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Here We Go Again!
Burrus Update #22-2009, Dec. 9, 2009
Influential voices within the postal community have once again begun the drumbeat for postal “reform,” suggesting that the USPS business model is fatally flawed. We have heard this song many times before — throughout the 1990s and during the early part of this decade.
Then, as now, those clamoring for legislative change drew upon selected facts to bolster their case. Cost efficiencies, new revenue opportunities, structural change and expedited rate-changing procedures were promised in the past, and they are being dangled before our eyes once again as justification for Postal Reform, Round 3.
Despite the miserable failure of the Postal Accountability and Enhancement Act of 2006 (PAEA), and the revisions to the law governing the Postal Service in 2003, they are at it again!
The record is clear. Despite the promises, the effects of “reform” have been more harmful than helpful. And one reform seems to lead inevitably to the next.
A quick review reveals that past efforts:
How many times must we travel down the path of postal “reform” before we confront the real obstacles to the future of mail and the United States Postal Service?
Fact: In and of itself, restructuring has not and will not increase mail volume.
Fact: Major mailers independently determine the amount of hard-copy mail they send, and “reform” will have little influence on their decisions. The PAEA, which the large mailers unanimously supported, was followed by the most significant decline in mail volume in the history of the Postal Service.
Fact: There is stiff resistance to government competition in the private marketplace. Therefore, it is unlikely that the USPS will be permitted to engage in banking, phone sales, and other new commercial activity.
Fact: The opportunity to fix the PAEA by removing the crippling obligation to prefund retiree healthcare — a correction that is desperately needed — is hampered by Congressional “scoring” procedures, which prevent Congress from passing bills that add to the deficit. (Although the USPS is not part of the federal budget, it is part of the “unified budget,” so the Congressional Budget Office demands “offsets” when changes are made to the payment schedule.)
Fact: Because they fail to address the fundamental challenges facing the Postal Service, reducing the number of employees, slashing the number of mail processing plants, and eliminating retail units are not long-term solutions. They are misguided cutbacks that diminish service and harm those who are the least “connected.”
We Need a Real Solution
Previous efforts at reform have rested on the belief that large mailers could be encouraged to increase volume if their postage rates were kept artificially low. The faulty premise was that if rates could be reduced — through cutbacks in the number of employees, plants and post offices — mail volume would return to 2006 levels, and even grow. This was a dream that turned into a nightmare.
Despite the reduction of 150,000 employees, a full year with no COLA raises for employees, increased postage discounts for major mailers, expanded subcontracting, and widespread station closings and plant consolidations, mail volume has decreased more than at any other time in postal history. These measures have nothing, absolutely nothing, to do with mail volume.
The bottom line: The solution to the USPS fiscal crisis is to grow volume; forget “reform.”
What is my solution? I begin with the suggestion that postal management accept the fact that rates do not drive volume. Unless one is convinced of this irrefutable fact, the next round of reform will be a mirror image of the last: A miserable failure.
The second item on my list is to reject the myth that the volume of mail sent by corporate customers can be influenced externally. Large mailers have internal stimuli that drive communications decisions. Sometimes it is cost, sometimes efficiency; most often it is marketing decisions. Postage rates have a marginal impact on their decisions to increase or to reduce volume.
Third, I would wipe from my mind any concern about competition with the Internet or other forms of instant communications. The USPS cannot compete in cost or speed, and bemoaning the impact of these methods only diverts us from real solutions. Society communicates differently in 2010 than it did in 1820. Did we expect otherwise? Accept it and move on.
The list is getting long, but fourth, I would acknowledge that to survive the Postal Service must grow. I would leave aside in-depth studies, charts, and graphs, and begin every meeting with a recognition that the Postal Service must grow. Everybody in unison, “The Postal Service must grow.”
I would accept the fact that Congress is not going to provide the USPS with some magical opportunity to use the postal network, workforce, or property as a means to forestall the inevitable. The Postal Service will either grow or perish.
Where Can Growth Occur?
If the USPS is to grow, where? It has been more than 30 years since household-to-household mail has constituted more than 8 percent of the total mail volume. Any dream that volume can grow from this declining base is an illusion.
Recently, the Postal Service announced with great fanfare that it would begin selling greeting cards in retail offices. Unfortunately, birthday cards will not save the mail system; and these products simply will not generate sufficient volume to make a difference.
If and when the economy recovers, large mailers will find it in their own interest to expand their budgets, increase the number of mailings they send, and generate more revenue for the Postal Service. But the pace of economic recovery is uncertain, and I am not sure we can hold on that long.
This leaves us with just one alternative — one that is viable whether the economy remains stagnant or recovers — a partnership with small business.
There are millions of small businesses that have virtually no marketing budget and no expertise in advertising. For many, that is why their potential for growth is so limited. Small businesses generally rely on word-of-mouth recommendations and walk-in traffic. If the Postal Service could introduce them to the world of hard-copy advertising, both would grow.
The Postal Service made a half-hearted attempt several years ago to reach out to small businesses through Mailing Online, which embraced the concepts that I am advancing here. But after private mailing houses voiced opposition, the USPS abandoned the idea. How unfortunate.
We have a golden opportunity to do what no other company can do: transform an idea into an advertising message, convert it to hard-copy mail, and deliver it to a specific audience. This is known as one-stop shopping. (If you want to apply real discounts, give them a package deal.)
For example, let’s assume you operate a small “gutter cleaning” company and you want to inform homeowners about your services. Television is a very expensive way to advertise, and viewers may or may not have trees around their homes. The same is true for advertising on the radio or in newspapers. If you use the Internet for advertising, your business will be listed with hundreds of other gutter-cleaning companies. As a result, you may decide to post signs at traffic lights and distribute leaflets in parking lots. You probably never thought that you could afford to send a letter to every home in the community that might need your service.
There are millions of small businesses like this example.
If there is a legal impediment to making this concept work, that might be an area that is ripe for reform. This is an opportunity to marry the Internet to hard copy and, in the process, save the Postal Service. If we reject this possibility, postal reform, workshare discounts, infrastructure changes and empowering arbitrators to consider the financial health of the USPS will not save our revered institution.
Working Around the Edges Won’t Work
To those who dream of a Postal Service that survives by providing a smorgasbord of services “around the edges” of mail processing and delivery, forget it. The contribution of these other offerings to the bottom line is negligible.
The Postal Service cannot maintain a national network of more than 30,000 facilities; employ more than 600,000 workers, and deliver mail to every home six days a week on profits generated from niche services. The revenue from parcels, passports, and selling greeting cards is important, but one cannot be misled into believing that a national system can be funded from these services.
Letter mail is the primary revenue source and justifies mail delivery to every home, six days per week. UPS and Fed Ex are not structured to provide this degree of coverage, and the investments that would be needed to provide them cannot be funded through on-call services.
So, as the Postal Service explores other services as a means of increasing revenue, the focus must always be on increasing the volume of letter mail. Reductions in employee wages and benefits, network cutbacks, rate adjustments, advances in technology, mailing incentives and other distractions mask the fundamental issue: Letter mail must grow. Other efforts may delay the inevitable, but over time they will serve only as a diversion on the downward trajectory leading to insolvency. Every hand on deck must have the basic responsibility to encourage the growth of letter mail.
The media effort promoting Priority Mail is a case in point. The Postal Service cannot fund the national network with a modest growth in parcels while the revenue contribution is negated by simultaneous erosion in letter volume.
The future of the Postal Service is tied to the revenue generated from letter mail. If the great minds in the postal community have concrete ideas for increasing letter mail volume in this age of instant communication, and those ideas require legislation, perhaps another round of reform would be worth the effort. If not, we should dispense with the references to a “new business model” and forgo another round of swinging for the fences but hitting only weak pop-ups.
William Burrus
President
*The 2003 attempt at postal “reform” resulted in the passage of Public Law 108-18, which corrected the Civil Service Retirement System funding formula, but required the USPS to place $20 billion in escrow from its overpayment to the CSRS. At the same time, PL 108-18 transferred the obligation to pay pension benefits for military service from the Treasury to the Postal Service. The obligation, which was estimated to cost $27 billion,was eliminated by the Postal Accountability and Enhancement Act of 2006, but it was replaced with a requirement that the Postal Service prefund retiree healthcare liabilities — at a rate of more than $5 billion per year for 10 years.
