Friday, October 23, 2009

Mathematically Challenged: Burrus Proposal Doesn’t Add Up for USPS

Such a deal! A labor union is offering to charge “only” 10.4 cents per letter to do work for which mailers are in essence only charging the U.S. Postal Service an average of 8.9 cents.

The offer from the American Postal Workers Union would also require a substantial increase in postage rates that would drive profitable business away from the Postal Service and harm its customers.

Here’s the “challenge” issued by William Burrus, president of APWU, last week to Postmaster General Jack Potter:

"Discontinue the exorbitant postage discounts that are offered to large mailers -- which are currently as high as 10.5 cents per letter -- and allow members of the APWU to perform all mail-processing functions at the rate of 10.4 cents for every letter and flat," Burrus said in a statement.

What the Burrus Challenge Means
The 10.5 cents refers to the difference between a 44-cent First Class stamp and the 33.5 cents paid for a one-ounce First Class letter presorted to the 5-digit level. But more than half of all presorted First Class letters pay a higher rate than the 5-digit level, resulting in an average rate of 35.1 cents, according to USPS. That’s an average postage discount of 8.9 cents off the single-piece rate.

By increasing the price of all presorted First Class letters to 44 cents, the Burrus proposal would be raising those rates by an average of more than 25%. Businesses would respond by shifting even more communication from mail to email, offering larger incentives for online billing, and finding other means of reducing their First Class mailings.

The price increases would decrease the volume of such mail by more than 6%, according to Postal Service studies that have been criticized as understating the price elasticity of First Class demand. USPS would save only 11.6 cents per letter on the lost volume, according to data USPS recently submitted for the “Fall Sale”.

A Billion-Dollar Mistake
So here’s what the math means: Presorted First Class letters currently contribute an average of 23.5 cents (35.1 minus 11.6) toward the Postal Service’s fixed costs. With Burrus’ proposal, the contribution margin would shrink to 22.0 cents (44 minus (11.6 +10.4)). Throw in the lost volume, and his challenge would decrease the contribution from presorted First Class by more than 12%, or well over $1 billion annually.

Such a financial loss would put pressure on the Postal Service to downsize even further, threatening the livelihoods of some APWU members.

Burrus’ simplistic challenge glossed over some other inconvenient facts:

Price Cap: Annual increases in First Class rates by law are capped at the rate of inflation, resulting in no increases next year and only 5% in a high-inflation year. With presorted letters constituting more than half of all First Class mail and single-piece (44-cent) letters more than a third, there’s no way to implement Burrus’ plan without violating the cap even in a high-inflation year.
Other Costs: Burrus says that APWU members would sort the letters for 10.4 cents each, but there would be other costs as well -- supervisors, maintenance of machinery, heating and lighting of buildings, etc.
Work-Sharing Discounts: Study after study has shown that work-sharing discounts in general and the discounts for presorted First Class in particular are a good deal for the Postal Service.
Mailers’ Cost Advantage: It is inherently easier and cheaper to sort bits of data than physical letters. That’s what presort is about – sequencing the addresses in an optimal manner for the Postal Service before the letters are even produced. No matter how hard they work, APWU members cannot achieve the same results as mailers at anywhere near the same cost.

Washington insiders tell me Burrus is a savvy player who knows what to say to get politicians’ attention. So why would he put forth a proposal that would hurt his own members and that probably would be impossible to implement anyway?

With his announced retirement next year, perhaps he’s more interested in getting sound bites than in proposing long-term solutions. And perhaps he realizes that no one on Capitol Hill will take his challenge seriously anyway.

Potter certainly didn’t. Less than 24 hours after Burrus issued the challenge, Potter announced that there will be no increases in postage for First Class and most other mail during 2010.

Maybe the timing was only a coincidence. Or maybe it was Potter’s way of saying to Burrus, “Don’t let the screen door hit you on your way out.”

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Anonymous said...

But what you did not take into account there Dead Tree is the Obama factor, you know the one similar to the UAW, SEIU, ACORN, and next the APWU to be added to this distinguished list. Now that ought to cover the short falls of the math....

Anonymous said...

also dead tree you did not take into account the fact that many small mailers that do not quailfy for the discount only get said discount because mailing houses have spring up all over the county to short change the post office.

Anonymous said...

Burrus has it right, you do not have all the facts. The Post Office used to brag about being able to process letters on automation at a cost of around 3 cents per piece, while the presort companies get discounts of up to around 10 cents per piece. You do the simple math, the private companies get "paid" up to 7 cents per piece for doing what we could do in house cheaper. Plus, some of these big presort houses get daily rebates of around $5000 per DAY for bringing in huge mailings, which are the result of multiple mailings mixed together. This is money the Post Office could keep in house. Also, where is the good old "sanctity of the mail" when non postal people handle your mail??

GoldenBoy said...

While you make some good points, I do not believe you have all the facts. The presorting done in the private sector actually makes more work for the postal worker. We may receive trays that are broken down in carrier route, walk-sequenced bundles or flagged in the tray for separation between carrier routes. That is what the presort mailers do, and receive a discount for doing. However, that bundle, tray or flagged separation is more than likely going to be run on our automated letter sorters in order to delivery point sequence the mail for the carriers. In essence, the major mailers are receiving a discount to presort the mail, but the Service is breaking down the presort and resorting it anyway. So why give a discount to have it presorted in the first place?

Anonymous said...

I won't say you missed the point or don't have the facts. The numbers are what they are and they can be spun many different ways.

The overriding point that Burrus ios trying to make is that the USPS gives a discount of 10.5 cents to do work which would only cost 2 cents if done in-house.

No business could survive under those circumstances. When companies contract out work it is because the contractor can do the work cheaper. Here we have the exact opposite, yet the USPS contract out anyway.

Anonymous said...

I think there is a way for the USPS to bring the work back in-house and keep the mailers happy.

If a mailer gets a 10.5 cent discount per letter, but pays a presort house 4.5 cents to do the presorting, the mailer's actual discount is 6 cents.

The USPS should give a 6 cent volume discount if the mail is brought to the USPS for sorting. This way the USPS gets 4.5 extra cents and the mailer still gets his 6 cent discount.

Cut out the middleman. Business 101.

McTell2 said...

You, have the 'Facts" Wrong. Go back and study, before you post, please i ask of you. This appears not to be a report of facts, but a Spin on a most productive proposal to save jobs at USPS as well as save consumer monies. Value indeed, if actually read Burrus stated.
Bottom line?? Go back and study up me friend. I will also go back and study the FACTS.

Anonymous said...

While I agree with some of the comments. The fact, that each Post Office that works presorted mail, refuses to have the carrier work the mail that arrives ready for dispatch by the carrier. They re run the mail Why the Postal Service is a numbers game. They want X amount of pieces run per day. To get the numebr up they need to run ready for delivery mail. Also the poor carriers cpmplain, if their mail isn't in one tray. Fingering the mail is too complicated for them. Once again the problem, is MANAGEMENT. Plus Burris knew the Post Office wouldn't accept a piece count salary. They would of course go broke

myheadhurts said...

Mathematically Challenged? How about spelling & grammar challenged. Some of you cannot spell and/or have really bad grammar. Can you say: "Spell Check"? (HINT: Write up your "blog" comment in MS Word or similar program, use the Spell & Grammar checker - and then post here). How can any of you pretend to know math if you cannot write proper sentences? Also, no one listed where the alleged "facts" regarding mail costs can be found. Where are any of you getting your information from? Burris? The USPS? The possibility of confabulation rears its head here.

Look, no one is perfect, myself included. Criticizing Burrus is OK, but if Burrus was not in his position, it would be someone else, and you all would be complaining about something or other about that person. Perhaps it will be Cliff Guffy next.

Which of you offered a feasible solution? I like the idea Anonymous has about the middleman. Have you submitted that as a suggestion to the USPS, or the GOA?

Well, keep up the great discussions. We all need to be able to express ourselves freely.

Anonymous said...

Metaphorically Challenged! Of course you know Burrus meant that the Postal Service can process the mail in-house cheaper than the current workshare discounts. (Potter said that mail processing plants run below capacity due to the abrupt drop in mail volume.) Add one + 1, and you see why Burrus is correct.

Anonymous said...

Based on some previous comments, I'd like to clarify a total misconception that is being presented.

Presort mailers prepare the mail to the exacting specifications of the USPS Domestic Mail Manual in order to claim any worksharing discounts. If there is an issue with the mail handling once received - we are doing what the Postal Service told us to! If it needs to change, it's a Postal Service task.

Anonymous said...

Reply to the previous commentator: This is exactly why the Challenge was presented by Burrus to the PMG. Hey, but we welcome feedback and opinions!

Anonymous said...

USPS mailprocessing equipment can barcode and sort mail at 35000 pieces/hour.
Cost of two processing clerks approximately $60/hour. Cost per piece .17 cents if done by USPS. Costs by bulk mailers 10.5 cents almost 60 times more!
Burrus is making a point. The Bulk mailers (presort houses) are robbing the USPS. The USPS could be giving the businesses sending the mail a larger discount then the presort houses and still make money! It would cost the businesses sending the mail less money, allowing them to send more mail if done by the USPS.

uncommonsense said...

Obviously Burrus wasn’t doing a serious evaluation of costs/benefits in his “challenge”. It is a publicity stunt.
However, I think Burrus more than included “other costs” in his calculation. He is just, as a union leader, going for a price that could afford increasing dramatically wages for the members.

As pointed out by Burrus before the direct costs of sorting a letter in the USPS automated environment is well less that a cent per letter.

Anonymous said...

I would like to say as a Mail I find it funny that you are all arguing. The mail that is supposedly presorted still has to be run through our machines to get to the customer. Take for instance, Mailer A sends out 50,000 envelopes zoned to an individual town, that mail still has to be processed and ran through the machine twice, so where is the discount. The postal service still has to pay that employee to sort the mail.

uncommonsense said...

In 1999 the OCR machines that the USPS was running had the ability to read about 20% of the letters ran through them. They had a throughput capacity of 30,000 letters per hour and required 2 trips through the machine to sort to the first breakdown and only allowed 94 different breakdowns. Most of the mail that ran through this machine had to have images of it sent to human keyers on terminals at one of 55 REC sites to provide the information to barcode the mail piece.

Today, because of faster computers and more advanced software, the equipment that the USPS is running is able to read and apply barcodes to about 97% of the letters ran through it and sort the mail pieces to over 200 possible breakdowns, ALL on the first pass @ 40,000 letters per hour. An equivalent breakdown in 1999 would have required 3 passes through the OCR @ 30,000 pieces per hour and many human keyers. So in one hour with 2 operators and a keyer, the USPS can now process what used to take 4 hours 2-3 operators and many keyers. The new equipment is also much less expensive to maintain then the old MLOCR was.

Now, 3% of letter images are sent to human keyers at one of 2 REC sites. Despite adding Flats and Parcel images to keyer duties, technology has allowed the USPS to eliminate 53 out of 55 REC sites.
Since USPS costs for bar coding and sorting letters has decreased so much since 1999 why have the work share discounts not also decreased?

Anonymous said...

That's a question that should be directed to Potter. Attacking Burrus' misses the point of the dialogue.

Even if 'workshared presorted' mail is re-processed in-house by the Postal Service, it still does not add up. By doing the initial preparation in house adds another pass to the work flow. +1 Burrus is right!

Anonymous said...

I've been getting letters recently with only 23.5 cents of postage paid. I assume some sort of "super" pre-sort qualifies them for this rate. I also get 33.5 cent letters (which is where the 10.5 cents comes from, right?). I get very few, if any, letters between 33.5 and 44 cents, so the argument that the "average" discount is less than 10.5 doesn't ring true. The Burrus proposal makes sense to me.

Anonymous said...

The average mail volume could be processed by the Postal Service at a cost saving. Yes, it makes cents. But I do believe that the Burrus Challenge was a direct response to Potter's "blame the economy" and "the Unions" for the mess in mail processing.

BTW, I like this automatic spelling thingy. I don't have to go to MS Word.

Anonymous said...

This is just ridiculous! The idea of Postal clerks sorting mail for less doesn't wash. Mailers buy, or rent mailing lists, that, in many cases, are in delivery order. They are "cleaned up" to remove bad addresses, etc. When the mail arrives at the Post Office, it is in delivery order.
It's the silly Post Office rules that waste money. I have seen carrier-routed mail, returned to the SCF in order to co-mingle it with other mail. Why can't the carrier just case it in? Think of the man-hours, and transportation costs that this takes. All of this is because management has the silly notion of having all the carrier's mail ready to deliver when they arrive in the morning.
As far as the APWU goes, who is going to supervise those clerks? Sure they might be able to sort letters cheaper, but many of them tend to hide once they get on the clock, or sleep, or just stand around and do nothing! The few people honest enough to put in a days work would be so overburdened, that the system would grind to a halt! There is no office standard for the clerk craft, nor has there been one. Why not establish one Mr. Burrus, and then make that claim?

Mike said...

Dead Tree, you leave out ONE important fact. Burrus also stated "we will commit to processing parcels for free.", as part of his proposal. But hey, why bother with all the facts.

D. Eadward Tree said...

Mike, I published this article on Oct. 23. Burrus didn't bring up the free parcels idea until 3 or 4 days later.

Anonymous said...

Of course you know that Burrus was referring to the current procedure of having the mailhandlers' craft "process" parcels on the Small Parcel Bundle Sorter machine. Add this, and the comment (about processing parcels for free), and Burrus makes sense.

Anonymous said...

Oh ... and one more thing: if the assessment penalties for privately MISsorted mail has been recently equalized, does that mean that the discount for worksharing First Class Mail are also even? Burrus is a genius!

BTW, I jump to Power Point slides sometimes. Otherwise I couldn't be presented with 'FACTS'.