One of the problems the Postal Service will have in selling the contract with the American Postal Workers Union is the number of new members of Congress with limited understanding regarding the impact of differences in labor law between the law covering the Postal Service and either the National Labor Relations Act or the Railway Labor Act. In addition many members of Congress will find it difficult to understand why the Postal Service did not take the approach that Wisconsin Governor Walker took with public employees, or President Reagan took with air traffic controllers.
The Postal Service did not have the option to decertify the union as President Regan did as members of the APWU never stopped working after the contract expired. Nor could the Postal Service unilaterally force cuts in compensation as it is not in a legal position that would allow it to break existing contracts and impose contract terms that it would prefer. A good summary of the negotiation process has been provided by the Postal Service.
Better comparisons are recent negotiations between the Teamsters and both United Parcel Service and Yellow Roadway working under the Labor Relations Act and Conrail that had to renegotiate under the Railway Labor Act. The following is a brief review of what happened in each of these three examples.
Over the past two decades, United Parcel Service has faced increased competition from FedEx with underfunded multiemployer pension plans sitting over its head. It took a strike in 1997 over the pension issue but eventually had to concede its demand for pension and other contract changes. Its concessions came once UPS management recognized that the strike gave FedEx an opportunity to prove that FedEx Ground was a credible competitor to UPS Ground service and that the changed perspective would make maintaining marketshare more difficult than before the strike began. UPS changed its approach to working with its union over the next decade which resulted in a contract in 2007 that allowed UPS to withdraw from the largest underfunded multiemployer plan and make important changes in work-rules and wages that made its operating costs competitive with that offered by FedEx even though FedEx provided service through non-union employees and contractors.
Yellow-Roadway has faced a combination of expanded competition of non-union competitors and a major decline in the nationwide transportation in less-than-truckload market that forced it to combine the operations of its two largest LTL subsidiaries and shutter others. It had also been near bankruptcy for most of the last five years. During this period it had to renegotiate terms of loans multiple times and its stock value plummited to near zero. Yellow Roadway renegotiated its Teamsters contract in 2008 under pressure from creditors However, the problem worsened for Yellow-Roadway when the recession hit and its continuing operations required a second round of compensation reductions with the alternative being liquidation of the business. A new round of cuts were negotiated and agreed upon in 2010 in an effort to save the company. During this period the company cut the number of Teamster employees from 40,000 to 25,000. Even these cuts may not be sufficient to prevent bankruptcy as on March 14, Yellow Roadway stated that it failed to meet a creditor milestone that would allow its creditors to demand full repayment of all loans due.
Conrail faced a different problem in its negotiations as the Railway Labor Act created an environment that forced it to maintain existing contract provisions until a new agreement could be signed. It could have declared bankruptcy which would have allowed it to impose new contracts as has occurred among passenger airlines, but at that time its creditors would have demanded liquidation and would not have supported continuing rail operations under any labor agreement. In addition, political opposition to liquidation was significant as liquidation would have had a significant impact on economic activity from St. Louis to Boston disrupting the ability of the automotive, electric utility and other industries that depended on rail freight service to conduct their business as well as the economies of cities in the from Boston to Washington DC that depended on Conrail operated commuter rail to transport employees to work. Conrail was then forced into a period of extended negotiation with its unions primarily over the elimination of workrules and positions that no longer made sense in a world of diesel locomotive engines. It took almost 8 years to get the changes needed to make Conrail profitable which eventually allowed it to be sold to the public in a public offering.
In all three cases, getting the changes neccessary for a company to survive only occurred once employees were convinced that they had no other options but concede. For both UPS and Conrail, it took nearly a decade for the changes to be implemented once they were identified. For Yellow-Roadway, it took less time but the final concession occurred only after multiple reductions in Yellow-Roadway's Teamster employees and the threat of liquidation and loss of all jobs hung over union members' heads.
The Postal Service is in a financial position similar to Yellow-Roadway and a competitive posistion that is closer to what faced both United Parcel Service and Conrail. Finally, in terms of labor-management relationships, the agreement process has significant similarities to how the Teamsters worked together with UPS, and Yellow Roadway to convince members to accept and implement contract changes.
While its financial position puts it on the brink of default on its obligations to its creditors, creditors have not threatened liquidation like Yellow-Roadway creditors did.
By eliminating liquidation as an option, the Postal Service is in a position similar to Conrail and must negotiate a contract without the ultimate threat over negotiators from its unions. The Postal Service is in a better position than Conrail as the threat of binding arbitration, even under current rules forces a time limit to negotiations and existing contract terms.
The Postal Service's position is similar to United Parcel Service as the Postal Service would be hurt by any shut downs, or even slowdowns due to a work-to-rule environment just like United Parcel Service's competitive position was hurt by taking a hard line accepting a strike in 2007.
The Postal Service's decision to come to negotiate an agreement rather than having one imposed by an arbitrator makes selling changes that would have been included in an imposed agreement easier as the APWU will act a willing partner in implementation, a position that it would not have taken as willingly if similar contract provisions were imposed. As a partner in implementation, APWU is acting in a manner similar to the Teamster which worked closely with members to explain why changes were required and why changes were best in the long-term interest of employees at UPS and Yellow-Roadway as well as working with UPS and Yellow Roadway to design and implement changes.
Tuesday, March 15, 2011
Monday, March 14, 2011
Why the Postal Service Matters: UPS Surepost
FedEx has been offering a branded joint-line service with the Postal Service for some time now. United Parcel Service will likely soon market its joint line service under a new name "UPS Surepost" rather than previous unappealing name, "UPS Basic."
The name UPS Surepost name was trademarked in 2010. The name does not appear on UPS's website but based on posts on Able Commerce Shopping Cart Software and Browncafe, it appears that UPS is test marketing the brand and the service. Information on UPS Surepost is also available on a web page dedicated to UPS Worldship software.
Information available on this servcie from the Worldship help information is as follows:
The name UPS Surepost name was trademarked in 2010. The name does not appear on UPS's website but based on posts on Able Commerce Shopping Cart Software and Browncafe, it appears that UPS is test marketing the brand and the service. Information on UPS Surepost is also available on a web page dedicated to UPS Worldship software.
Information available on this servcie from the Worldship help information is as follows:
- The UPS SurePost services combines UPS shipping with USPS-delivery to customers' mailboxes.
- UPS WorldShip determines if UPS or the USPS completes the final mile of delivery of each shipment.
- UPS Surepost allows delivery to any point in all 50 states, APO/FPO/DPO addresses, PO Boxes, and US territory Ship To destinations.
- UPS Surepost shipments are validated and processed like small packages.
- Each shipment must be a single piece forward shipment. The shipment navigation bar becomes inactive.
- Four UPS SurePost services are available:
- SurePost Less than 1 lb,
- SurePost 1 lb or Greater,
- SurePost Bound Printed Matter, and
- SurePost Media
- An Endorsement value is required for USPS-delivery shipments.
- Two sub-classes are available if you have a contract and select SurePost Less than 1 lb in the UPS Service box.
- The total dimension of the package cannot exceed
- 130 inches if you select SurePost Less than 1 lb or SurePost 1 lb or Greater or
- 108 inches if you select SurePost Bound Printed Matter or SurePost Media
- Package dimensions are measured by adding the package length to twice the width and twice the height. (length + (2 x width) + (2 x height))
- The total package cannot weigh more than 70 pounds.
Neither Rain, nor Snow, nor Earthquake, nor Tsunami
The Intercultural, a blog from a British academic living and working in Japan shows why we buy milk and toiletpaper every times it snows. She also illustrates how critical mail delivery is for creating a sense of normality after kaos.
As a foreigner with no local Japanese friends, I need to go out every day and see what`s going on. (I have local foreign friends but they have even less idea than me what is going on. Facebook has been very useful, the British embassy website pretty useless, BBC twitter very interesting.) At 11am at the supermarket there was controlled panic buying with queues all the way to the back of the shop. People seemed to be buying a lot of rice and eggs, and everyone was picking up a bag of toilet paper too. But when I went back in there 30 minutes later the queues were gone and there was still plenty of food. Milk is rationed to 1,000ml per person but there was plenty of it. The Japanese don`t drink much milk. There were salads, sushi, tofu, fried fish and plenty of vegetables. So either they have had some deliveries or they still had some stock which they put on the shelves after I had visited last night. By noon however, there was no loo roll, rice, eggs, yoghurts or water. But there was still plenty of beer. I went to several other shops and there is no bread to be had. There are a lot of men and kids about so I guess they have taken the day off. Many of the men have backpacks and are standing in shops holding lists or on their mobiles receiving instructions. The roads are very crowded and the side streets are packed with people on bikes. It`s a bit like a national holiday, only everyone`s carrying toilet roll.
Mitaka station has some trains running but all the shops there are closed including the bakery and .... Starbucks! So this is really a national emergency now. However Mr Donuts had all their donut varieties in stock. The video store was open. So was the bank and there was no queue for the cash machines. Some restaurants were closed, others open. The bike shop was open so I got my bike tyres pumped to the max for a quick getaway. (Prime Minister Kan was right, this IS just like the Second World War. The French are evacuating. Brits and Americans have been advised to stay put.) Back at home, the rubbish was collected and the postman delivered yet another academic journal.
As a foreigner with no local Japanese friends, I need to go out every day and see what`s going on. (I have local foreign friends but they have even less idea than me what is going on. Facebook has been very useful, the British embassy website pretty useless, BBC twitter very interesting.) At 11am at the supermarket there was controlled panic buying with queues all the way to the back of the shop. People seemed to be buying a lot of rice and eggs, and everyone was picking up a bag of toilet paper too. But when I went back in there 30 minutes later the queues were gone and there was still plenty of food. Milk is rationed to 1,000ml per person but there was plenty of it. The Japanese don`t drink much milk. There were salads, sushi, tofu, fried fish and plenty of vegetables. So either they have had some deliveries or they still had some stock which they put on the shelves after I had visited last night. By noon however, there was no loo roll, rice, eggs, yoghurts or water. But there was still plenty of beer. I went to several other shops and there is no bread to be had. There are a lot of men and kids about so I guess they have taken the day off. Many of the men have backpacks and are standing in shops holding lists or on their mobiles receiving instructions. The roads are very crowded and the side streets are packed with people on bikes. It`s a bit like a national holiday, only everyone`s carrying toilet roll.
Mitaka station has some trains running but all the shops there are closed including the bakery and .... Starbucks! So this is really a national emergency now. However Mr Donuts had all their donut varieties in stock. The video store was open. So was the bank and there was no queue for the cash machines. Some restaurants were closed, others open. The bike shop was open so I got my bike tyres pumped to the max for a quick getaway. (Prime Minister Kan was right, this IS just like the Second World War. The French are evacuating. Brits and Americans have been advised to stay put.) Back at home, the rubbish was collected and the postman delivered yet another academic journal.
Sunday, March 13, 2011
West Virginia is the Test Case for PMG Donahoe's and Congress's Resolve
The entire West Virginia Congressional Delegation has signed a letter opposing consolidation of processing plants in West Virginia. The postal service has proposed five area mail processing studies to consolidate mail processing operations in West Virginia affecting the cities of Beckley, Bluefield, Huntington, Martinsburg, and Wheeling.
The primary reason for pressuring the Postal Service to not consolidate these five facilities in West Virginia is the loss of local jobs. As an editorial in the Bluefield Daily Telegraph notes "If the jobs were to be lost, it would be another crippling blow to Mercer County — particularly given the 164 jobs that were lost last week at Flowers Baking Company. We must fight to keep these 96 postal positions in Bluefield."
As Postal Service pay is set based on national contracts, Postal Service jobs in West Virginia are likely to offer above average salaries for jobs in the towns where the plants under consideration for consolidation are located. So the loss of the 96 Postal Service jobs is likely to have a bigger economic impact on a community like Bluefield than the loss of 96 of the 164 jobs lost at Flowers Baking Company. Making job losses even more difficult is West Virgina 9.6% that above the 8.9% national rate.
The Problem with West Virginia that makes it a likely target for consolidation for the Postal Service is that its demographics result in relatively low volumes of mail per capita and most likely faster declines in mail volume that other states with households that are more attractive to advertisers and e-commerce retailers. The demographic factors that work against mail volume in West Virginia that drive the Postal Service's focus on plants in its state are as follows:
The five consolidation studies generate a "here we go again" feeling within West Virginia that reflects a history of corporations headquartered outside of the state closing coal mines, manufacturing plants and retailers that has made it difficult for the state to end decades of challenges to growing West Virginia's economy. It creates the sense that West Virginia is a victim again and is reflected in the editorial of the Bluefield Daily Telegraph that stated that, "The postal service does appear to be unfairly targeting facilities in southern West Virginia, and the Mountain State in general, for consolidation."
However, West Virginia is not alone in having multiple plant consolidation under review and the consolidations announced in West Virginia are similar to those located in most other states. A cursory look at the list of consolidation studies that the American Postal Workers Union maintains shows that nearly every state is affected. For example, Wyoming has four plants under review even though its income level is higher and its population is growing faster.
The letter from the West Virginia Congressional delegation raises a central question about the reason the United States has a Postal Service. Should it operate as a federal jobs program that requires federal assistance to maintain jobs in communities like Bluefield West Virginia or should it be a self-sufficient enterprise that provides a critical part of the nation's economic infrastructure? The members of the West Virginia delegatin appear to want the Postal Service to operate as a jobs program.
If Pat Donahoe is to give the Postal Service a chance to have a self sufficient future, then he has to maintain his resolve that plant consolidation is a core strategy for the Postal Service. He must stand up to the West Virginia Congressional delegation and push through these consolidations as quickly as possible. Similarly, it is time for members of Congress that believe a self-sufficient Postal Service should be the core of postal policy to support Pat Donahoe's actions to consolidate processing facilities in West Virginia and all other states.
The primary reason for pressuring the Postal Service to not consolidate these five facilities in West Virginia is the loss of local jobs. As an editorial in the Bluefield Daily Telegraph notes "If the jobs were to be lost, it would be another crippling blow to Mercer County — particularly given the 164 jobs that were lost last week at Flowers Baking Company. We must fight to keep these 96 postal positions in Bluefield."
As Postal Service pay is set based on national contracts, Postal Service jobs in West Virginia are likely to offer above average salaries for jobs in the towns where the plants under consideration for consolidation are located. So the loss of the 96 Postal Service jobs is likely to have a bigger economic impact on a community like Bluefield than the loss of 96 of the 164 jobs lost at Flowers Baking Company. Making job losses even more difficult is West Virgina 9.6% that above the 8.9% national rate.
The Problem with West Virginia that makes it a likely target for consolidation for the Postal Service is that its demographics result in relatively low volumes of mail per capita and most likely faster declines in mail volume that other states with households that are more attractive to advertisers and e-commerce retailers. The demographic factors that work against mail volume in West Virginia that drive the Postal Service's focus on plants in its state are as follows:
- West Virginia is a mostly rural state that is relatively poor. It has the 44th lowest GDP per capita of any state in the United States, and has one of the lowest ranked states in GDP per capita for decades. West Virginia is has the 6th highest poverty rate.
- West Virginia is a state that also has population that is not growing. The 1,819,777 estimate of population in 2009 and is 6.7% below the population in 1980 and 9.3% below the state's population peak in 1950.
The five consolidation studies generate a "here we go again" feeling within West Virginia that reflects a history of corporations headquartered outside of the state closing coal mines, manufacturing plants and retailers that has made it difficult for the state to end decades of challenges to growing West Virginia's economy. It creates the sense that West Virginia is a victim again and is reflected in the editorial of the Bluefield Daily Telegraph that stated that, "The postal service does appear to be unfairly targeting facilities in southern West Virginia, and the Mountain State in general, for consolidation."
However, West Virginia is not alone in having multiple plant consolidation under review and the consolidations announced in West Virginia are similar to those located in most other states. A cursory look at the list of consolidation studies that the American Postal Workers Union maintains shows that nearly every state is affected. For example, Wyoming has four plants under review even though its income level is higher and its population is growing faster.
The letter from the West Virginia Congressional delegation raises a central question about the reason the United States has a Postal Service. Should it operate as a federal jobs program that requires federal assistance to maintain jobs in communities like Bluefield West Virginia or should it be a self-sufficient enterprise that provides a critical part of the nation's economic infrastructure? The members of the West Virginia delegatin appear to want the Postal Service to operate as a jobs program.
If Pat Donahoe is to give the Postal Service a chance to have a self sufficient future, then he has to maintain his resolve that plant consolidation is a core strategy for the Postal Service. He must stand up to the West Virginia Congressional delegation and push through these consolidations as quickly as possible. Similarly, it is time for members of Congress that believe a self-sufficient Postal Service should be the core of postal policy to support Pat Donahoe's actions to consolidate processing facilities in West Virginia and all other states.
Friday, March 11, 2011
Are 30,000 Enough?
Over the past several days, there has been some debate about what the 30,000 reduction in Postal Service employees really mean. Both postalnews.com and the Washington Post have reported that 30,000 represents a combination of regular attrition and the reduction in 7,500 management positions that will be announced on March 25.
So how much will the reduction of 30,000 employees save the Postal Service? The Postal Service's average monthly compensation cost is $6339.27 per employee. (This works out to a salary of around $54,000 per year or $4,500 per month with the rest being the cost of employee benefits and employment taxes.) If one assumes that retiring employees earn 15% above average then the savings per month per retiring employee is $7,290.16 per month. Attrition then reduces the Postal Service's compensation by around $6.736 billion this year.
The March 25th announcement will just start the process of eliminating positions, so it is likely that the Postal Service will not see the full impact of the announcement until the end of June. So the cuts in positions will cut the payroll for only three months this fiscal year. The savings, using the same assumptions will be $306 million.
Combined the total savings is $7.042 billion. However, even with this reduction in compensation the best the Postal Service can do is cover its operating expenses. These cuts generate an insufficient profits and cash to cover the Postal Service's capital needs and other investments necessary to maintain universal service and transition to a leaner more efficient operation, let alone pay one dollar of the disputed retiree payments.
So let's ask a hypothetical question. What is the total number of employees that the Postal Service can employ and still be a self-sufficient enterprise? This question needs to be asked both with and without the retiree payments and with both current compensation levels and reduced compensation levels that would come through retirement incentives and the introduction of a two tiered wage structure.
Assumptions
If one assumes that salaries remain at current levels, the Postal Service must reduce its workforce by 94,648 employees to be self-sufficient. That is close to 1/6 of the current workforce. The number would be lower if the Postal Service is able to negotiate a two-tiered wage agreement with its unions but will still be a shockingly large number.
This little exercise should give stakeholders pause as it is clear that many things have to be put on the table to cut costs that Congress and other stakeholders are resistant to change. These include:
So how much will the reduction of 30,000 employees save the Postal Service? The Postal Service's average monthly compensation cost is $6339.27 per employee. (This works out to a salary of around $54,000 per year or $4,500 per month with the rest being the cost of employee benefits and employment taxes.) If one assumes that retiring employees earn 15% above average then the savings per month per retiring employee is $7,290.16 per month. Attrition then reduces the Postal Service's compensation by around $6.736 billion this year.
The March 25th announcement will just start the process of eliminating positions, so it is likely that the Postal Service will not see the full impact of the announcement until the end of June. So the cuts in positions will cut the payroll for only three months this fiscal year. The savings, using the same assumptions will be $306 million.
Combined the total savings is $7.042 billion. However, even with this reduction in compensation the best the Postal Service can do is cover its operating expenses. These cuts generate an insufficient profits and cash to cover the Postal Service's capital needs and other investments necessary to maintain universal service and transition to a leaner more efficient operation, let alone pay one dollar of the disputed retiree payments.
So let's ask a hypothetical question. What is the total number of employees that the Postal Service can employ and still be a self-sufficient enterprise? This question needs to be asked both with and without the retiree payments and with both current compensation levels and reduced compensation levels that would come through retirement incentives and the introduction of a two tiered wage structure.
Assumptions
- The Postal Service does not pay any of the disputed retiree obligations.
- The average monthly compensation is $6339.27 (including all benefits and employment taxes)
- The Postal Service's revenue in 2011 will be near the plan level of $67.1 billion.
- The Postal Service needs an operating margin of 12% to be self-sufficient.
- Total costs need to be $59.1 billion.
- Cost reduction required above current plan $8 billion.
- 90% of the savings come from reduction in employees.
If one assumes that salaries remain at current levels, the Postal Service must reduce its workforce by 94,648 employees to be self-sufficient. That is close to 1/6 of the current workforce. The number would be lower if the Postal Service is able to negotiate a two-tiered wage agreement with its unions but will still be a shockingly large number.
This little exercise should give stakeholders pause as it is clear that many things have to be put on the table to cut costs that Congress and other stakeholders are resistant to change. These include:
- Cut an additional 20 to 40 district offices and 1 to 2 Area offices - Cuts in management will like need to be at least twice what is announce on March 25. The Postal Service cannot be too agressive in cutting out a layer of management.
- Acceleration of plant consolidation - Members of Congress may object to the consolidations but they will proceed regardless of their efforts. Future consolidations after those that will occur this year and next will likely start to require capital expenditures and the cash to finance them.
- Modernization of the retail infrastructure - Mail services need to be accessible but the current method may be unaffordable. A new model needs to be put into place quickly.
- Restructuring of rural mail services - The Postal Service needs to look at the Australian model for providing service in the most rural parts of the United States. It would require looking at rural service as a profit center that includes revenue and costs associated with retail and delivery and a major expansion of services that they are legally allowed to offer in a rural retail facility. It may require doing what Australia Post has done and franchising to a local company to provide both the retail and delivery function.
- Changes in civil service employment law - Senator Susan Collins has already introduced legislation to change rules for workers compensation but more changes are needed in employment law as it affects the Postal Service. If the Postal Service is going to implement the major operating changes required to reduce the number of employees to levels that the business can support, it needs streamlined rules to implement reductions in force and early retirement incentives. Current rules were not designed to handle the rapid reductions in employment counts that the Postal Service will need to be self-sufficient. Without these changes, reducing the number of employees through any method other than attrition remains a difficult and expensive option to implement.
- Five-day delivery - A switch to 5-day delivery is unlikely in the next few years. However, unless the Postal Service can find a way to reduce its costs in other ways five-day delivery will likely need to be introduced by 2020 even if savings are well less than one billion dollars.
- Rate increases - Rate increases above CPI have to be the last option but rate increases are probable even if the previous six changes are implemented. In particular, single-piece First Class mail rates need to rise to cover the costs of reducing the number of employees to reflect the rapid decline in these employees and the future liabilities for their retiree expenses. Rates for the Postal Service's largest mailers will also likely rise with some loss in volume
Wednesday, March 9, 2011
Expansion of Purolator International
In a recent story, Post and Parcel noted that Purolator, Canada's largest parcel carrier is about to double its presence in the United States and operate under a new name Purolator International. Over a year ago, this Blog posted a list of the U.S. markets that Purolator served for service within the United States. They were as follows
- Buffalo, NY
- Dallas-Fort Worth, TX
- Itasca, IL
- Los Angeles, CA
- Farmingdale, NY
- Philadelphia, PA
- Raleigh-Durham, NC
- Seattle, WA
- Taylor, MI
The #1 Problem With E-commerce: Shipping Costs
The following is a video promoting a new company, Shipsweet. The video really lays out the problem facing e-retailers from Amazon.com to the smallest seller on e-bay. It also explains why regional carriers are growing faster than the overall parcel market and why Purolator, Canada's largest parcel carrier plans to double its presence in the U.S. market.
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