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Mailers' Rebuttals Fall Flat
Burrus Update #5-03, March 20, 2003
As the Presidential Commission on the U.S. Postal Service continues compiling recommendations from the business community on the future of the Postal Service, it is apparent that the major mailers and the mail consolidators are concerned that the APWU has exposed the subsidies embedded in the postage discounts they receive. The mailers' associations have submitted extensive rebuttal testimony in an attempt to justify the deeply discounted postage rates that have been a major cause of postal deficits.
The mailers offer a variety of defenses of the inappropriate subsidies, including the costs incurred establishing processing operations; the low wages and lack of benefits paid to private mail processors; exaggerated costs involved in the application of bar codes that have little utility to the Postal Service; and the threat that without subsidies they would switch from mailing to electronic messages.
These defenses fail to address the basic issue involved in excessive discounts. My testimony before the Subcommittee on Feb. 20 clearly set forth the central issue on postal work sharing:
Sound economic principles clearly establish that work sharing discounts should not exceed the "costs avoided." If services can be performed at a lower cost, the cheaper provider should perform the service. Such is not the case in many postal work sharing contracts, including the application of bar codes.
As Postmaster General John E. Potter testified, postal automation equipment affixes approximately 31,500 bar codes per hour with two employees staffing each machine. With discounts of 7 or 9 cents per letter, the cost to the Postal Service is more than $1,000 per hour. The arithmetic is simple, 7 or 9 cents per discounted letter times the speed of the machine at 31,500 letters per hour, divided by two employees, equals a labor rate many, many, many times greater than postal employee wages. As the commission seeks to identify the reason for postal deficits, these subsidies should be Exhibit A.
The CEO of United Parcel Service (UPS) also testified before the commission on Feb. 20, and he was questioned by the members about his vision for the Postal Service. No one asked whether UPS participates in work sharing. I trust that the commission is aware that UPS, like the Postal Service, uses bar codes to sort parcels and expedited packages. Despite offering their mailers a variety of volume discounts, UPS does not offer a single discount for applying bar codes.
If the mailing associations now taking exception to the APWU position were truly interested in a competitive Postal Service, they would embrace the principle that discounts should never exceed the costs avoided. It is not surprising that they have not accepted this economic concept, because it would lead to a loss of their sweetheart deals.
