that the incentive payment will likely come after OPM completes the review process.   So it does not give Postal Retirees cash up front that would compensate for the delay.  However, in the future other agencies and the Postal Service should take into consideration the delays in OPM actions on retirement in structure the timing of incentive payments to ensure that those who retire early can use the incentive payment to cover the delayed pension payments which are paid in a lump sum when the final retirement determination is set.

Sunday, April 24, 2011

The Rise of E-commerce - How does it affect FedEx, USPS, and UPS?

E-commerce in the fourth quarter of 2010 for the first time clearly represented more than 20% of all deliverable retail sales.    E-commerce's share of retail sales grew by a third in less than 5 years. 

The following graph illustrates the change in share of seasonally adjusted retail sales.

The 20% figure represents the proportion of catalog and on-line sales estimated by the Census Bureau as a portion of sales at furniture & home furnishings (442), electronics & appliances (443), clothing & accessories (448), sporting goods, hobby, book, and music (451), general merchandise (452), office supply, stationery, and gift stores (4532) stores as well as on-line and catalog merchants (4541). [The numbers in parentheses are the NAICS codes used by the Census Bureau to classify businesses.]  As many retailers, (i.e., Walmart, JCPenney, Target, Best Buy, Limited Brands (Victoria's Secret, Bath and Body Works) and Best Buy) that currently generate most of their sales from brick and mortar outlets now generate a growing proportion of their total sales from their websites, this proportion represents a conservative estimate of the share of deliverable retail sales that FedEx, United Parcel Service or the United States Postal Service are delivering.

The chart above also illustrates, that for most of the period since 1992, delivered retail sales grew as a share of deliverable retail sales has grown by around 50% about every 7 years ( i.e. 6.67% to 10%, 10% to 15%).  Since 2005 the rate of growth in delivered market share has quickened and the fifty percent growth rate to a 22.5% market share should come sometime near the end of next year.  

The shift of retail from brick-and-mortar to catalog and e-commerce sales will have a profound impact on the retail supply chain, local economies and demand for print communications.

The retail supply chain over the next decade will have little choice but focus on home delivery.   Lower-cost deliveries by parcel carriers and other firms to retail outlets will decline while higher-cost deliveries to homes will increase.   The need for pick-up locations for high value items will grow which will increase the market for delivery lockers like those used by Deutsche Post, Post Danmark and DHL. 

The growth of e-commerce sales will also increase both shorter-haul deliveries from warehouses within carrier one-day, and to a lesser extent two-day delivery windows.   The growth of short haul traffic will also allow regional carriers to continue to grow their market share in more densely populated regional markets.  

Finally e-commerce sales provide opportunities for integrated carriers like FedEx and UPS.  These carriers can manage home deliveryof high-demand, and high-value items that companies like Apple Computer ship direct from warehouses near the manufacturers in China and other countries in the Pacific Rim. 

The impact of delivered retail sales on many local economics is significantly negative.   Many communities have a retail infrastructure that reflects a world where less than ten percent of all sales were delivered.   Shopping malls and strip centers with vacant store fronts will find it more difficult to rent vacant space and will look to non-traditional and more than likely lower paying tenants like government agencies, libraries, medical and dental offices, and service providers like nail salons.  Fewer retail stores mean not just fewer retail jobs but also fewer jobs required to build and maintain retail outlets.   Lower brick-and-mortar retail sales will have the effect of lowering gasoline consumption as trips to the store are replaced by trips to the computer.  To the extent that restaurant and fast food sales are tied to retail shopping, those sales will slip as well.

The shift of retail sales will have some positive impact on communities located near ideal distribution points that can take advantage of one-day delivery standards of ground parcel delivery.   These communities should see growth in jobs in warehousing and transportation and may see some growth in other industries that will piggy-back on strengthened transportation infrastructure that e-commerce distribution supports.

Finally, the shift to on-line sales could have a devastating impact on print advertising, and in particular newspaper display ads and direct mail from local merchants.    To the extent that on-line sales cause brick and mortar retailers to go bankrupt, the trend removes print advertisers from the marketplace.  Remaining retailers may not be willing to pay as much for advertising as the firms they replace.  Adding to the challenge facing print advertising is that the largest on-line retailer,, spends minimally on print advertising and its smaller on-line competitors are no different.    Printers and the Postal Service need to find a way to create products that fit the needs of on-line retailers who have found that they could grow their business successfully with minimal print advertising if advertising mail and other forms of print advertising can continue to grow.  

Friday, April 22, 2011

What Happens If the APWU Rejects the Contract?

APWU members now have their ballots for the ratification of the tentative 2010-2015 Collective Bargaining Agreement with the Postal Service.   Like many votes on labor contracts that make significant changes in long-standing work-rules, pay schedules, and compensation levels in industries facing economic change, ratification is not pre-ordained.

Challenging Contract Ratifications

Examples of challenging ratification efforts include both United Parcel Service and Yellow Roadway Corporation.   Unhappiness with a negotiated contract with teamster organized less-than-truckload carriers in the 1970's provided impetus for creation of Teamsters for a Democratic Union.  The 2008 UPS agreement that removed tens of thousands of UPS teamster from the Central States Multiemployer plan, required nearly a year-long public relations effort by the Teamsters union to convince members that members could no longer reject UPS's proposal to set up a separate pension plan just for UPS employees.   Both the 2002 and 2008 contracts also faced opposition due to pay scales for part-time employees who sorted parcels and the number of full time and part-time jobs within sortation centers.   Yellow-Roadway contracts required multiple rounds of negotiations under the threat of bankruptcy and possible liquidation before contracts with major concessions including restrictions in the defined-benefit pension were approved by employees.

The APWU contract has generated vocal opposition from both former APWU President William Burrus and a number of local Presidents. (i.e. NE Massachusetts, Olympia, WA, and Red Bank, NJ)  The opposition even has a Facebook page.

The Process after Rejection

So, given the opposition, it is not unreasonable to ask what happens if the contract is rejected.   While further negotiation is possible, it is more likely the next step would be interest arbitration.   If that occurs the APWU and the Postal Service will select an arbitrator by agreement or by striking from a list provided by the Federal Mediation and Conciliation Service. The arbitration hearings would be scheduled based on the arbitrator’s availability. In the past, such arbitrations generally have been held within a 4-8 month period after the arbitrator's selection.

Likely actions of Parties after Rejection

In arbitration both sides will have to present contract proposals from which the arbitrator will develop a settlement.   The rejection of the contract will likely force the APWU to propose fewer changes in the existing workrules and compensation structure than are contained in the proposed agreement.   Given the 4-8 month arbitration process will delay implementation of any contract changes that the Postal Service believes will reduce its costs, arbitration would force the Postal Service to propose even greater changes in work rules and lower compensation levels than contained in the current agreement.

Results of Arbitration Discretion

What the arbitrator would choose is open to speculation.   APWU members have little clarity regarding whether they would fare better in an arbitration proceeding that follows the rejection of this agreement than what is offered in the contract that they must vote upon.  Each arbitrator looks at the information in front of them independently and contract arbitration following the rejection of a contract by the vote of the rank and file is rare.  The 2007 arbitration that resulted in a NRLC - Postal Service contract followed the rejection of a contract by NRLC rank and file members.  That arbitration decision may provide some guidance as to how an arbitrator will develop his/her decision.

In particular, I would focus on this passage from page 6 of the Fishgold arbitration decision.   "Thus, I informed the parties that they might influence me to make marginal changes to the tentative agreement but certainly not changes of the sort sought by each side in their initial presentations."   If the arbitrator follows this approach in the APWU-Postal Service arbitration, he/she would restrict the APWU and the Postal Service to minimal changes to the contract being negotiated.

While contract provisions similar to what was negotiated would appear to be the most likely outcome of an arbitrator imposed contract, options that are more favorable to management or labor are not out the question.    However, given that an arbitrator would be ruling just before the Postal Service defaults on payments to the Office of Personnel Management and the Department of Labor, the odds of a labor favorable ruling would appear to be longer than a ruling that is more favorable to management.

Congress: The Wild Card

The real wild card in this process is Congress. The pace of legislation will likely preclude Congress from directly affecting an arbitrator's decision or the criteria they must consider in developing a contract but that will not prevent at least the House of Representatives from trying.   More importantly, rejection of the contract would push changes in Postal labor agreements at least 6 months ahead.   This could further sour changes that Republicans in Congress will take any action that resolve the disagreements over retirement obligations in the Postal Service's favor.

Why Mail May Matter Longer Than We Think.

A recent story in Business Insider identified another reason why the information superhighway could face bottlenecks not dissimilar to those that drivers experience during rush hour in Los Angeles. The article quotes the ATT filing on its purchase of T-Mobile in which ATT explains the impact that the
iPhone and similar smart phones have on network demand. 

"The filing says:

A smartphone generates 24 times the mobile data traffic of a conventional wireless phone, and the explosively popular iPad and similar tablet devices can generate traffic comparable to or even greater than a smartphone. AT&T’s mobile data volumes surged by a staggering 8,000% from 2007 to 2010, and as a result, AT&T faces network capacity constraints more severe than those of any other wireless provider.

Those dates aren't a coincidence. 2007 is when the iPhone was introduced as an AT&T exclusive.

AT&T warns the problem is getting worse as more consumers use video and enterprise apps on their smartphones, and guesses that its network will carry more traffic in the first five to seven weeks of 2015 than it did in all of 2010."

ATT's statement suggests that no one including Apple and ATT's network engineers had a clue about the revolution that they had started.   The forecast for 2015 suggests that the network will carry more than seven times the traffic in 2015 than it did just last year.   Given how poorly forecasters estimated the initial growth in network demand, one wonders whether current investments in network capacity can create a network robust enough to meet needs of mobile users.

Network capacity will not be the only constraint slowing expansion of digital communications.   Currently, iPv4, the addressing system that provides a numerical identifier to every connection to the Internet is close to reaching its maximum capacity.  According to ZD Net, Asia has reached the limit of iPv4 web addresses, and it would not seem unreasonably to assume that that the Europe and the united North America could come next.

A replacement addressing system, IPv6 would raise the number of possible addresses to 4.2 billion to 340 undecillion or addresses.  However, most Internet users whether they use a mobile or computer based access points are using legacy systems that can cause challenges when using iPv6 web addresses.  As ZD Net reports: 

There may be some operating system out there with picture perfect IPv6 support, but I haven’t met it yet. Each has some quirks and some problems. As time goes by, more and more people insist on full-featured IPv6 support that will change. In the meantime though don’t be surprised if you run into problems every now and again with IPv6 and say Windows 7. I’m not picking on Windows 7; every operating system will have some troubles until everyone is on board with IPv6.

The same article notes that switching to another operating system like Linux or Apple's OSX will not solve the problem either.

Linux has long had IPv6 support. To set it up properly, though, you’ll need to get down and dirty with shell commands. Carla Schroder, a Linux and networking expert, has recently written a pair of quick IPv6 Linux guides: IPv6 Crash Course For Linux and Another IPv6 Crash Course For Linux: Real IPv6 Addresses, Routing, Name Services. With these you can get your basic Linux client and servers setup without tears. I expect the Linus distributors to provide GUI-based tools for essential IPv6 set-ups in the near future.

Apple already provides automated IPv6 support in Mac OS X. Under the hood, it uses the KAME open-source IPv6 stack, which also supports the BSD Unixes. To do more with the Mac OS X IPv6 support, check out the Ipv6INT page, Apple Mac OS X IPv6. As they note here, “The IPv6 documentation in Mac OS X is very sparse.” On the Mac server sides, there are some grave omissions. For example, as far as I’ve been able to tell there’s no support for Dynamic Host Configuration Protocol version 6 (DHCPv6).

But the problem goes beyond just operating systems as SOHO networking equipment from major manufacturers all have spotty abilities to use the new addresses.  ZD Net reports:

Today, Linksys does not offer any SOHO/consumer hardware that supports IPv6. Cisco tells me though that The Linksys E4200 we just launched and Linksys routers [the rest of the E series] that will be launched this year will support iPV6.” This will be delivered via a free firmware update. I still don’t know if older Linksys hardware will be retrofitted with real IPv6 support.

Netgear supports IPv6 in much of their equipment, but I haven’t been able to find an easy way to find out which switch, router, or what have you supports IPv6 or not from their Web site. For now, the only thing I can do is recommend that you take a long, hard look at each prospective device’s release notes.

With D-Link, you can at least do a search on IPv6 and get a product list. This network vendor currently supports a wireless router, the DIR-632, and half-a-dozen Gigabit switches.

Curiously, enough Apple’s AirPort Extreme and Time Capsule support IPv6. The bad news is that they do it with 6by4 or, the smarter move, you can set IPv6 support up manually.

Buffalo Technology, like Netgear, also supports IPv6 on some of their equipment, but makes it even harder to find out which equipment supports it. Here, you’ll actually need to dig into the user manuals to find out what’s what. That said, the company has a series of routers–WZR-HP-G300NH, WHR-HP-G300N and WHR-HP-GN-that use the alternative DD-WRT firmware and these do offer some IPv6 support.

So we have a situation that home/small business users find themselves facing a situation that easy access to the Internet may become more difficult and the computer and networking hardware that they use cannot keep up with the changing technology without expert assistance.  

What does all this technical talk have to do with mail?  It means that overcrowding of mobile and web-based communications may make mail a critical backstop during what will likely be a decade or more long transition to greater network capacity and computer and networking equipment that can easily handle new web addressing standards.   This does not mean that consumers and businesses will slow the push of  many forms of mail-based communications, and in particular transaction related documents (i.e. statements, checks, payments and bills) to electronic alternatives. But it does mean that mail will continue to provide a critical communications role for those that do not want to be lost among the thousands of communicators crowding the information superhighway until speed of that highway slows to a crawl when network capacity or addressing problems makes the Los Angeles rush hour analogy appear apt.

But the link between the digital and physical delivery world is not limited to traditional business roles.  Recent reports by the Inspector General of the Postal Service suggests that there may be a digital role within the postal ecosystem and even possibly a digital role for the Postal Service that allows digital and physical delivery to coexist .  It is for this reason that an upcoming conference, Postal Vision 2020 will be bringing together some of the greatest minds in digital and print communications to discuss the future of print and digital communications.   The symposium to be held June 15, 2011 and the Marriott Chrystal Gateway Hotel in Arlington, VA.  To learn more click on the Postal Vision 2020  link.

Saturday, April 16, 2011

The Washington Post Does Not Understand the Postal Service

Once again the Washington Post's editorial board illustrated their ignorance on Postal issues. In an editorial focusing on labor issues, the editorial board illustrated an understanding about labor negotiations that is particularly peculiar given the newspaper industry's history in reducing labor costs as it faced the threat of e-competition.  The editorial board reinforced the impression that it does not know what it is talking about by confusing retirement with health benefits.

By stating that the contract with the APWU is inadequate, they assume that a better contract could have been negotiated or obtained through binding arbitration. The truth is changes in wages in benefits that the Washington Post believes are needed only are implemented when the company negotiating new labor agreements faces the threat of liquidation from creditors or shut down by owners outside of bankruptcy. The only way that would have occurred with the Postal Service would be if Congress demanded that the Postal Service liquidate its business to pay off its retiree health care and workers compensation obligations unless the Postal Service and its unions agree to reductions in wages and benefits.  The Post editorial board should know that because only through the threat of liquidation and bankruptcy have newspapers been able to cut the wages and benefits and changed the work rules in the contracts of its employees.

Given that the Postal Service is the core part of the mailing industry that generates over 8.4 billion million jobs and $1.1 trillion in sales. Most of these jobs exist because businesses, including the Washington Post Corporation advertise their products and services through the mail or deliver parcels to consumers through the USPS or a private sector competitor in conjunction with the Postal Service. Shutting the Postal Service down on September 30, 2011 to force further reductions in labor wages and benefits would wreak havoc on next fall's retail sales.   Currently 20% of all retail sales that can be delivered are now being delivered and that share will likely to be higher by next fall as on-line sales are growing at double digit rates while sales of these items regardless of sales method are growing at low single digit rates.

The contract that the Postal Service signed goes far to eliminate the fixed 40-hour schedules that drive up costs and increase the possibility that employees will be on the clock with no work needed.   This change is the equivalent to the elimination of the work rule changes that took the railroad industry nearly a decade to negotiate that eliminated the 110 mile rule, eliminated jobs for firemen in diesel locomotives that no longer required a fireman, and eliminated the caboose.  Discounting this change, ignores what is probably the biggest cost impediment preventing the Postal Service from cutting the costs of sorting mail and parcels.

The contract puts wage rates and benefit levels for new hires at competitive levels that reflect the poor financial health of the USPS. These new hires will not only start at a lower wage rate but it will take them longer to reach the top salary and that top salary will be lower than the top wages for current employees. The new contract also allows the Postal Service to have up to 20% of its clerks and mailhandlers filling non-permanent positions with health care benefits below that of the non-Postal Federal employee.   Once the contract is signed, a significant portion of clerks will be in this position and over time the Postal Service should reach the 20% level.

The health care premium issue (that the Post wrongly describes as a pension issue) is a bit more complicated than what the Post noted.   While full time APWU members will pay a smaller share of the total health care premium than other Federal workers, the levels negotiated are not out of line with benefits offered at FedEx or UPS.  Furthermore, once you add it the health insurance costs of the 20% of APWU members that will not have permanent positions,  the average cost for health benefits per hour paid at the Postal Service should be equal or less than the cost per hour for all other Federal employees.

The Postal Service could get even more savings from the APWU contract by using a tactic that the Washington Post has used repeatedly to cut its own costs, early retirement incentives.   If the Postal Service had the cash to offer early retirement incentives to its older APWU and other union employees, just as it has offered management employees that it could increase the rate of attrition so that it could lower the average wage rate of its employees by taking advantage of the provisions in the new contract that allow for non-permanent employees and a lower wage scale for new employees.

The lack of cash is where legislation proposed by Representative Stephen LynchSenator Tom Carper and  Senator Susan Collins fits.   By providing needed operating cash now, these bills give the Postal Service the cash necessary to offer the retirement incentives and make the capital investments necessary to shrink its processing network and modernize its retail network.   In criticizing Representative Lynch's bill, the Post Editorial Board appears to prefer liquidating the enterprise rather than giving it the cash necessary to fund the transition to the modernized retail infrastructure and streamlined network that will be required for the 150 billion pieces of mail and parcels that will be delivered in 2020.

This Post's position makes sense only if the liquidation value of the Postal Service equals its retiree and workers compensation liabilities.  This is unlikely to be the case so the Post's position would force the federal government to take losses after liquidation.  

Representative Lynch's bill as well as similar provisions in bills introduced by Senators Carper and Collins make sense if they are part of comprehensive financial rescue plan that includes real financial targets needed to ensure self-sufficiency and a capital and transition investment plan that includes significant retirement incentives and investments in a lower cost network, modern information systems, and a modern retail network.  Then the Postal Service like other corporatized postal entities should generate the profits from both its competitive and monopoly products necessary to operate as a self-sufficient entity and pay dividends on its profits.

Tuesday, April 5, 2011

Secure Electronic Payment?

eWeek reports that Conde Nast paid $8 million to an  e-mail pfishing scam. 

A scammer managed to spear phish media giant Conde Nast and walk off with $8 million after he posed as a legitimate business. With the specter of spear phishing looming in the post-Epsilon-and-Silverpop world, the Conde Nast incident is a timely reminder of how easy it is to fall for a scam.

The steps were fairly straightforward. This scammer created a bank account with a name similar to that of another business that Conde Nast worked with frequently. With account details in hand, the scammer sent an email to the publishing company and requested that all future payments be credited to that bank account. Conde Nast signed the “Electronic Payment Authorization” form and faxed it back, essentially giving its bank, JPMorgan Chase, permission to electronically transfer money into that fraudulent account, no questions asked.

Luckily for the company, the U.S. Secret Service intervened and froze the money in the account

What is scary is that the accounts payroll clerk did not catch the error in the e-mail that clearly shows that the e-mail was fake.  The scammer, Andy Surface  "allegedly sent an email to Conde Nast accounts payable in early November with an “Electronic Payment Authorization” form. The form requested that Conde Nast direct payments for Quad Graphics, a printer who publishes Conde Nast magazines, to the Quad Graph account."

The scam was identified when Quad Graphics called Conde Nast to find out why it had not been paid for its printing services.  
Given how easy it was to set up a scam, one has to wonder how many businesses and individuals suffer losses from similar scams.

Missed Opportunity in the USPS Oversight Hearing

It is too bad that not one of the Congressman was prepared to ask Postmaster General Pat Donahoe these questions.
  • How did you derive the $3.8 billion in savings from the APWU contract?
  • How much of that savings will come in each year of the contract?
  • Could you increase the savings from the APWU contract if you offered early retirement incentives to APWU members?
  • How much would the incentives needed to get those incentives cost the Postal Service?

Monday, April 4, 2011

Consolidation and Excessing

One of the most confusing parts about the new APWU - Postal Service Contract is how the Postal Service deals with excess employees.    This is particularly important for employees affected by plant consolidations and declining single-piece first class mail.

Since the beginning of the fiscal year, the APWU website lists consolidations that involve 77 city pairs.      The 77 city pairs represent consolidations that are under study, approved but implementation has not been completed, and those now under review.   The 77 city pairs also include a couple where mail from the plant losing a processing option is being shifted to two or more other facilities.  

The median distance between the old facility and the new facility in this list is 70.1 miles.   Only 18% of all city pairs are less than 40 miles apart and 28% are less than fifty miles apart.   This means that when a consolidation occurs, jobs will shift to a facility that is further than the plant losing processing operations to one that is outside the 40 or 50 mile limits.  So what happens to those employees whose jobs are moved?

A similar problem exists as single-piece volume declines.   Demand for labor handling facing and cancelling and originating sortation operations decline is likely to decline at close to the 7-10% annual decline in single piece mail annual rate with declines in demand for labor sorting destination sortation being somewhat less.  The decline in demand for labor will create excess employees, so how will the Postal Service handle it.

The following discussion reflects the answer that Postmaster General Jack Potter gave when asked about excessing and the forty mile rule.  

Forty and Fifty Mile Rule

The goal of Postal Management will be to first find a job for all excess employees within forty mile radius and if that is not possible within a 50 mile radius.   To do so it will use the newly agreed to flexibility in work schedules that will increase the probability that a job will exist closer to home.  This flexibility could result in an employee choosing one of the follwing options:
  • Traditional full time assignments.   In all likelihood there will be fewer standard 40 hour shift jobs than there will be employees that need to be accommodated within the 40 or 50 mile radius.
  • Quasi-traditional full-time assigmments   Quasi-traditional full-time assignments will have between 40 and 44 hours guaranteed per week, between 6 and 10 hours on a given day and work  performed at one or more facilities on different days    So a full time clerk could work at more than one retail facility on different days as long as the different facilities are within the 40 or 50 mile radius agreed to in the contract.  Their  work schedule could include the following: 5 eight-hour shifts, 4 ten-hour shifts; 2 six-hour and 3-10 hour shifts, as well as any combination of shifts between 6 and 10 hours such that the total number of hours in a week is between 40 and 44 and no shift is less than 6 hours and no shift is more than 10 hours.  Also a clerk may work in a plant on heavy days and shift to a station or branch on days that there is less volume to process..
  • Non-traditional full time assignments.  Employees can choose a non-traditional full time assignment.  They are similar to quasi-traditional but allow even more flexibility in scheduling as the total number of hours in the week can range between 30 and 48 hours and shifts can be as short as 4 hours and as long as 12 hours.   Employees who choose non-traditioanl assignments will have fewer hours during slower months in the summer and more hours in heavy mailing season between September and December. 
  • Shift Craft  Clerks wanting to stay within the forty or fifty mile radius of the facility that is losing jobs will have the option to shift craft and work as a letter carrier.   (It was unclear from what Postmaster General Donahoe said whether the shift is only letter carriers but includes rural carriers as well.
  • Transfer beyond 40 miles.  If no jobs exist within the 40 or 50 mile radius an employee may find that his only employment option with the Postal Service is a job that is in a city more than 50 miles away.   
The list of options suggests that the number of traditional full-time assignments and quasi-traditional full-time assignments may be less than the number of employees that the number of employees within a 40 mile radius prior to consolidation.  The Postal Service expects that some clerks will voluntarily take a non-traditional full-time assignment willingly, decide to move to the facility that is now processing the mail or transfer to a different craft to ensure that any employee that wants a job within the 40 mile radius will find one.   In addition, the Postal Service expects that some employees will decide to retire or find other employment as was the case in LIma Ohio when operatins were consolidated into the Toledo plant around 80 miles away.  


The new 40 mile rule combined with the new definitions of full time (i.e. quasi-traditional, and non-traditional) will give the Postal Service significantly greater flexibilty to deal with scheduling employees whose current work is no longer needed.   The total number of employees required to fill staffing needs will be fewer.  If a significant number of employees voluntarilly take a non-traditional full-time position, they could provide better retail services and speedier mail processing during the heaviest mailing periods without needing to hire seasonal employees.   Without having seen any of the Postal Service's scheduling models, the changes suggest that

For Postal Service Employees, the new quasi-traditional and non-traditional full time positions create more opportunities for them to find a job close to the plant that is losing its mail processing operations and therefore it is an improvement over the current contract during periods of consolidation and declining volumes.   Employees should realize that the agreement did not change the fact that some employees will still not find jobs within 40 miles and and their options will remain similar to what now exists under the current contract.  

Both the APWU and the Postal Service are going to have to work together to help employees supervisors, and Postal management handle the transition to a world where schedules are no longer the same every day and employees are working at more than one facility during a week.   This is a big change that will take some getting used to and cooperation will be needed to ensure that misunderstandings are minimized. 

Update 3/4/11 5:07 pm

The APWU in its most recent set of questions and answers about the contract confirms my understanding that the Postal Service will be setting up non-traditional full-time assignments that will be attractive to employees currently working in a traditional full-time assignment.  (This is what is described above as a quasi-traditional full time position.)

Question: Can traditional full- time assignments (eight-hour days, five days per week) be converted to non-traditional assignments?

Answer: Management can repost occupied traditional full-time assignments as non-traditional assignments as service needs require; however, in doing so, management will have to make certain that the new assignments are attractive enough so that somebody bids them. No current full-time employee can be involuntarily assigned to an assignment of less than 40 hours or more than 44 hours in a service week.

The same set of questions and answers suggests that many employees will prefer a non-traditional full time position if it allows them to continue to work close to home.
Question: I was excessed in 2009 and moved 200 miles from home. Can I get back home with the new 30-hour job? I have been looking on eReasign for two years.

Answer: Any new or vacant full-time assignments (traditional or non-traditional) created in your home office will have to be posted for bid. Provided you exercised your retreat rights and continue to maintain them, you will be eligible to return to any posted vacancy based on your seniority.

Hiccups in Consolidation

Recently, the USPS-OIG issued a report on the consolidation of Lima Ohio processing into the Dayton Ohio plant.  The USPS-OIG conducted the investigation at the request of Congressman Jim Jordan (R-OH).   The audit showed that the transition did no go smoothly

The result of the audit resulted in critical comments from Congressman Jordan but he did not call for processing to return to Lima Ohio.   In fact, his comments, and a careful reading of the USPS-OIG report clearly indicates that the problems in delayed mail that has occurred between December 2010 and March 20111 are solvable through better management of labor and capital assets and hiring additional staff in Toledo, Ohio.  

The problems that occurred in Toledo reminded me of a similar USPS-OIG report in 2009 reporting on delayed mail in the Philadelphia Customer Service District following the movement of the main processing facility in the district to a new facility.   Philadelphia then was on the top of mailers complaints about service as time sensitive periodicals, advertising and transaction mail was facing delays that did not exist when the old facility was working.    However,  March 2011 audit of the the Philadelphia plant conducted by the USPS-OIG between November 2010 and February 2010, showed that most of the problems that existed shortly after the new plant opened have been resolved and productivity at the new plant was significantly higher than what existed previously.   Management felt that the problems that remained with color coding of mail and delayed small parcels could be resolved within two months of the report's publication.

Both Philadelphia and Toledo provide illustrations that moving operations involves good planning, strong communications with employees, and flexibility during the first few months of transition to ensure that service problems are solved quickly.  The Postal Service reviews of consolidations in Manasota, Lakeland, and South Florida, and Daytona Beach FL, and Watertown, and Binghamton, NY show that consolidations can produce EXFC scores equal to or above that what existed when two facilities operated within a quarter or two of consolidation.    Once the initial problems identified in Toledo are solved, Congressman Jordan and his constituants can expect results similar to what has happened in Florida and New York.   When that occurs,  Lima Ohio will have the mail serivce that the residents and businesses they expect.

One of the problems in Northwestern Ohio requires an additional comment.  This consolidation illustrates the challenge of staffing the receiving facility when consolidations involve facilities that are more than 40 miles apart.   Toledo and Lima Ohio are 78.8 miles apart according to Google Maps.   So it is not surprising that only 31 of the 41 craft employees made the transfer.   The others retired, were on leave that the Toledo facility did not know about or found jobs elsewhere in the Postal Service.   To solve the problem, the Postal Service and the local union signed an agreement that allowed for an increase in the number of casual employees and 8 employees were brought in who formerly worked in Detroit. (60.5 miles away) 

The new contract with the APWU gives Postal Service management significantly more flexibility to dealing with short term staffing problems like what occured in Toledo.   The new Postal Support Employees classification provide the Postal Service with an ability to hire staff quickly when forecasting errors that underestimate expected volumes or changes in the number of expected transfers of existing employees reduces the numnber of existing Postal Service employees that the facility now handling mail processing has available to work.

The addition of individuals from Detroit in Toledo, also suggests that plants going through consolidations that are more than 50 miles from the originating plant need to have access to a broader list of potential employees than just those from the facility losing mail processing to ensure full staffing.   If the Postal Service does not have a system in place already one needs to be developed as plants going through consolidation could be helped by having information on employees that are available.   In addition, the Postal Service might want to follow a practice used in other industries going through major operational changes and create a list of experienced postal clerks and mailhandlers who would be willing to accept a one or two month assignment in a new facility during a transition period in order to ensure that sufficient fully-trained staff is available.   This may require some additional travel expenses but creates opportunities for senior clerks and mailhandlers to gain experience in the transition process that could prove valuable to local managers needed extra hands to fill in where needed.

Sunday, April 3, 2011

Consumer Spending Trends

The Economist posted a chart developed by Julia Coronado of BNP Paribas that illustrates why the economy stubbornly refuses to exhibit a recovery-like bounce.  Ms. Corado says in her notes, "While consumers are spending there has been no sign of pent up demand. Real consumer spending on goods fell off its pre-2008 trend line during the recession and has since resumed its former pace with no indications that a surge in spending to make up for lost time is imminent."

For the mailing industry, the trend in consumer spending presents both good and bad news.   The good news is that mail that grows with consumer demand (advertising) should grow at a rate approaching the growth rate prior to the recession, subject to the challenges of increased electronic competition.   The bad news is that volumes would not soon bounce back to the pre-recession trends even if electronic competition did not exist.

I urge readers to link to the Economist, Economics blog to take a look at the chart and read Ms. Corado's comments on how trends in consumer spending and employment will impact inflation and how they should impact economic policy.