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A Modest Proposal for the United States Postal Service
By Mark Fallon
The United States Postal Service is in trouble.
It seems whenever and wherever you turn to for news, another large organization is announcing bad news. Banks, insurance companies, and car manufacturers are reporting record losses and requesting assistance from the federal government. Is it really surprising that the United States Postal Service ("USPS") is in trouble, too?
Faced with a weakened economy and the diversion of bills and payments to the Internet, the USPS saw mail volumes drop by 4.5% in Fiscal Year (FY) 2008. (The USPS follows the same FY as the federal government, October to September). Against revenues of $75 billion, the USPS posted expenses of $77.8 billion, a $2.8 billion loss.
The first quarter of FY2009 brought more bad news. Volumes continued to decline, and the USPS posted a $348 million loss. And the news was worse in January, with an estimated $751 million loss. Even with the modest postage rate increases this year and continued cost-cutting plans, the USPS is on track to lose over $5 billion in FY2009.
Postmaster General Jack Potter testified before a Senate subcommittee in late January and outlined the challenges facing the USPS. Mr. Potter explained the cost-cutting measures that management had implemented by streamlining operations. He then requested assistance in two areas: that Congress remove the requirement for the USPS to deliver mail 6 days per week, and that Congress adjust the schedule that the USPS must follow to prepay future retiree health benefits.
The second request – adjusting the schedule for the prepayment of future retirees' health benefits – would have an immediate positive impact to the USPS and no impact on the American public. Last year, the USPS paid $5.6 billion to pre-fund future premiums. Without this payment, the USPS would have posted a net profit for FY2008.
Of course, that wasn't the point that the Senators, or the news agencies, seized upon. Just the suggestion of cutting mail delivery services by one day produced a backlash that the USPS was unprepared for. For the next several days, the USPS was on the front page of major newspapers and the homepage of news websites. If Mr. Potter was trying to draw attention to his agency, he succeeded.
To add fuel to the fire, 2 weeks later, the USPS announced its annual postage rate increase, 2 cents for First-Class Mail®. At the same time, it was made public that Mr. Potter and other postal executives had received almost 40% in pay raises since 2006, and significant bonuses for their pensions. These pay increases took place while the USPS was losing money.
Another Congressional hearing is scheduled for March. The chairman of the House subcommittee is Stephen Lynch (D-MA). His mother was a postal clerk for 25 years and his two sisters work for the USPS (my father was also a postal clerk for 25 years). It should be an interesting hearing.
Despite all this bad news, I remain a staunch supporter of the USPS. Outside of the military, it's the only government agency included in the US Constitution. For the 5th year in a row, it was named the "Most Trusted Government Agency" in a survey of 7,000 Americans. And, the USPS is the lynchpin of a nearly $1 trillion print and mail industry that employees 9 million people.
The USPS does need to change. Some of the decline in mail volume is temporary, and an improved economy will help. But much of the mail volumes, especially bills and payments are gone, forever. Lower volumes don't mean lower expenses, as the number of delivery points – homes and businesses – continues to expand.
To be successful, the USPS needs to bring in new leadership with a renewed focus on service, employee morale, and an efficient operating model. These challenges aren't competing priorities, but complementary issues. And bringing in an outsider may be the only way to be successful.
On-time delivery of First-Class Mail® has risen over the last several years. But that is only one measure of service. New regulatory guidelines and proposed changes to mailing requirements have put additional pressure on mailers – the people and businesses who are the primary source of revenue for the USPS. Recently, there's been a significant increase in fines and penalties on mailers in apparent attempt by the USPS to find other ways to collect new income.
Many of the recent proposals and changes reveal that the USPS doesn't understand "mail". The USPS doesn't know how companies create, manufacture and process mail. That would be okay, if the USPS would understand that it's not in the "mailing" business. Rather, the USPS is in the logistics and delivery business.
As a logistics and delivery business, the USPS needs to expand services, not cut back on services. The USPS is the only organization that delivers to every address in the country, including Saturdays. The largest competitors, UPS and FedEx, don't want to deliver to all addresses, especially on weekends. The USPS has already partnered with FedEx and UPS on certain delivery and return products. These partnerships need to be further exploited, especially with the continued growth of people purchasing merchandise over the Internet.
The announcement of record losses, the cutbacks in staffing through attrition, and the announcement of massive pay raises for executives have had a negative effect on employee morale. The tensions between management staff and union employees have increased. To get a small sample of the bad blood, check out some of the comments posted by both sides on sites like www.postalnews.com.
From an outsider's point of view, the USPS is top-heavy. Automated reporting from equipment, information gathered from barcodes on letters, and better business practices have eliminated the need for so many supervisors. Mr. Potter has cut the size of the staff at the USPS headquarters, but more cuts are needed.
At the same time, the unions need to support some of the hard changes proposed by USPS management, especially in the area of consolidating processing facilities. The unions have a responsibility to their members to question changes and validate management's assumptions. But, the unions also have a responsibility to make sure the USPS remains a viable organization.
Which leads to the current business model for the USPS. Since 2001, the USPS has consistently worked to improve efficiencies and reduce costs. While successful, the current financial situation calls for even bolder changes.
Most of those changes will require further consolidation of sorting facilities and closing small post offices. That means job cuts, which will be opposed by the unions and members of Congress. But those cuts must be made. And closing post offices is harder than you may think.
I'm not recommending closing post offices in rural areas. In many of these places, the local post office is often the center of the community, and the nearest post office may be 15 or 20 miles away. A better target is where there are many post offices in a smaller geographic area.
For example, the city of Newton, Massachusetts. There are 8 post offices in an area less than 19 square miles, and located on some of the most expensive real estate in Greater Boston. But to close those post offices would require confronting two powerful US Senators and a very powerful US Representative. A difficult proposition.
Where do you find a leader willing to take on these challenges? Where would you find someone whose organization has gone through such significant changes during tumultuous times? The same place where many postal workers began their government career – the military.
The last several years have seen the retirement of generals and admirals whose service began during, or immediately after, the Vietnam War. These people were leaders during the 1970s, a decade requiring major organizational restructuring, changing focus and overcoming morale issues. Challenges that have only increased over the past decade with the changing political environment, at home and abroad.
Most importantly, these men and women are committed to public service. The spirit of service to our country must be the preeminent requirement for the leader of the USPS. The USPS is an important part of our government and provides an invaluable service to our citizens. The USPS isn't a business, but a government agency that should be run like a business.
Even if you don't work in the mailing industry, the future of the USPS will impact you and your business. Get involved and write, email and call the President, your Senator and your Representative. Express your concerns about the one government agency that touches every American, six days a week.
Our United States Postal Service is in trouble.
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