Post Offices Currently Under Review

As an article in Auction Bytes notes, the Postal Service now has two processes ongoing that are or will examine whether Post Offices should be closed.   The Retail Access Optimization (RAO) Initiative has a list of nearly 3653 postal retail facilities.  In addition, there are 728 additional postal retail facilities that are currently under review for closure under existing processes.  The following chart lists the 13 states with the largest number of closures from both processes.  The chart shows that a standard process of identifying postal retail facilities that may be closed was further along in many states than others.

The following chart shows the states that have 20% or more of the postal retail facilities currently under review under the current process and are not part of the Retail Access Optimization process.

Representative Ross Indicates that Issa/Ross Bill will have no Change in Retiree Payments

In a tweet, Representative Dennis Ross hinted that the bill that Representative Darrell Issa and he will introduce tomorrow will not contain any change to the payment schedules for retiree obligations that are now contained in all other postal reform bills.

RepDennisRossDennis Ross

#USPS, this is why you prefund retiree benefits. http://t.co/wm1cnvI | "no one else does..." and this is where they are now.

If there are no changes in the payment schedules to reflect overpayment of either FERS or retiree healthcare benefits then the Issa/Ross bill will need to find quick reductions in Postal Service costs elsewhere.   There are few options but all will likely affect both compensation to postal employees and service to postal customers.

Representative Issa and Ross have given some hint to these changes in the hearings that they have held and in particular the titles of the hearings.  These hints have indicated that the bill likely include the following:

• Expedited reduction in service from 6-days per week to 5-days per week;
• Expedited public review process for the consolidation or closure of processing facilities;
• Expedited public review process for the closure of post offices and changes in the law to allow closure of post offices solely for operating at a deficit;
• Reductions in Postal Service compensation at least as great as proposed by Senator John McCain in amendments 251 and 252 to Senate Bill 493, the Small Business Reauthorization Bill.  Cuts will occur in:
• Executive pay
• Postal Service share of health care and life insurance benefits
• Reduction in retiree benefits for postal employees including the possible elimination of Postal contributions to FERS and the benefit that these contributions provide.  (A similar proposal was made for all government employees in the Senate.)
• Postal Service's ability to manage labor costs either through the labor negotiation process or in defining positions of employees currently represented by employee associations.

While these provisions will save the Postal Service money, it is unlikely that they will reduce Postal Service costs sufficiently and sufficiently quick to eliminatethe Postal Service's deficits and allow it to continue to make the retiree healthcare payments.   To do that, Representatives Ross and Issa may need to include a provision in their bill to institute a reduction in force (RIF) of around 10% of Postal Service employees to reduce payroll quickly to match income and possibly a provisions to reduce Postal salaries and/or benefits beyond those proposed by Senator McCain and others and that these cuts would include cuts in compensation to both employees that are and are not covered by labor agreements.    

A reduction of 10% of the Postal Service Workforce reflects the workforce cuts that Representative Issa, Ross and Chafitz introduced in HR 2114.   While that bill would reduce the the Federal workforce over 3-4 years, to get the cost savings required, the Postal Service would need to reduce its workforce almost immediately by 10% to get the cost savings needed to reduce costs to break-even levels.  It is unclear how far or how quickly cuts in salaries or benefits could be implemented to employees who are and are not covered by labor agreements.

USPS Closing Contract Postal Unit

According to a note on the National Association of Postmasters, US (NAPUS) website, the Postal Service is closing 20 contract units that offer virtually the same services as a Post Office. (i.e. Retail, PO Boxes, etc.)   The note implied that the closures are related to the APWU agreement. These closures raise questions about what the Postal Service's retail strategy is and how labor and contract unit contracts affect that strategy.

What LSU's Actions tells Us About Retail Postal Services.

The Baton Rouge Advocate reported that LSU is replacing a Postal Service run retail station for students on campus with one run by Ricoh, USA.    The switch will occur in the fall of 2011.  The switch is required because the campus Post Office is one of those being closed by the Postal Service.

In addition to the student mail center that is located in the LSU Student Union,   LSU has its own university mail service for non-personal mail and parcel services.  The LSU mail service also provides printing services for university clients.

The Postal Service's Post Office at LSU is one of a number of campus based Post Offices that the Postal Service is interested in closing.    Campus based post offices are not found on all campuses as many colleges and universities have their own internal mail services that provide mailboxes for students and may operate contract stations for the Postal Service as well.  For example, Macalester College, St. Thomas University, and the College of St. Catherines all operate contract stations for their college community that are also open to the public and can be found by searching for Post Offices in zip codes 55105. These campuses also have mailboxes for students that are run as a separate operation as per Postal Service contract station rules.   In many instances, mail services for students and the universities also handle copying and printing needs of campus based customers.

The following excerpts from the story 

The move will cost students more and require students living on campus to purchase mailboxes, but also should solve long-term mailing services problems on campus, said Jason Tolliver, LSU director of auxiliary services. ... The end result should be better quality in a consolidated, one-stop shop for mailing, copying, binding and graphic design services on the bottom floor of the LSU Student Union, he said.

“It’s a challenge for us, because we’re changing the way we do business,” Tolliver said. “But the service has not been what it should be. You can stand over there 20 to 30 minutes waiting in lines because of understaffing.

Although Ricoh may not be a household name, Tolliver said, the company offered to invest more in LSU and provide additional services like luggage carts, wireless “hotspot” printers and online “doorbell” notifications to let people know when they have new mail.

Ricoh will pay LSU about $133,000 in annual rent, he said, and invest $350,000 in renovations for the space, in addition to more than $200,000 in new equipment and software.

The switch to Ricoh USA illustrates the impact of change and suggests that it may have been possible for the Postal Service to continue to operate campus based Post Offices if they were able to

1. charge market rates for campus mailboxes; 
2. integrate delivery information with e-mail and text messages to provide box holders with information about when new mail arrives; 
3. legally provide on-site printing services that print documents that are then delivered to a post office box as a service to students on campus; 
4. find the cash necessary to invest in equipment and information systems necessary to provide both print services and the links between delivery and e-mail and/or text messages; and 
5. expand into other mail-related back office activities that it currently cannot provide under Postal Accountability and Enhancement Act restrictions that a private sector firms like Ricoh USA, the UPS Store, and Pitney Bowes can provide.

Senator Carper's Bill: D.O.A

Senator Tom Carper introduced a new postal bill, the ‘‘Postal Operations Sustainment and Transformation Act of 2010’’ (The POST Act of 2010), to modify the Postal Service's business model on September 23rd.   The bill includes all of the legislative changes that the Postal Service requested as part of its action plan last March.  The strong support that Postmaster General Potter shows for the bill in the press release from Senator Carper's office confirms that this bill can be thought of as the "Postal Service's bill."

Unfortunately for Postmaster General Potter, Senator Carper's bill is effectively dead on arrival.  Why?

• The bill was introduced at the end of the legislative session.    With both the House and Senate going on recess to campaign, the consideration of the bill will not even begin until after the election.    The bill still will require mark-up in the Senate and then mark-up and passage by the House.   The clock will most likely run out before passage in one house of Congress, let alone two.
  
• The expected Republican gains in the Senate and House will make any lame-duck session particularly contentious and further reduce the chance that any major legislation will pass.   If Republicans gain control of one or more houses in Congress, it is in their interest to make the lame duck session as ineffective as possible forcing legislative actions to be put on hold until the next Congress.
  
• It is easier to stop legislation than to pass it.   The Post Act has a number of provisions that immediately generate opposition.
  
• Provisions in the legislation to fix the retiree benefit issues easily can be opposed in a Tweet describing the fix as a bailout of a failed federal agency.   This is exactly what Congressman Darrell Issa said in his op-ed in the Washington Times.  Given opposition to bailouts of private sector firms, Congress is unlikely to pass any legislation labeled as a "bailout" of a government entity in the press, in the blogosphere, on cable TV news or on talk radio.
  
• Provisions to allow the Postal Service to eliminate Saturday delivery will receive opposition from a majority of Congress. 
  
• Provisions to allow the Postal Service greater flexibility to cut rural post offices will face opposition from primarily the Republican and Blue Dog Democratic members of Congress that represent most of rural America.   While these members are opposed to bailouts, they are also opposed to cutting services to their constituents.
  
• Provisions allowing the Postal Service to expand into new services that use its physical, technological and human capital that are in the public interest will receive opposition from companies that fear competition from the Postal Service.
  
• Provisions calling for a change in labor arbitration decision criteria will have opposition from Postal unions and their supporters in Congress.

Finally, if this bill does not pass this Congress, it is even less likely to pass in its current form in the next.   Republicans will control the agenda on modifying the Postal Service's business model in the next Congress.    Representative Issa, who has already called the Carper bill a bailout, appears likely to chair the committee writing Postal reform legislation in the House.   His bill will likely require significant changes in the business model beyond what the Postal Service has proposed before accepting the need to fix the retiree benefits issues, let alone include any of the other proposals that Senator Carper has included in the Post Act.  When that occurs, all that may remain of the Post Act will be the legislation's title.

Closing Post Offices or Cutting Hours.

The Spatanburg Courier-Journal reported that the Clifton, South Carolina post office is going to have reduced hours.   Currently, the Clifton post office is open Monday through Friday from 7:30 to 11 a.m. and from 1 to 4:45 p.m. and on Saturday from 8 to 11:45 a.m.  The new hours will be 9 a.m. to 1 p.m. and 2 to 4 p.m. Monday through Friday and 9 to 10 a.m. on Saturdays.   This is a reduction of 8 hours per week or more than 20% of total hours.  The reduction in hours creates greater difficulty for households or businesses that are within one-quarter mile from the post office as they have their mail delivered to a post office box that is only accessible during opening hours.

Clifton South Carolina is illustrative of the problem facing many post offices, reduced levels of service.  What are the alternatives?

• By cutting hours, is the Postal Service trying to discourage retail business?  Customers have to really want to use the Postal Service given the limited number of hours
• How does the USPS expect to compete when there is a FedEx location that is open from 7:30 a.m. - 9:00 p.m. weekdays, 10:00 a.m. - 6:00 p.m. Saturday, and 12 noon - 6:00 p.m Sunday only 7 miles away and self-service boxes located as close as 2 miles away?
• How does the USPS expect to compete when there is a UPS location that is open from 8:30 a.m. - 6:30 p.m. weekdays, and 8:30 a.m. - 6:30 p.m.. Saturday less than 7 miles away and self-service boxes located as close as 2.5 miles away?
• Would consolidating the 5 post offices within 5 miles of Clifton and offering longer hours at the offices that remain open longer hours make the Post Office more competitive for retail parcel shipping in Clifton than a Post Office in each of these communities open only limited hours?
• Could the Post Office put in a cluster box outside the Post office for those that customers that must collect mail at the Post Office that would give them 24-hour access?
• Could an automated Kiosk like those deployed by Deutsche Post, Post Danmark offer better parcel pick up and delivery service in Clifton than a post office that is only open a limited number of hours?

 Closing post offices is an emotional issue and affect both the communities that lose their post office and the employees that work there.   However, the purpose of a post office is to serve customers.   Clifton, South Carolina provides a good illustration how a combination of how expanding the use of cluster boxes, self service kiosks used along side a more limited number of full retail outlets with convenient hours could cut the Postal Service's costs, make its services more convenient to customers, and make its services more competitive.  Only money and creativity prevents this from happening.

Amazon: Avoiding the Post Office

In Rethinking the Parcel Market, I noted Amazon's effort to offer same day delivery and what that means for UPS, FedEx and the Postal Service in the United States. Today's Times Online reports that Amazon has launched "a secret search for bricks-and-mortar stores to support its rapidly growing website. It is understood to be scouring the country for high-profile sites."

According to the article, Amazon is not looking to open retail outlets where customers can buy goods that the store has in inventory. Instead, the stores will provide a delivery point for customers that order larger items that mail or truck delivery is inconvenient.

[Monday 12/7/2009 Amazon has subsequently denied the story. Given the success of Apple stores and Amazon's success in revolutionizing the retail supply chain, the idea that Amazon would add a brick and mortar option seems logical. The brick and mortar option clearly fits with Amazon's clear interest in reducing the time from order to delivery. The post was edited following its original posting to reflect why Amazon may have explored the possibility of retail even if it has for now rejected the available brick and mortar options.]

Amazon's move if completed would put it in direct competition with Argos, Tesco and John Lewis which all offer similar services. The Times reports that Argos' customers pick-up 18% of their Internet purchases in brick and mortar outlets rather than have the items delivered by parcel carrier or road transport. Argos will generate half of their television sales this Christmas via the combination of a purchase on the Internet and delivery to a brick and mortar outlet.

If Amazon goes ahead with a retail strategy, it should be able to haul items for pick-up to its "stores" using contract carriers dedicated to their retail network. Amazon's business case would most likely show that both customers prefer to pick-up their larger items at a retail outlet and the overall delivery costs, including the cost of operating retail outlets, is less than the cost of home delivery. Amazon could then decide to hold some inventory of fast moving items at retail outlets to further reduce costs and allow for same day pick-up of these items. For this strategy to be successful, the customer's experience in retail outlets has to be just as good as the experience on the website.

A retail initiative by Amazon's would be a direct assault on Royal Mail, DHL, UPS, TNT, FedEx and road transport companies that handle items that weigh over 75 pounds (34 kilo). The reported new initiative would also be a direct assault on retail outlets of Royal Mail and its competitors that could provide a similar service to replace the loss of sales as single-piece letter mail volume decline.

Amazon is unlikely to pursue a similar strategy in the United States. Pursuing this strategy in the United States could require Amazon to collect sales taxes on sales in those states where it opened retail outlets. Losing the sales tax advantage would eliminate a price advantage that Amazon has over Best Buy, Sears and other s that offer store pick-up of Internet sales. Given the peculiarity of U.S. tax law there is an opportunity for FedEx, UPS, and the Postal Service to work with Amazon to expand the hours of a limited set of their retail outlets to make them pick-up points for Amazon and other Internet retailers. Alternatives any of these competitors could follow the lead of the German and Danish Post Offices and open self-service lock-boxes for after hours parcel delivery.

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 "päckchen" 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.