The Way We Were…and Are Not

Outgoing Postmaster General Pat Donohoe gave a farewell speech at the National Press Club on January 6.  He described the significant progress that has been made, and outlined requirements for future change, based on the Postal Service’s well-publicized Strategic Plan. He stated that what was holding up progress was “short-sighted myopia” from some in the mailing industry and labor unions. Reaction has been swift…and predictable.

The Wish to Return to the Past

The first responses come from the postal unions, who accused the Postmaster General of “running the Postal Service into the ground.”dn 1 The APWU, representing postal clerks, do not want any reduction in retail hours, even at facilities that generate little “foot traffic” and revenue from customers. Union leaders resist any thoughts of replacing high cost retail clerks, or of making arrangements with other retailers to provide postal services to customers at more convenient locations. The Postmaster General noted that the APWU has made it harder to develop arrangements with other retailers.

The unions also do not want any reduction in the network of mail processing centers, even as mail volume continues to decline. Unions do not want any change in “service standards”, even in a changing market where instantaneous communication options are available to most business and consumers.  These changes are being put into place over union opposition, although the reduction of delivery days from six to five is on hold.

My Need for Profits Outweigh Your Need for Revenue

The mailing industry has been reasonably consistent in its approach to supporting the need for changes in the Postal Service…as long as their postage rates do not increase.dn 2 The recent record, however, demonstrates opposition as fierce as the unions but directed at resistance to significant changes in postal pricing.

While everyone involved agrees that online communications and commerce have disrupted the market, almost no one is willing to let the Postal Service raise rates, change rate categories, or even the complex and expensive process of developing and implementing rate changes. The “partnership” between the Postal Service and many in the industry remain too weak to overcome inertia, past practices and special interests.

If Not This, Then That

If the Postal Service cannot reduce costs or increase prices, it must be more aggressive at generating new revenue. The Postmaster General outlined an array of recent experimentation and the implementation of new initiatives, especially in the e-Commerce package delivery business.

These initiatives are a relative drop in the bucket compared with the need for additional net revenues to invest in upgrading equipment and facilities. Additional new revenue from non-traditional services, such as banking, are touted by some as being solutions – even if postal success in other markets is not a sure thing. Some foreign posts have been implementing a wide array of new ventures, but there is little support for similar postal initiatives in the U.S. market.

A Broken Business Model and a Pre-Occupied Congress

Postmaster General Donahoe was clear that he felt the Postal Service management team had made significant if not heroic progress in implementing their Strategic Plan, and he was equally clear in sharing that praise with the hard working employees who have helped to achieve high levels of service and customer satisfaction. By most reasonable standards, he is correct.

dn 3He was equally clear in stating that the problems facing the Postal Service required a broader and longer-term strategic perspective that would require significant changes even if necessary postal legislation were to be enacted. The postal market has changed and a business model based in a world of stable growth and limited competition no longer works. The Postal Service, its unions and the mailing industry cannot return to some “good old days” that are gone forever.

He also stated that Congress still needs to act on changing the business model, and offered the Postal Service as a test bed for alternative approaches to managing government in the 21st century, particularly in the area of addressing government health care, benefits, and pensions. While he stated that the USPS is a unique public institution that provides a universal service to the nation and noted that the Postal Service will always be subject to extensive oversight, he noted that there was no alternative to changing the business model.

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By Kent Smith

Kent Smith is Research Director, Ursa Major Associates / Postal Vision 2020. His 38 year career in the Postal Service included Rate Classification Research, Market Research, and Strategic Planning. Ursa Major Associates / Postal Vision 2020 is dedicated to taking a broader, longer-term perspective on the future of the mailing industry ecosystem. The thoughts expressed in this “Point of View” are his own.

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10 Replies

  1. Karen Ardoin

    Good riddance, Postmaster Donohoe! Instead of sticking with your employees, you have done nothing but try your best to sell us down the river and privatize the USPS. Agreeing with those who wanted to use our monies to fund infrastructure improvements is just one example of your willingness to do anything to get Congress to pass some postal reform legislation – we all see how well that worked! You backed the wrong horse, run along now!

  2. jim

    I have been employed in the USPS for 28 years. The Post Office study of the current phase of changes suggests that the loss of revenue (stamp sales) caused by the reduction in service (reducing the delivery standard for first class mail from one day to four days) will be over twice the savings achieved by the cuts. Does this sound like a good business decision?

  3. D.J.

    The PAEA burden that Congress put on the Postal Service is only an excuse by Donahoe,the PMG,for selling off and lowering the service standards,this was planned under former PMG Jack Potter 10 years ago and was called the “Transformation Plan” and Donahoe,then Deputy PMG was in charge of planning this and was going to do it upon being appointed PMG even if there had been no PAEA bill and recession.

  4. Their is some good in this article,but mostly one sided views and opinions.Yes,prefunding is a huge issue not mentioned.However;also not mentioned is the fact that the USPS has not made the 5.5 billion dollar payment for several years.Since this is still a required payment it will not just go away or be forgiven by the Treasury Dept.Unless the prefunding issue is solved,it will still have to be paid.And yes closing post offices and mail processing facilities not only slows down the mail but it decreases the foot traffic in Post Offices.This is what the USPS wants.Less and less people going to the Post Office and more and more people going to Staples and GoingPostal(soon to be in all Walmart stores)If these venues were staffed by USPS employees that would be a great win for the APWU.But the USPS does not want trained Postal Workers in these places.Costs to much.That’s why so many PSE’s and CCA’s have been hired.Lower wages.Bet the big boys at L’enfant plaza still get those huge salaries!!

    1. Kent Smith

      Gregg,

      The story here is what the PMG said and the reaction to it. Your point of view is part of the ongoing discussion, and you raise an important question. Management, the unions and the industry have tried to make the case for relief from the pre-funding requirements. They have not been successful. In the meantime, management had the responsibility to preserve cash flow enough to pay the bills and to maintain service, even as traditional profitable mail volume continues to decline. Almost every company in the country has done the kinds of things the Postal Service has done during the recession, even though they did not have the same kind of financial hit from Congress. The issue you raised about the cost per work hour is a battle that is yet to come in the next round of negotiations. And I can tell you that few folks at L’Enfant got much in the way of bonuses.

  5. Brian

    Ummm….while your article is well-written it is incredibly biased. The reason the unions are opposed to service reductions, plant closures, cost-reductions using cheaper labor from retailers, etc. is because there is no “actual” reason for these steps to be taken at this time. The losses sustained by the postal service over the last 7 years largely stems from the legislative mandate imposed by Congress ordering the postal service to prepay 75 years worth of retiree health benefits in a 10 year period. No other business public or private has such a burden. Without this mandate the postal service would have been profitable within the same period. The unions understand and acknowledge the need for the postal service to change its business model for the 21st century, but the aggressive cost-cutting initiatives, plant closures and service reductions taking place are simply not necessary at this time. These changes can be made more gradually and with greater care than they are now if not for this mandate. For your article to omit this is beyond misleading.

    1. Kent Smith

      Brian,

      You are, of course, accurate about the impact of the PAEA on postal finances. Management has consistently cited this as a fundamental reason for change (the broken governance models). But there is also a second reason. This is the dramatic and continuing decline of First-Class Mail, the major source of “profit” for the Postal Service. Even if the Retiree Health Benefit pre-funding issue is resolved, traditional mail volume will continue to decline. The organization will have to reduce excess mail processing capacity in order to invest in new delivery capability.

  6. DannyNJ

    When a person (who should know better) writes a scholarly piece on the problems of today’s Postal System…………and doesn’t even mention the PAEA (the NUMBER ONE reason why they aren’t turning a profit today), you KNOW that they have an agenda.

    How is that possible??

    Blaming the Unions certainly won’t help matters, unless, of course, your ultimate goal is to eliminate them entirely, as part of your “changing business model”……………?

    1. Kent Smith

      DannyNJ,

      The Retiree Health Benefit pre-funding required by the PAEA is just one issue, although it is a major one. The other issue is declining First-Class Mail volume. The Postal Service must continue to become more productive. Nobody blames the unions for either the PAEA or for the decline in revenue. It simply means that the unions will have to continue to contribute to efficiency and cost reduction initiatives, just as unions in other industries have had to. Everyone will have to change. Management will have to and so will the traditional mailing industry.

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