Ensuring Access to Retail Services: Defining Effecting Access

The issue of retail access to services provided by the Postal Service is a two-part policy question.  The two questions are:

• How much access to retail services should be included in the Postal Service's universal service obligation?  Answered below
• What restrictions should the Postal Service face in meeting its obligation to provide retail access? (Answered in a subsequent Post)

Right now the debate over saving Post Offices involves communities concerned about the future of 4351 Post Offices.  For 728 of them, the Postal Service is currently progressing through the current process of meetings with communities which is increasingly followed by an appeal to the Postal Regulatory Commission.   The Postal Service proposes evaluating 3,653 post offices, stations and branches though a uniform approach in its Retail Access Optimization proceeding at the Postal Regulatory Commission.  

The emotional attachment to post offices is understandable  as the establishment of a post office signaled the establishment of a town.  The history of Ashflat, Arkansas describes how a town's identify is linked to its post office.  With increases in population and trade, Ash Flat became a town when a new post office was built in 1856.
Today Ashflat, a town of 1,082 is the county seat of Sharp County. The town is also a regional commercial center with a Walmart.

The establishment of a Post Office was important in the 19th century as mail delivery in rural areas was to a Post Office and not a home or farm.  Looking at maps of Northeastern Arkansas it is hard to imagine how far someone would have had to travel on horseback or carriage to get to the nearest town that already had a Post Office and mail delivery.

Times have changed.  Mail is delivered to homes and businesses and Post Offices for most people is not where mail must be received.   Post Offices serve one or two roles today.   First, they provide retail services.  Second, they may act as a carrier depot, or a central location where carriers get mail that must be delivered and complete any sortation needed to more efficiently deliver the mail.

The question about what level of access to retail services, would meet the Postal Service's Universal Service obligation leads to the two questions at the top of the post that I will present the available options in turn.

How much access to retail services should be included in the Postal Service's universal service obligation?

Postal policy relating to Post Offices can be found in two sections of U.S. Code

Title 29 39 Sec. 101 Postal Policy:

(a)....It shall provide prompt, reliable, and efficient services to patrons in all areas and shall render postal services to all communities.
(b) The Postal Service shall provide a maximum degree of effective and regular postal services to rural areas, communities, and small towns where post offices are not self-sustaining. No small post office shall be closed solely for operating at a deficit, it being the specific intent of the Congress that effective postal services be insured to residents of both urban and rural communities.

 Title 29 403. General duties

(b) It shall be the responsibility of the Postal Service—

(3 ) to establish and maintain postal facilities of such character and in such locations, that postal patrons throughout the Nation will, consistent with reasonable economies of postal operations, have ready access to essential postal services.

What is clear is Congress's intent, "effective postal services be insured to residents of both urban and rural communities."   What is less clear how the Postal Service and the Postal Regulatory Commission should balance the need for effective service and the restriction on closing post offices.  

Defining what is effective retail access requires understanding what transactions require an in-person retail transaction and which ones can be performed as or more effectively without a retail outlet.  The following table lists most Postal Service retail transactions.  The three types of outlets that involve local physical access identify options for providing Postal retail services at that type of outlet.  A 4 indicates that the service is offered at all locations.  The d indicates that the service is offered at Post Offices and may or may not be offered at contract stations.   The D indicates that the service is offered at Office Depot and not at banks or supermarkets.  Postal Services offered at Office Depot may be offered at pack and ship stores and other locations that offer Postal Service parcel services and stamp book sales but do not sell single stamps and Postal Service money orders or rent Postal Service mail boxes. 

Defining what is effective access to postal services that require an in-person retail transaction is both a business and political decision.

Effective access from a business perspective describes access that is sufficiently easy for customers to use.  An optimally effective level of Postal retail access would reflect the level of access that adding an additional access point would add more costs than the incremental sales of Postal products or services.  The addition of the phrase "consistent with reasonable economies of postal operations," reinforces the comparison of marginal revenue to marginal costs in assessing effective access.

The political aspect of the definition of access focuses on the access issue independent of the business case for having a retail postal facility in a particular location.   The law states that the Postal Service should provide a "maximum degree of effective and regular postal services to rural areas, communities, and small towns where post offices are not self-sustaining."  Because the maximum degree of effective postal services is not defined, the operating assumption for the Postal Service, the Postal Regulatory Commission, and Congress has been that the Postal Service provides a maximum degree of service as long as it does not close an existing Post Office for financial reasons.  The political aspect of retail access now also assumes that effective retail access requires access in an employee-manned Post Office.

Solutions from Other National Posts

 The charters of the Australia Post, Canada Post, and La Poste (France) provide three similar approaches of defining effective access that do a better job of ensuring effective service that a national operator can provide without subsidies than what is in current U.S. law.  What is common among all of the solutions below is a definite rule for defining access for both rural and urban areas.  A similar approach to defining effective access can be found in Germany, Denmark, Ireland, the Netherlands and Sweden.  All of these countries, except France allow the national postal operator to choose fairly freely among corporate, franchise, and self -service options in providing access.

Australia Post

Australia Post's Community Service Obligation describes its access obligation as follows:

Access - Maintain mail lodgement [access] points at 4,000 retail outlets (2,500 in rural and remote areas).

Retail outlets to be located so that:

• in metropolitan areas at least 90 per cent of residences are within 2.5 km [1.55 miles] of an outlet
• in non-metropolitan areas at least 85 per cent of residences are within 7.5 [4.65 miles] km of an outlet.

Canada Post

The Canada Post Charter has three provisions that describe access.

• Canada Post will provide an extensive network for accessing postal services that includes retail postal outlets, stamp shops and street letterboxes, as well as access to information and customer service through the Canada Post's website and call centres.
• Canada Post will provide retail postal outlets, including both corporate post offices and private dealer operated outlets which are conveniently located and operated, so that:
• 98 percent of consumers will have a postal outlet within 15 km[9.3 miles];
• 88 percent of consumers will have a postal outlet within 5 km[3.1 miles]; and
• 78 percent of consumers will have a postal outlet within 2.5 km [1.55 miles].
• The moratorium on the closure of rural post offices is maintained. Situations affecting Canada Post personnel (e.g., retirement, illness, death, etc.) or Canada Post infrastructure (e.g., fire or termination of lease, etc.) may, nevertheless, affect the ongoing operation of a post office.             

La Poste

La Poste is required to provide retail access to ensure that:

• 99% of the national population and at least 95% of the population within each department [state] is less than 10 km [6.2 miles] from a post office branch
• In addition, every community over 10,000 should have one post office branch per 20,000 inhabitants.

 Conclusion

Providing effective access needs a better definition than what is current law.   Countries like Australia and Canada with rural areas as rural any part of the United States provide retail services in their most remote areas with rules that are logical.  Canada Post face greater limits as it serves numerous arctic and sub-arctic communities and significant political pressure to plant the flag of the government of Canada in all provinces given that country's challenge of dealing with a long-standing separatist movement when the charter was written. 

No National Postal operator has an obligation relating to access that goes beyond defining how far an outlet may be from any citizen.  They have not attempted to put into the service charter or universal service obligation any measure of effectiveness that relates to how easy it is to use the service at a particular access point. (This could be important as an access point may be theoretically accessible based on the distance to citizens but effectively not be accessible if it is not open more than a few hours a day.)

Current legislative proposals before Congress either provide no effective guidance for defining effective access or set that guidance at a level that is significantly higher than countries with both large urban centers and vast territories of sparsely populated territory have chosen.  In addition, the financial problems of the Postal Service cannot wait a year or more to implement a more rational definition of access.  Congress would be wise to choose an effective access definition closer to what Canada or Australia has than what is now on the table.

Confusion Over If / When The Postal Service Shuts Down

The New York Times reports that:

But sometime early next year, the agency will run out of money to pay its employees and gas up its trucks, officials warn, forcing it to stop delivering the roughly three billion pieces of mail it handles weekly.

This story reflects the confusion of conflicting statements of  CFO Joe Corbett at the May and August MTAC meetings.  In May heard the Postal Service would run out of cash in July, 2012 and have to shut down and in August he said just the opposite. 

The Postal Service has repeatedly used the words insolvency, and a recent analysis on this blog shows they will have less than $2.5 billion in cash and borrowing authority on September 30 to pay $9.1 billion in bills.  Therefore if the Treasury department demanded payment, the Postal Service would shut down in October.

For 2012. the financial picture is not much better.  The economic outlook is weak, and more than likely weaker that what drove the  forecasts presented at MTAC only a few weeks ago.   So a shutdown date in late 2012 seems possible if the Postal Service to make its payments for retiree healthcare benefits.

At the Senate hearing tomorrow, Postmaster General Pat Donohoe has to clarify the question of Postal Service shutdown.  If he does not provide that information in his testimony, Senators on the Homeland Security and Governmental Affairs must get clarification on if shutdown could occur and if it could when.

Postal Service Will Be Front Page News Tuesday

On Tuesday, the Postal Service will be the center of a news storm that will be more powerful than either of the two tropical storms that the National Hurricane Center is following.

The Senate Homeland Security hearing will be held on one of those rare days when there is no other major news story for the cable news channels, network news, and national newspapers to cover. 

More than likely, much of the footage for the Postal Service stories if not already in the can, will be completed early Tuesday morning so that it can be edited into the questions and testimony at the hearing.  The News Hour on PBS will likely focus its largest portion of its broadcast to include both a summary of the hearing as well as a set of talking heads discussing the legislative options that are now on the table.

Fox News will be looking to book Congressmen Darrell Issa and Dennis Ross, and spokespeople from think-tanks that will frequently use the term "bailout" to describe any proposal other than the one Congressmen Issa and Ross have proposed.  

MSNBC will find guests that will discuss the economic impact of laying off 220,000 postal workers as well as the impact on rural communities and citizens on the wrong side of the digital divide.  Discussions of the anti-union aspects of certain proposals will also be raised

In blogs from the far right to far left, writers looking for a topic will chose the Postal Service.  Most will do little more than repeat the writer's philosophical beliefs and show how the Postal Service's problem fits their understanding of Washington's problems that is no different than what they would say on any other hot political topic.

This orgy of talking points recitation will likely last well past mid-day on Wednesday.  Without a major international or financial crisis, the Postal Service will an above the fold story in the morning papers, and a major story in the 7 a.m. hour of all morning news shows.  Talk radio will use the Postal Service has a great way to fill up an hour or more of time in most host's 3 hour sifts.   The Postal Service could get coverage well into Thursday morning if the Postal Service's problems are raised at the President spokesman's daily briefing on Tuesday or at the Republican Presidential debate Wednesday night.  

At the end of the two or three  days of being above the fold in both print and broadcast media, Postal stakeholders will be back in the same position they are today, with one exception the Postal Service will be two or three days closer to insolvency.   Congress will be no closer to finding either a short-term or long-term solution.  Given recent history, even the impending deadline of default will not force Congressional action as the political advantage caused by the Postal Service's default will outweigh the harm caused to the 8% of the economy that is the Postal sector, and to the credibility of the Federal Government as a debtor when one of its largest entitities stops paying some of its bills

The New Postal Service: Constraints Slows Service

A comment to the Post on the impact of the new network on First Class Presort Mail explains both why drop shipped First Class mail won't work and how operating and capital constraints will degrade service for any mail that requires cross dock transfers before destination sortation and sequencing is completed.

uncommonsense said...

The reason for increasing the delivery standard is so that the machines can run most of the day. The network consolidations can only happen if the USPS uses the machines they have to finalize delivery point mail 16 hours a day or so instead of only doing it after midnight like they do now.
If the zone you are wanting to have delivered to finalizes its product @5 in the afternoon any mail arriving after 3 in the afternoon likely won’t be finalized for another 24 hours.
Whether or not a drop shipment can be delivered the next day will be highly dependent on what time of day the destination zone of mail in that drop shipment is finalized. They are likely to run the zones farthest from the plants first and the zones nearer the plant last. This means that for mail destined to be delivered near a plant a drop shipment is likely to be able to be delivered the next day while zones distant to the plant will likely not make it

Based on this comment it would appear that under the new scheme

• Sequencing of mail will be spread out over a 16 hour period.  Some of this mail will be sequenced in the early evening and other mail will be sequenced late at night.   So all of the mail has to be ready for sequencing by 6 pm or it is possible that it will not go out for delivery the next day.
• Origination sortation starts 8 am
• Critical dispatch times for origination mail may be early to mid-afternoon.
• Destination sortation up through sequencing could start around noon finish up as early as 4 or 5 pm.

How does it affect mailers?

• Most commercial mailers will see their mail take an additional day longer than it does now.  Some drop-shipped mail may avoid delays if they are shipped from the mailer earlier so that it arrives by noon.   It would appear that all classes of mail will likely add a delivery day.
• Deliveries to zones that are further from a processing plant may take an additional two days especially if drop shipments or transportation from other Postal facilities run late.
• Parcel shipments not dropped at delivery units will take an additional day just like letter and flat mail.
• Unclear how it will affect delivery of drugs, perishables, ballots, election materials, and live bees, plants, crickets, and baby chicks.

How does it affect mail's competitive position?

• Time sensitive periodicals and advertising will likely seek alternative delivery options.   Businessweek's switch to alternative delivery will likely be emulated by other weeklies.
• Mailers will have to adjust the time allotted to taking a concept to the point that it is tendered to the Postal Service if they have a specific delivery period in mind.
• Printers will have to work with tighter printing schedules.  Reducing Postal Service costs could raise printing costs if mailers demand that printers cut the printing time in order to meet an in-home date commitment.
• Coordinating web and mobile based advertising will need more planning. 
• The extra two to four days for handling transactions by mail will increase the value of electronic bill presentment and payment.   Incentives for bill presentment and payment can be expected to grow and charges for hard copy bills and payments may become more common.
• Services that accumulate documents traditionally found in a mailbox will see demand grow faster than their business cases developed before the change expected.  This may allow Volley, Manila, and Zumbox to show a profit before investors or their parent company expected.

Drivers of  the Operating Plan

The operating plan is driven by a number of capital, regulatory, and labor contract constraints.  These include:

• The Postal Service's poor financial condition:
• The New Postal Service needed to create a network that minimizes capital spending.  This includes spending on new plant and equipment as well as spending moving equipment from one plant to another.
• Without the severe capital constraint, similar or nearly similar networks could be designed with more equipment per facility that processes mail in less time but uses the equipment for fewer hours per day.   This would allow mail to travel greater distances between facilities and make service commitments better than what the new network generates.  Corporatized postal operations are using this model rather than the one that the Postal Service chose.
• The network focuses on cost savings only.  Optimization models are designed to minimize costs given the volumes that a network is expected to handle.   They assume that the volumes of mail they are designed to optimize reflect the volumes that would exist with the slower service standards.
• The Postal Service has not released any information about the impact on mail volume demand of adding a day to service standards.
• Regulatory Constraints
• The postal service cannot change prices to allow products that create peak load costs to bear those costs.  
• As a previous post noted, the Postal Service could have maintained current processing schedules,(i.e. originating mail in the early evening, destination sortation late in the evening, and sequencing after midnight) if it shifted the increased single piece mail rates to reflect peak load costs.
• Most foreign postal administration prices incorporate peak load costs in their pricing which allows them to offer overnight service over geographic territory at least as large as what UPS ground offers for parcels.
• Full Time Positions
• Full time positions require mail processing be spread out over more time than is optimal for service.   In order to operate a network designed to minimized time between acceptance and delivery spent in a plant and maximize the distance between facilities, work schedules of employees need significantly greater flexibility than what the Postal Service has in its contracts.
• Both FedEx and United Parcel Service use mostly part-time employees to sort parcels and load vehicles.   This allows them to cut the time it takes to sort parcels at origin so that they can get on the road quickly.   The same is true at destination and intermediate sortation facilities.   By minimizing time in plants, United Parcel Service and FedEx can maximize the service areas that they can provide by ground transportation in one to three days.  
• Networks that can use a higher percentage of part time positions would likely have more employees, and larger facilities.  Increase in the percentage of part time employees could also result in less centralization of sortation than the network proposed does. To the extent that very large faciities are difficult to manage, large metropolitan areas may have more facilities than a pure optimization would suggest.

Letter Carriers are Smarter Than Rocket Scientists

Traditionally the smartest investors are  those that slowly and steadily build their fortune. This is particularly true regarding those saving for retirement.

 Using this criteria, Federal News Radio reports that letter carriers are smarter investors than:

• Army, Navy, Air Force and NASA rocket scientists.
• Researchers at the National Institutes of Health.
• Scientists for the Centers for Communicable Disease.
• CIA covert operators.

Postal Service letter carriers do it without the advantage of staff back in Langley, VA making sure they save for retirement, and the advanced degrees that medical and other research scientists have.  Federal News Radio quotes Tom Trabucco, director of external affairs for the Federal Retirement Thrift Investment Board as saying that " according to the National Association of Letter Carriers, 95 of every 100 members participates in the TSP and contributes at least 5 percent of their salary into some or all of its funds."  

Listen to the entire Federal News Radio Show that discussed the importance of retirement saving by clicking  here.

Letter carriers are also often considered among the healthiest federal employees.  So when they eventually retire they may find they will have a lengthy retirement to spend some time off of their feet on a beautiful beach.

Daytona Beach, Florida

Congressman Issa Markets His Reform Bill

Congressmen Darrell Issa Dennis Ross have raised the ante over Postal Reform by creating a website and video (see below) designed to promote their postal reform bill.  The website and the video both follow the form used by lobbyists to promote passage of a bill or influence government policy.    The website and video, along with the committee's use of social media illustrate how sponsors of controversial bills are changing how they will promote their positions.

  
The website promotes the Committee's bill on a page entitled "Our Plan: Just the Facts," in language  that has previous been included in press releases from Congressman Issa and Ross as well as videos of previous hearings.   The page also includes videos of previous hearings that the Committee has held on the Postal Service.

The "In the News" page lists news stories and editorials that support the bill or the changes that the bill proposes.  

The "Can You Fix it?" pop-up lays out the options as the committee Republicans see them.  Options proposed by others in the House or in the Senate are described as a taxpayer bailout.  A description that many stakeholders and other members of Congress would disagree with.

The video on the website. is slickly produced and presents an unflattering image of the prospects of the Postal Service, and for that matter the idea of a national postal operator.  More importantly for the private sector postal industry, that generates $1.1 trillion in sales and employs more than 8 million, it puts their business in an unflattering light by association.  From a Washington perspective, all that it is missing from the video is the disclaimer naming a sponsor, which provides little information as to who actually paid for the ad.



The House Oversight and Government Reform Committee Website follows creation of websites that propose alternative solutions.  These include Save the Post Office and ones developed by postal unions and postmasters.  Soon others will sprout up to support and oppose the bill that Congressmen Issa and Ross presented

The questions for postal stakeholders are:

• Does this effort of the Republicans on the House Oversight and Government Reform Committee move finding a solution forward or does it just raise the temperature of the debate?
• How will this effort to promote a particular postal reform bill influence Republicans from the moderate through conservative wings of the party who have already expressed a preference for a different solution to the Postal Service's problems.

The New Postal Service: Initial Financial Picture

On Tuesday September 6, Postmaster General Pat Donahoe will present to Congress a vision of the "New Postal Service."   This vision reflects the Postal Service's current financial situation as driven by legal and regulatory constraints.  

At the end of the fiscal year  the old Postal Service will be insolvent.  It will not have enough cash and borrowing capacity to pay its bills including bills that were not changed by the PAEA.

To understand how bad the finances, I have developed a rough estimate of the Postal Service's cash position and bills at the end of Fiscal Year 2011.  Then given the Postal Service's borrowing capacity at the end of the year, I have calculated an estimate of the difference between the Postal Service's bills and its ability to pay.

The Postal Service's Cash Position on September 30, 2011

The following estimate is based on the cash flow statement in the 2011 Quarter 3 10-Q, and  the initial financial report on July 2011. 

Postal Service End of Year Bills

At the end of the year the Postal Service has three large bills from the the Department of Labor and the Office of Personnel Management.   As the chart shows, even without the $5.5 billion PAEA retiree health benefit payment the Postal Service still has $3.6 billion in obligations.   As the previous chart shows, the Postal Service will not have the cash to pay these bills so it will need to borrow to make its payment.

Postal Service Cash with New Debt

The following chart shows how much cash the Postal Service should have available at the end of the year if it used all of its legal borrowing authority. 

Insolvency Appears Inevitable

Even if the Postal Service maxes out its debt, it still will not be able to pay all of its bills.  The Postal Service will fall $1.239 billion short of paying its non-PAEA bills.   It will be $6.739 billion short if you add in the PAEA retiree health benefit payment. 

It does appear that it will have enough cash once it adds extra debt to make the workers compensation payment, so the Department of Labor should be able to make benefit payments.   It does not appear that the Postal Service will be able to make either its non-PAEA or PAEA payments for retiree health benefits.  While it could pay a portion of the non-PAEA obligation, doing so would put it in a dangerous position of having no cash on hand when recurring bills like payroll, payments to transportation contractors and electric utilities come due.

Impact on the Federal Budget

The Postal Service's financial problems affects the Federal budget because the budget assumes that the Postal Service will make payments.  In addition the budget also assumes that the Postal Service had made the $800 million in FERS payments that it has will not have paid starting at the end of June.

In total the impact of the Federal budget will be:

• $7.537 billion if the Postal Service pays part of the non-PAEA retiree health payment
• $8.736 billion if the Postal Service pays none of the non-PAEA retiree health payment

What is not clear is whether this affects the FY 2011 Federal budget that ends on September 30, 2011 or the FY 2012 Federal Budget that starts October 1, 2011.  It is also possible that some of the impact will by in FY 2011 and some in FY 2012.

The Postal Service's current financial prospects suggests that it will have at least a $5.5 billion impact on the Federal budget for a couple years past 2012.  The impact reflects the fact that it is hard to imagine a financial forecast developed under current legal and regulatory constraints that would allow the Postal Service to make the PAEA retiree health beneift payments for a couple of years.

Impact on the Postal Service in FY 2012

Starting October 1, 2011, the Postal Service will have a minimal amount of cash and unpaid obligations from FY 2011 hanging over its head and will face similar obligatins at the end of FY 2012.   The Postal Service also faces a prospect that the economy will remain sluggish and therefore postal revenue will be stagnant or worse.

The "New Postal Service," reflects both this horrendous cash position and no indication that Postal Service management believes that the Postal Service will not see legislative or regulatory help in a  timely fashion.   Cutting service quality commitments is the only move available to the Postal Service that current legislative and regulatory constraints cannot stop. 

At its hearing on September 6, the Senate Committee on Homeland Security and Governmental Affairs, will hear not only a description of the "New Postal Service," but also a request for legislation to adjust labor contracts and employee benefits that management believes are needed in addition to the service quality reductions to bring the Postal Service to break-even.

The Senate committee should focus on how the "New Postal Service" changes United States Postal policy and most importantly how it affects the economic role that the Postal Service currently plays.  Developing operating models of fewer processing plants, fewer full time employees and slower service is easy.   Determining if that is what is best for the United States economy is hard and is the responsibility of Congress and not the Postal Service.