Smart Post - What Does its Success Suggest for Letter and Flat Mailers

In my previous post, I noted that FedEx volumes for Smart Post exceeded the Postal Service's measured volumes for Parcel Select.   This implied that FedEx Ground, UPS and other parcel consolidators used other postal products, most likely Standard Mail Parcels, to handle the parcels that they want delivered less than 1 pound.  The attention that Smart Post received from analysts raised some additional questions that suggest that there may be Postal Service revival strategies that are not the focus of the current discussions about future business models for the Postal Service.

So lets start with what we know about Smart Post and how the Postal Service handles it.

What We Know

1. The volume of parcels that FedEx Ground and United Parcel Service employ the Postal Service to delivery are growing faster than the United States parcel market is growing.
2. The volume of parcels that the Postal Service is handling for all customers is not growing as fast as the overall market.  
3. The Postal Service's volumes for its products that that FedEx Ground and UPS use is declining while their volume using these products are increasing.  This trend means that the Postal Service is becoming increasingly reliant on FedEx Ground and United Parcel Service to market its delivery services to shippers.
4. The growth in the use of the Postal Service by FedEx Ground is attributed to the improvements in delivery service quality that came when the National Distribution Center network restructuring was implemented.
5. The growth in the use of the Postal Service also came at a time that the Postal Service held rates for parcels under 1 pound constant (due to the rate cap) making the Postal Service's delivery service more competitive with FedEx Ground or United Parcel Service using their own resources to deliver light weight parcels.  It is unlikely that costs that FedEx Ground or UPS would have incurred using their own resources remained constant during this period. 
6. The network distribution center realignment has reduced the cost of handling bulk parcels.  See USPS-OIG (Management Advisory Report – Network Distribution Center Phase 1Activation (Report Number EN-MA-10-001)
7. The cost savings from the network distribution realignment would have been larger if management had taken actions to reduce excess employees months earlier than they had.  (See (Management Advisory Report – Network Distribution Center Phase 1Activation (Report Number EN-MA-10-001. p 12) 

What Are The Implications?

• A serious network realignment effort both cuts costs and improves service.
• Improvements in service and competitive prices increase use of the Postal Service's delivery service.
• The Postal Service could improve its competitive position in the delivery of printed advertising if it implemented a network realignment for its letter and flat mail streams that at least as aggressive as it just did for parcels.
• It may be time to rethink the current classification of some parcel services as market dominant products as most users of these products are buying delivery services from the Postal Service in a highly competitive market for the provision of services to deliver small parcels.

What is holding back the Postal Service?

1. Cost savings from network realignments require that plans to excess employees need to begin before it is known how many employees may be released.  The USPS-OIG report indicates that it takes between 4 and 11 months to complete the Article 12 provisions in its labor contracts.   So unless it begins the excessing process before a consolidation is approved, it will have excess employees in standby rooms for months waiting for the negotiated process to be completed. 
2. Currently network realignment including excessing unneeded employees takes as long as 18 months from the time a proposal is announced until all excess employees are reassigned.
3. Current facilities may not be the right size or in the right location to optimally restructure the network.  For example, consolidating carrier route sequencing in processing plants would reduce operating costs and increase the proportion of mail that the Postal Service handles that is route sequenced, as this consolidation reduces mailer transportation costs to the location where the sequencing occurs.
4. Capital does not exist to cover the costs of relocating or expanding facilities to meet the needs of a more streamlined network.   
5. Capital does not exist to cover the severance or early retirement incentive costs required to handle excess employees.
6. Political considerations make it difficult to consolidate facilities and just as importantly increase the time required to complete public hearings prior to announcing that a consolidation proposal will proceed.   The effort required to prepare and hold public hearings add to the cost burden. 

Network realignment should have been the Postal Service's first priority in its effort to cut costs as it is the one cost cutting move that actually improves the quality of service the Postal Service offers by streamlining the delivery process.  The combination of numerous actions of Congress that drained the Postal Service of needed cash, declining revenue due to electronic diversion and the recession, a nearly 18 month time frame from the time a proposal is proposed to the time all excess employees leave the payroll, the political minefield of reducing postal employment at any time and in particular during a recession put it on the back burner.

Instead the Postal Service is moving forward with actions that affect its core customers (mail that contains advertising, including advertising in magazines and accompanying bills and statements) the most: eliminating service on Saturdays and raising prices.   The impact of this strategy is clear.

• Valassis is expanding its use of alternative delivery networks in nearly every market where such services exist.
• Firms that provide alternative delivery in portions of markets are expanding the geographic reach to cover more households.  For example, Donnelley Distribution has just added Delaware County Pennsylvania to its coverage area and Power Direct is expanding into the Las Vegas market.  Both of these companies provide services that effectively compete on a price and service basis with the rates the Postal Service charges for saturation flats.
• The Economist is experimenting with home delivery using delivery services that provide newspaper or periodical delivery for other customers.  If the Economist's subscribers like the new method of delivery, it is likely that the Economist will continue to use alternative delivery. 
• Major media companies, in addition to expanding their use of alternative delivery for periodicals and saturation advertising, are discussing nationwide distribution deals with hand delivery companies to move items currently handled as First Class mail to alternative delivery using a combination of drop-shipping and same day delivery, a service that the Postal Service does not offer, to avoid violating the private express statutes.

Is there a Problem with RPW Parcel Select Volumes?

In a recent post illustrating the importance of the Postal Service, I noted that FedEx Ground had 28% of its volume delivered by the Postal Service in FedEx's most recent quarter.  The same phenomenon was examined by Robert W Baird investment analyst Jon Langenfeld in his most recent report on FedEx reported the same figures.  He noted that FedEx's increased use of Postal Service delivery corresponded with improvements in the Postal Service delivery quality.

The problem with this analysis is that the volumes that FedEx reports for its SmartPost product exceed the total Parcel Select volume reported in RPW.  Here is the data for the Postal Service's most recent fiscal year and the closest period for FedEx.

• USPS October 2008 – September 2009:  222.9 million Parcel Select Parcels
• FedEx September 2008 – August 2009:  267.2 million Smart Post Parcels

The same results exist for the equivalent of the Postal Service's First quarter 2010.

• USPS October 2009 – December 2009:  79.7 million Parcel Select Parcels
• FedEx September 2009 – November 2009:  67.2 million Smart Post Parcels

Given that United Parcel Service and numerous regional parcel carriers are known to use the Postal Service then the total volume that these carriers provide the Postal Service would far exceed the volumes of parcel select.  The difference most likely reflects one of the following two scenarios:

1.  The Postal Service handles a significant number of parcels for FedEx Ground, UPS and other consolidators that are priced at Standard Class parcel rates.   The rates for up to one pound Standard parcels are below rates for Parcel Select for items dropped at a destination NDC and the difference is greater if the parcels can be dropped closer to destination.
   
   
2. The RPW measures of parcel select volumes are wrong.    

The second scenario is highly unlikely given that revenue and volume that FedEx Ground, UPS, and other consolidators provide the Postal Service are tendered with documents or electronic files with actual piece counts that when summed generate numbers in the RPW report.

The first scenario is troubling for a number of reasons:

1.  There is reason to believe that Standard Parcel rates may be below costs based on the 2009 Annual Compliance Report.  If that is true, than the Postal Service is providing a delivery service for FedEx and UPS because it offers the service not only at a price less than UPS and FedEx Ground's costs  but also its costs as well.  It does not make sense for other mailers to subsidize private sector parcel delivery companies if this is true.
   
2. Under the current regulatory scheme that has some regulated and some unregulated parcel products, the Postal Service can not follow the price increases of its private sector competitors for parcels under 2 pounds.    Over time, this means that the differential between Postal rate and the costs of FedEx Ground and United Parcel service using their own resources to deliver these parcels will grow over time as this anomaly continues to exist.  

The Postal Service also generates losses for single piece parcels and presorted First Class parcels.  As long as these rates cannot adjust when the private sector changes parcel delivery rates, the Postal Service will be faced with the prospect of delivering more and more parcels at a loss or at unacceptably low margins.

The solution is clear, all parcel products need to be considered competitive products.   If they were competitive products, the Postal Service would not be prevented from charging rates closer to market rates that other carriers set for parcels under 3 pounds or in the case of parcels that they deliver for other carriers, the costs of these carriers for handling the delivery of these parcels themselves.

Insights from the DMA's Jerry Cerasale and Nonprofit Mailers's Tony Conway

In the most recent Postcom Radio podcast, Gene Del Polito covered a wide range of current topics with Jerry Cerasale, V.P. of Government Relations for the Direct Marketing Association and Tony Conway, Executive Director of the Alliance of Nonprofit Mailers.  Their discussion was quite useful for stakeholders trying to understand possible changes in the postal market.  The following is a quick summary of the ideas and issues raised in the Podcast.


Improving the Business Relationship

The discussion focused on two ideas that would put the relationship between the postal service and its customers in line with how mailers deal with all other vendors.

Electronic Manifests - Electronic manifests would allow postal customers to pay postage and complete much of the acceptance documentation electronically.  Electronic manifests would mean that the USPS and each customer would easily know the volume sent over any period making it easier to develop contract rates and document volumes required by regulation for sales.  Most importantly, electronic manifests, if integrated into the Postal Service's work force and transportation models could allow it to manage its resources more efficiently.  Electronic manifests have been used in trucking, rail, air cargo, and ocean cargo for nearly twenty years.  The question is why have they not been employed by the Postal Service?

Standard Payment Terms - Standard payment terms are usually payment within thirty or 60 days.   The Postal Service pays its vendors using standard payment terms but requires its customers to pay when service is being rendered.   Implementing standard payment terms has two issues that prevent the Postal Service from accepting the idea.   First, giving up payment terms that require payment when the service is rendered would create a short term cash flow issue that the Postal Service can ill afford right now.  The Postal Service would have to borrow to cover the delay in payments.  Its borrowing costs could be reduced if payment terms were eased in over time.   Second, the Postal Service would have to cover the costs of services for customers that do not pay their bills.  This would come from either higher rates or in an idea suggested by Jerry Cerasale, a payment bond to cover potential losses.

The Postal Service's Action Plan

The discussion on the action plan noted that most of the actions that the Postal Service wants to take require action by Congress.  Neither Jerry Cerasale nor Tony Conway expects Congress to act swiftly on what the Postal Service presented.  They concluded that the Postal Service is left with two options.

An exigent rate case - An exigent rate case is a proceeding under which rates can be "adjusted on an expedited basis due to either extraordinary or exceptional circumstances, provided that the Commission determines, after notice and opportunity for a public hearing and comment, and within 90 days after any request by the Postal Service, that such adjustment is reasonable and equitable and necessary to enable the Postal Service, under best practices of honest, efficient, and economical management, to maintain and continue the development of postal services of the kind and quality adapted to the needs of the United States."  39 US Code (d)(1)(E)

Both Jerry Cerasale and Tony Conway stated that their organizations will challenge the legal basis for an exigent rate case and in particular whether a recession and electronic diversion represent "extraordinary or exceptional circumstances."   Both agreed that the Postal Regulatory Commission's decision will be more based on political considerations than legal ones. 

Labor Negotiations - The Postal Service believes that a number of changes in work rules and other terms in their labor agreements could significantly reduce costs and more effectively deploy the employees covered by those agreements.  The most important change mentioned is increasing the proportion of part-time positions.   As these changes require negotiations with the Postal Service's four labor unions and if necessary arbitration, Tony Conway noted that cost savings from changes in labor contracts could not be implemented until 2011 or 2012 for clerks and mailhandlers and 2012 or 2013 for city and rural letter carriers.

Leaving the Mailstram: Saturation Advertising

This blog had previously reported on the actions of Valassis to use alternative delivery for its saturation advertising products.  Last month, PowerDirect, a California company that manages a nationwide network providing door delivery of advertising introduced a new direct-to-door, co-op polybag media program announced that it will launch its service in Las Vegas on July 3. 

PowerDirect like other firms trying to compete with the Postal Service for a share of the market for delivery of print advertising to households is a firm focused on local delivery of advertising.   Their business model allows them to compete with the Postal Service on both a price and service basis.  The success of these firms suggests there is a business model that allows for home delivery of advertising at below $1 per stop and more than likely at a cost that makes their advertising products competitive with Postal Service delivery.   This business model is not the model of FedEx, UPS that shifts parcels going to remote locations and those that generate less than $3 to $4 in revenue to the Postal Service through their services integrating pick-up and transportation to near destination by UPS or FedEx and delivery by the Postal Service.  

In its Press release, Mike Hiskett, VP of Sales at PowerDirect highlighted the Postal Services problems to press the case for the new product. “We have seen the many challenges that our retailer clients face in trying to reach consumers at home on the weekend when they are most likely to make purchase decisions and shop,” states Mike Hiskett, VP of Sales at PowerDirect. With shrinking newspaper circulation, limited Total Market Coverage (TMC) programs, and the prospect of a Saturday postal-service cutback, many of our clients are seeking a more reliable weekend marketing medium to drive incremental sales."

The Postal Service can expect more and more firms in the advertising and periodical delivery business to begin nibbling away at what it perceives to be an impenetrable market.  These firms know now that they can compete on price.  Their challenge going forward is to convince customers that they can compete on service and investment return.

Saving The Public Enterprise Model - Who Pays?

Tomorrow, the House Oversight and Government Reform Committee will receive testimony on three reports detailing changes requiring congressional or regulatory action.  These reports are

• Ensuring a Viable Postal Service for the Postal Service: An Action Plan for the Future by the U.S. Postal Service
• U.S. Postal Service: Strategies and Options to Facilitate Progress toward Financial Viability by the Government Accountability Office (GAO)
• The U.S. Postal Service’s Financial Condition: Overview and Issues for Congress by the Congressional Research Service (CRS)

All three reports present changes that are designed to allow the Postal Service to retain its status as a self funding government enterprise.    The changes identified in the reports are significant and reflect changes that the authors believe (or in the case of CRS the author reports) will allow the Postal Service to operate in the new competitive environment in the document and parcel delivery markets.

The recommendations contained in the reports divide easily into two categories: those that have budget impact and those that do not.   All of the changes to Civil Service Retirement System liability calculation, retiree health care liability calculation, and retiree health care liability payment schedule all affect the Federal budget.   All other proposed changes do not.

Both employee and customer groups have argued that current methods of handling retiree obligations represent the equivalent of a stamp tax.   The Postal Service has testified that following the thinking on these issues of the USPS OIG would eliminate the need to cut a delivery day and just dealing with the retiree health care liability payment schedule is needed to hold off more drastic rate increases, service cuts, and reductions in the number of employees.  However the retiree issues bump up against the impact on the budget which is now one of the hottest of hot buttons in Washington 

Identifying who bears the costs of the recommended changes that do not affect the budget is clear.   Employees will see both reductions in their numbers, and new employees will face lower pay levels and the probability that many new jobs will be part time.   Customers will see less service and higher prices as one delivery day is eliminated and prices for classes receiving preferential treatment in the rate setting process lose their protection and prices for all customers lose the protection of the price cap.

Identifying who gains from the recommended changes that do not affect the budget is less clear.  Consumer and business customers will gain from greater access to postal services from a modernized retail network.   Employees near retirement will gain from retirement incentives if the Postal Service and unions agree to implement GAO's recommendations.   The federal government could gain if it does not have to rework retirement issues and eliminates any prospect of subsidies for postal services.

The costs associated with the recommendations are exactly the costs that opponents of corporatization and privatization have noted in actively opposing a private sector business model for the Postal Service.  What these reports show is that retaining a government enterprise model does not save employees and customers from the costs they must bear during the adjustment to the new postal market.

If the public enterprise model does not protect employees and customers from adjustment to the new postal market, it may be time for opponents of privatization to take a second look.  Privatization only makes sense with a resolution of the retiree benefit issues close to the lines projected by the USPS OIG.  Then the Postal Service would have a clean balance sheet and manageable costs for retiree expenses that would allow for profit levels that would be attractive to private investors.  Privatization could deal with the budget issues as the loss of Postal Service retiree benefit payments would be replaced with cash from the sale of stock to private investors, taxes, and while still owned by the government dividends.

Until now, privatization has only been the solution of libertarians and conservative economists.  Many of these advocates also hold strong anti-labor views that make union members and their leaders highly resistant to taking privatization seriously. These economists often also have a minimal understanding of postal markets that make larger postal customers wary of the impact of privatization could have on their ability to meet their document or parcel delivery needs.

Now that the public enterprise model no longer offers postal employees and customers any protections from the impact that they believed would be caused by privatization, employees, their union leaders and customers should take a second look at privatization.

In particular, privatization offers four important advantages for employees over the government enterprise models.  First, privatization offers the one budget neutral option for resolving the retiree benefit issues in the Postal Service's favor.   Second, privatization offers the possibility of employee ownership and gain-sharing similar to what employees of Conrail received when the company reversed decades of decline and adapted to the new role of railroads in a transportation market dominated by trucks.  Third, privatization, offers a framework would allow streamlined market-based prices for customers choosing between print and digital delivery while still allowing regulatory protection of the most vulnerable customers of the Postal Service.  Fourth, privatization offers the only option for expanding postal revenue beyond the physical delivery of documents and parcels without running into the issue of a public enterprise competing with the private sector.

Fleshing out a privatization plan developed from a perspective of analysts with a greater understanding of the mail market and more favorable to the interests of employees and customers could give postal customers, employees and unions an option more favorable to their interests than the public enterprise model that Congress may try to save.

Postal Policy: Now its Congress's Turn

Now that the Government Accountability Office report is out it is time for Congress to get down to the serious business of re-evaluating the current business model and regulatory framework.  Congress is starting this process with hearings in the House and Senate, this week and next. In preparing for these hearing, members on the relevant committees have a significant challenge preparing for the postal and other governmental witnesses.
Both hearings will focus on reports by the Postal Service, Government Accountability Office and the USPS Office of Inspector General.

• Federal Budget Treatment of the Postal Service by the USPS OIG
• The Postal Service’s Share of CSRS Pension Responsibility by the USPS OIG
• Final Management Advisory Report – Estimates of Postal Service Liability for Retiree Health Care Benefits by the USPS OIG
• Ensuring a Viable Postal Service for the Postal Service: An Action Plan for the Future by the U.S. Postal Service
• U.S. Postal Service: Strategies and Options to Facilitate Progress toward Financial Viability by the Government Accountability Office
• The U.S. Postal Service’s Financial Condition: Overview and Issues for Congress by the Congressional Research Service

In addition to representatives of the entities that produced these reports, members of Congress will hear from the Office of Personnel Management and the Postal Regulatory Commission who have an interest in many of the suggested changes in law that the reports discuss.

The three reports by the USPS Office of Inspector General cover technical actuarial and accounting issues over which there is a dispute between the Postal Service and the Office of Personnel Management as well as a critique of Congressional budgetary actions relating to the Postal Service. The CRS, GAO and the Postal Service have recognized the importance of the resolving the CSRS accounting and retiree health care funding issues in their reports. The critique of Congressional budgetary actions provides some context as to how Congress and the Office of Management and Budget has historically viewed their responsibility for the Postal Service and how the Postal Service’s cycles of strong and weak financial performance can be used as part of the solution of meeting budget goals.

The Postal Service’s report provides an action plan for operating its business within the current business enterprise business model. The modifications requested are changes from current financial, operating, employment, and marketing efforts that Postal Service management and the Board of Governors are sufficient to return the Postal Service to financial stability.The Postal Service’s report does not address the overarching mail industry policy, corporate governance and regulatory framework issues in any detail. Nor does the Postal Service report provide a vision for the Postal Service’s role in the US economy in 2020 that is much different than what now exists with the exception that its impact will be much smaller.

The GAO’s report, like the one produced by the Postal Service, provides strategies necessary to improve Postal Service operating, and to a lesser extent revenue management, and highlights Congressional action necessary to allow those improvements to occur. The GAO report goes beyond previous reports in its examination of the Postal Service’s cost structure and the legal impediments that prevent it from adjusting its costs to match current and projected revenue. The GAO report, like the Postal Service report does not address in detail the mail industry policy, corporate governance and regulatory framework issues that affect the Postal Service’s ability to implement operating, and marketing plans to best meet the needs of mailers and parcel shippers.Neither does the GAO report provide Congress with information that would help it understand the role that the mailing industry, and the Postal Service as the core of that industry could have in the US economy in 2020 and beyond.

The Congressional Research Service (CRS)report focuses on a “number of ideas for incremental reforms have been put forth that would improve the USPS’s financial condition in the short term so that it might continue as a self-funding government agency, all of which would require Congress to amend current postal law.” The ideas that the CRS reviews are those previously presented by the Postal Service and the USPS OIG and include many included in the GAO report as well. The CRS notes the objections of the Office of Personnel Management to the changes in retiree benefit obligation calculation or funding schedules. CRS’s description of the report’s focus nicely summarizes the overall tenor of all of the reports that Congress will review in upcoming hearings.

Before developing their approach to questioning the witnesses, members of Congress have to first understand what the reports that the witnesses are presenting to them are and what they are not. The reports that Congress has before it present:

• Incremental reforms that proponents suggest would improve the Postal Service’s financial condition in the short term; and
• Incremental reforms that retain the current model of the Postal Service as a self-funding government agency

What Congress does not have before it is a framework for understanding the broader policy context within which these incremental reforms fit. As CRS notes, the incremental reforms in the various reports do not answer the question: “Is the USPS, as currently constituted, incapable of responding to a shifting, and possibly declining, market for its products and services?” It is this question that raises the fundamental questions about postal industry policy, governance of the Postal Service, and the regulatory framework that makes sense for the postal industry. If the answer to this question is yes, then the incremental reforms make little sense unless they are steps in the direction required to create an entity capable of responding to a shifting and possibly declining market for its products and services.

The following set of questions represent examples of the types of questions that Congress needs to ask witnesses in order to develop the framework within which incremental reforms make sense.   While some of the government entities can answer these questions, many of them go beyond the scope of the studies that they have just completed or their role in developing postal industry policy.
It may be time for Congress to begin the process of framing these questions so that GAO, CRS, the USPS OIG, the USPS or entities in the executive branch responsible for economic development, communications and transportation policy answer them.  After they are answered, Congress will be able to move forward on the incremental steps that the various reports suggest with an understanding of the broader policy context within the individual steps fit.

General Postal Industry Policy

1. What should the overall objective of postal industry policy over the next decade and beyond and where does the Postal Service fit into that objective?
2. Is that objective different from the objective of either the Postal Reorganization Act or the Postal Accountability and Enhancement Act both written when digital competition was less pervasive?
3. Is a self funding government enterprise, the best way to employ the postal market to generate economic growth and jobs in the United States or do other models provide greater opportunities to grow the US economy?
4. What impact do restrictions on entry of private sector entry into mail delivery and the Postal Service into non-postal products have on economic growth and jobs in the United States?
5. What benefits are generated by these restrictions and how do the benefits compare to the impact on economic growth and jobs?
6. What impact do current postal pricing law and the Postal Regulatory Commission’s interpretation of that law have on U.S. economic growth and jobs?  How would different postal pricing law affect or regulatory policy affect economic growth and jobs?
7. How does Postal Rate Commission regulatory responsibility affect economic growth and jobs and how does that compare to the benefits of regulation?

Postal Governance

1. Is the USPS, as currently constituted, incapable of responding to a shifting, and possibly declining, market for its products and services?
2. Is the USPS as currently constituted handicapped in responding to a shifting and possibly declining, market for its product and services?
3. How does the current governance structure as a government sponsored enterprise affect the Postal Service’s ability to manage the types of changes that the GAO, the CRS and the Postal Service describe?
4. How does the governance structure affect the speed at which the Postal Service reacts to changes in the postal market?
5. Does the current Postal Service board have sufficient experience in managing similar enterprises?
6. What would be required to ensure that it does?
7. How does the choice of a governance model (i.e. private sector vs. government enterprise) affect the choice of regulatory policy for the industry?

Financial Objectives

1. What is the financial measure that determines whether the Postal Service’s action plan or for that matter any action plan succeeds?
2. Is that financial measure sufficient to ensure that the Postal Service is self sufficient?
3. What is the financial measure that determines that a government enterprise is self-funding and is that the same measure that would determine if it is self sustaining?
4. Does self sustaining require only accounting break even or does it require a positive operating margin and rate of return?

The Postal Market

1. What is the fundamental role in the US Postal Service in the US communications and goods distribution infrastructure today?
2. By 2020, what proportion of mail will contain advertising whether in the form of direct mail, inserts in bills and statements or periodicals? How much greater is that from today?
3. How will the increased importance in revenue from advertising change the fundamental role of the Postal Service?
4. What impact does digital delivery of transaction documents, advertising, and personal communications have on the value of the Postal Service monopoly?
5. How should that impact be measured?
6. How does the existence of digital alternatives affect the price competitiveness of mail?
7. In particular, which industries using mail to distribute periodicals, send documents and correspondence, handle business transactions or advertise of customers are most sensitive to competition from electronic alternatives?
8. How does the proposal to eliminate a day of delivery affect individual vertical mail markets (i.e. personal correspondence, weekly newspapers, real estate advertising, supermarket advertising, utility bills and payments, etc.)?

Employee Costs

1. How do Postal Service wages and benefits compare with those offered by private sector firms in the postal industry such as FedEx, United Parcel Service, and Pitney Bowes?
2. What was the difference in the retirement rate of early retirement offers using voluntary early retirement authority and the incentives granted last fall?
3. How many months prior to normally planned retirement date do those that retire with an incentive retire and how much does that save the Postal Service?
4. What is the difference in net present value cost of offering an early retirement incentive to an employee as compared to retaining an employee whose position is excessed and paying them a salary above what their new position normally calls for?
5. How does attrition rate affect the decision to reduce network capacity?

Network Optimization

1. (For the GAO) How long have you presented recommendations that the Postal Service take effort to reduce its operating network?
2. What are the impediments in the Postal Service’s governance structure, labor agreements, cash flow, or culture that has prevented it from acting on network realignment faster?
3. How do attrition rates affect the decision to restructure the network?
4. How would the restructuring differ if the proportion of part-time employees increased?
5. How would the speed of the processing network optimization change if retirement incentives were readily available to handle the reduction in the need for employees?
6. What would be the upfront cost of using retirement incentives as part of a network restructuring?
7. What should the overall objectives of a postal network / retail network realignment commission be set?
8. Should a postal network / retail network realignment commission have the authority to make recommendations in regards to policy, governance, or regulatory impediments to the development of an efficient and effective network of processing and retail facilities?

Retail Access

1. What should the metric be for determining retail access to the services the USPS offers?
2. What proportion of users of retail customers of households and what proportion of users are non-households?
3. How often do households on average use a retail postal outlet? Does it vary by age, geography, or rural area?
4. What is the difference in access to retail services today in urban, suburban and rural parts of the United States?
5. How does access to USPS retail services compare to access to retail services of UPS and FedEx in urban, suburban and rural parts of the United States?
6. How have UPS and FedEx managed with primarily a contract/self-service model and are there differences in their retail customers that could affect the use of that model by the Postal Service?
7. What is the experience in other countries with their satisfaction with postal retail services before and after a switch to self-service and contract models?

Pricing

1. Is the issue of money losing products more an issue of cost levels or price levels?
2. What impact would only solving the problem with raising price have on the volumes handled and the ability of the Postal Service to meet its policy objectives?
3. GAO in its list of highlights for revenue generates suggests that the Postal Service revise pricing for market-dominant products, such as First-class Mail and Standard mail?
4. What revisions does the GAO suggest the Postal Service make?
5. How does current regulatory precedent and pricing objectives affect the ability to make the changes that GAO would suggest?
6. How do pricing objectives in the law and PRC precedent affect the ability of the Postal Service to implement the pricing flexibility that GAO and others suggest?

The Postal Journal - New Look and features

The Postal Journal has just completed its upgrade of its web design.   Check out the new site and in particular the lead story on Transactional Printing in North America.   

The objective of the Journal is to explore the evolution of the North American postal market as part of the 21st century economic and communication infrastructure and facilitate an exchange of perspectives by individuals without regard to past or present affiliations, and to do so without any preconceived notions of what should be the end result.  The Journal will provide the postal industry with information needed to deal with rapid change as government policy initiatives, and market forces challenge established relationships between service providers and their employees and customers.

While the Postal Service is the largest carrier in the postal market in North America, significant policy, economic and supply chain issues exist that affect other market participants.  For example, check out the recent updates on contractor legislation compiled by the Messenger Courier Association of America.  

The Postal Journal has begun the process of searching online databases for previously unpublished faculty and student research on the industry.   Check out the recent master's thesis on the direct mail supply chain of Life Time Fitness.   After reading it, ask yourself these questions.  Can mail survive if it takes so long to go from concept delivery?  What can each participant in the supply chain, from Life Time Fitness to the Postal Service do to shorten the supply chain for them and companies with similar advertising needs?  Could simplifying the supply chain and scheduling everything including a precise delivery commitment by the Postal service reduce costs? 

Faculty members at Stanford University and University of Pennsylvania have agreed to serve as advisers to the Postal Journal and will help develop guidelines for publication.  Faculty members at other universities are starting to develop projects for upper-level undergraduate and graduate level public policy and economics classes that could lead to published papers.   Discussions have begun with faculty members in other fields to cover the marketing, management, human capital management, supply chain, document management, and legal disciplines that can conduct relevant research on the postal market.  Carriers and stakeholders with ideas for student and/or faculty research should contact the journal at editor@postaljournal.com for details on how to submit research topics and provide research grants to encourage scholarship to advance understanding of significant management, technological, policy, or supply chain issues. 

The Postal Journal is soliciting for publication student, faculty, and practitioner research.  The Journal will accept works in presentation and more formal written forms.  Given the breadth of the issues facing the industry, no subject is off topic,  Currently the Postal Journal seeks items focused on the following topics:

• Public policy and industry economics – the regulatory and legislative actions that determine postal industry policy; includes both the legal and economic research that influences government policy
• The future of the document, digital, print, and mobile – market research and innovative ideas on how documents are sent now and into the future
• Parcel delivery and fulfillment – news and market research on parcel delivery and competition among market participants
• Human capital management – labor relations, labor contract law, compensation and benefit and the management of a people intensive business
• Sustainability – the environmental impact of the industry
• Technology – information systems and other technologies affecting the industry and the integration of print, digital, and mobile communications modes.
• Retail Access – changes driving how customers that buy small quantities are served and the services offered in retail facilities
• Supply Chain Management – the physical distribution, information system, production methods used to move documents from concept to delivery and parcels from order to delivery

Specific format requirements can be found on the Postal Journal's Submission Guidelines page.


The Postal Journal has already compiled the most comprehensive list of links to industry news on the web.   As new news sources, headline sources and relevant blogs are identified, they will be added to this page.   If you have a blog, on-line publication, or news accumulator that you would like to see posted on this list contact the Postal Journal at editor@postaljournal.com

Should Voluntary Early Retirement Become the New Normal?

The Postal Reporter News Blog reported that the Postal Service is quietly announcing the introduction of a voluntary early retirement program in selected cities.  Voluntary early retirement programs allow employees to retire early but do not offer them a financial incentive to do so.  This program requires eligible employees to decide between now and May 21, 2010 with their retirement date occurring in June 2010.

Voluntary early retirement is the least expense method that the Postal Service has to convince excess employees to leave voluntarily and the least attractive method for employees who might consider retiring.    Because of the minimal cost of voluntary early retirement programs, it would make sense for the Postal Service to offer these programs every Spring prior to slower summer mailing season when demand for employees are lower and many of its processing consolidation actions take place.  

Early retirement can have significant financial penalties in the form of reduced pension and/or social security payments which is why incentives are often needed to get significant number of employees to retiree early.   However, even if the program only convinces employees thinking about retirement to retire 6-months or a year earlier, it will have the effect of reducing employment costs by moving normal attrition up by a few months. 

If Postal Reporter News is correct, the Postal Service's decision to offer voluntary early retirement only in selected cities, suggests that the program may exist to give employees that work in offices that are losing processing operations to other facilities or experiencing significant declines in volume the option to retire rather than accept reassignment at a facility that would require a long commute.   As there are no incentives, this year's voluntary early retirement program will likely only attract employees that are at or very close to normal retirement age or those eligible employees who use the next few months to find another private-sector job to supplement their CSRS or FERS retirement income. 

In cities where processing operations are being consolidated or declining volumes have created stand-by employees, the Postal Service should have within its workforce management arsenal the ability to offer incentives to employees only in those cities, as well as those cities where the processing operation is moving to.   Transferring employees to new facilities is not cost free as there are additional training costs to deal with each employee bumped by a transfer.  These costs, added to the wages that do not have to be paid, create a justification for the Postal Service to offer some early retirement incentive, although it is not clear if its additional costs are above or below the $15,000 that it offered last year to encourage retirement.   Postal unions may want to consider doing the analysis to figure out what the benefit is to the Postal Service of convincing someone to retire early.   The union should use this information to negotiate an addendum to their existing contracts to include a streamlined process for offering early retirement with incentives based on a value that makes financial sense for the Postal Service.  This would give employees some protection from reduced retirement benefits that voluntary early retirement does not offer and give the Postal Service an early retirement program that more closely meets its needs than the voluntary one that it now plans to use.  

Even without incentives, postal employees who are eligible for voluntary early retirement should take the time to see if early retirement from the Postal Service makes sense for them.  Potential early retirees could use the retirement income calculators available on the U.S. Geological Survey website to determine what their income would be after retirement. [The actual numbers should come from the Postal Service.]   This new program is coming at a time when most economists expect to see significant increases in available private-sector jobs which should make a job search now a lot easier than when the last voluntary early retirement program was offered.   With two months to look for a new job, postal employees eligible for the voluntary employment program have sufficient time to find new employment if they take an aggressive approach to seeking a new job.

Early retirees from the Postal Service have an advantage in seeking new employment as compared to non-retirees as their retiree health care and other benefits allow them to choose among a broader range of employment opportunities that include jobs that do not traditionally offer those benefits.   In addition, employees seeking to shift careers have a base income to cover expenses during while they are taking classes or getting necessary licenses (i.e. real estate, insurance, investment sales, etc.) as well as the health insurance that many changing careers do not have. 

Early retirees should not think that they are too old for school as demand for a number of professions that require two years or less of training is substantial.   Even in the current recession, individuals with two years of post-high school education had relatively low unemployment rates even as those with a high school education or less had trouble finding any work at all. 

Employees that learn that they are eligible for voluntary early retirement and want to consider looking for new jobs while they are considering the offer will find that the following books by Donald Asher would be helpful in finding a new job in the shortest amount of time.

The Overnight Resume, 3rd edition  - A new book that includes good advice for writing a resume for a career change including how to write a resume that is submitted and read electronically.

The Overnight Resume, 2004 edition - This is the older edition that can be bought on Amazon for less than $5 including delivery charge and is an absolute bargain.

The Overnight Job Change Strategy - While this book was written  17 years ago, the approach is still sound.   It explains clearly why personal contacts is the best way to find a private sector job.  IF you add e-mail to telephone contacts and substitute careerbuilder.com, monster.com and craigslist.org for want-adsthen the ideas are up to date.  At under $5 used on Amazon including shipping, it is a bargain.  (Used books are often library copies.)

The Foolproof Job Search Workbook -  This book is 15 years old but covers Donald Asher's approach to finding jobs.   Again add e-mail and substitute careerbuilder.com, monster.com and craigslist.org for want-ads and it the approach is up to date. At under $5 used on Amazon including shipping, it is a bargain. (Used books are often library copies.)

How to Get Any Job -  written for college students and those under 30 (read without mortgages and children) who are looking for a job or a career change.  Provides some insight into the impact of the web on job-seeking and explains why the web makes job searching harder not easier as it make it too easy for job seekers to apply.  Asher's approach here is similar to what he explains in his earlier books but with a focus on younger job-seekers.   It is worth reading to identify what has changed since his prior books were published.

Cracking the Hidden Job Market - this book will not be published until the fall of 2010 but is worth pre-ordering if you are considering a job change in the next year.  His current presentations to college students and alumni-associations summarizes the key points that will be included in this book.   It follows  the same approach used in his older books, The Overnight Job Change Strategy and The Foolproof Job Search Workbook but reflects the changes in technology since the mid 1990's and how they affect the process required to get an interview.

What is the Context for 5-day Delivery?

One of the problems with the current regulatory and business model is that every action that is proposed to make the Postal Service financially viable is evaluated independently.   This allows those that object to one solution or another to oppose the solution under review and argue that something else should be done to restore the Postal Service's viability.

Right now the solution in the public eye is 5-day delivery.   The Postal Regulatory Commission has begun its review and Congress will soon follow with its own.  Each review appears to be completed independently of any other changes in the business model or regulatory framework that would be necessary to create a viable Postal Service.  

Furthermore, both the Postal Regulatory Commission and Congressional processes face the risk of becoming the equivalent of a city council budget hearing that has to determine how many hours fewer hours per week libraries or recreation centers will be open when budgets have to be cut.    When this occurs, patrons just have to learn to do with less service.  The proposal of Congressman Jason Chaffetz, R-Utah, to eliminate service on 12 days illustrates this "how much do we have to cut to balance the budget" mentality that legislative processes are designed to handle.

In his comments, Congressman Chaffetz provided a framework that makes sense.  "You have got to serve your customers, or somebody else will come in and do it for you."  This framework requires Congress to ask very different questions than they would as part of a budget process and it particular it forces them to look at the question of how many days the Postal Service delivers as part of a larger package of changes in the business model and regulatory framework.   


Right now Congressman Chaffetz and his colleagues in Congress should be starting hearings to ask these questions:

• Who are the Postal Service's customers today and who will they be in 2020 and beyond?
• What do customers need now and what will they need in 2020?
• How is the Postal Service's ability to meet customer needs affected by the current business model and regulatory framework?
• How do the Postal Service's business model and regulatory framework affect the competitiveness of its services with digital, mobile and other hard copy delivery alternatives?
• What is the macro-economic impact of the Postal Service's current business model and regulatory framework and how do they affect the economic recovery?

Once these questions are answered, Congress will be ready to discuss 5-day and all other possible actions with an understanding of the business implications of each proposed change and how they fit into a long-term Postal Service strategy of serving customers and U.S. postal policy centered on enhancing economic growth and employment.   Postal customers and employees cannot afford to have Congress do less.