Saturday, June 7, 2014

It's Time for Postal Unions and Mailers To 'KISS' on USPS Reform

The editorial below from “an anonymous PostCom board member” appeared in this week’s issue of PostCom Bulletin, the organization’s newsletter. I thought the insights about how to get postal reform moving and about the U.S. Postal Service's governing body were worth sharing with a wider audience, so I’m republishing it with the permission of PostCom.

A few explanations are in order: “FERS” and “CSRS” are the pension plans for postal employees. “RHBF” is the U.S. Postal Service’s Retiree Health Benefit Fund, which USPS must “prefund” (actually “overfund”) because of manipulative Congressional accounting. Congress Hears the Truth About Postal Service Finances explains how the federal government is milking USPS dry through prepayments and pension overcharges. "PAEA" is the law governing USPS pricing and other financial matters.

Oh, and for those who don’t know, “KISS” stands for “Keep it simple, stupid.” Always good advice, especially when dealing with Congress. 

Postal Reform: Let's KISS - 'Keep It Simple . . .' 

With all the discussion on desired postal reform, where do things stand, and where do we go from here? Please allow me to start with the conclusion and work backwards from there... let's KISS with real intent! Everyone at the table agrees that (1) any FERS and CSRS overpayment should be refunded and (2) the RHBF payment schedule should be restructured. These two reforms provide the most immediate financial relief, the greatest bang for the buck, and avoid changes that would weaken the value of mail and inhibit growth in the mail. So let's KISS now, execute these changes, and move on with the development of fruitful businesses and a healthy postal infrastructure.

Where things stand in Congress. The talk about the need for postal reform has dragged on for a year with the current Congress, after failed attempt by the prior. Although the House passed H.R.2748 through committee last summer and the Senate passed S.1486 through committee this February, neither have sufficient support in their full chambers. So the possibility of a conference to reconcile differences among the two bills is slim.

Presumably this was the impetus for Representative Issa's surprise tack of peeling off individual elements of postal reform and working them into separate legislative activities. On May 21, he worked into the MAP-21 Reauthorization Transportation Bill (set to expire September 30), the directive to move from door delivery to centralized or curb delivery over 10 years, for an estimated savings of over $2B/year. This delivery mode bill, H.R.4670, passed by strict party line. However, that does not mean it will necessarily survive within the larger Transportation Bill.

Then on May 30, a memo circulated around the House GOP recommending the elimination of Saturday delivery as a budget offset to the cost of a short term fix to the Highway Trust Fund. As others in the Senate and union leadership have expressed, this is a deeply flawed proposal that kicks the can down the road yet again on both meaningful postal reform and a long term fix of the Highway Trust Fund. Hopefully sensible minds will prevail and this will be the last we hear of this "offset" lunacy.

Where things stand in USPS Headquarters. So far, USPS HQ has not offered any compromise, explaining that all requests (5-day delivery, health care program changes, governance changes and rate increases) need to be granted in order to meet inflationary pressures and capital expenditure investments (e.g. replacing delivery vehicles that have already surpassed their life expectancy).

Where things stand with the Unions. The unions recognize the harm that would be done to the value of mail (and thus mail volumes and revenues) should Saturday mail delivery be eliminated and/or current door and curb delivery be moved to cluster boxes. Cluster boxes are simply not as convenient and would not be visited as frequently. Either delivery change would result in more “mailbox clutter” which leads to sales cannibalization and lower response rates and sales, deeming mail a less effective advertising tool. A change in both modes would compound the devaluation.

Where things stand with Consumers. When consumers are asked whether they would be agreeable to eliminating Saturday delivery in order to help the Postal Service get out of the red, they say "sure." However, when you tell them that it's not their tax payer dollars that fund the postal service, they admit "oh, I didn't know that."

Where things stand for the Stakeholders -- the business mailers (aka "customers") who actually pay for the lion's share of postal service. The postal customers appreciate the delivery service improvements realized in the last two years. Mail is a choice for commerce and communication. Predictable pricing, and, predictable and consistent service are what makes mail effective.

However, commercial postal customers:

• are now paying exigent surcharges for these services. And we are living under the threat of the Postal Service and Congress wanting to permanently bake in the exigent surcharge that the Postal Regulatory Commission ruled as temporary, which is consistent with the intent of the 2006 Postal Accountability and Enhancement Act.

• are also dealing with an added day/degradation in Standard Mail service standards for mail inducted into SCFs on Fridays and Saturdays.

• continue to live with the additional threat from the Postal Service and Congress to end Saturday mail delivery.

What happened to the adage "The customer comes first"? Some additional thoughts to chew on while we KISS:

• Isn't it more typical that when a company is struggling financially, they run sales to attract more business, not increase prices?

• For those who say commercial customers need skin in the game and need to compromise to accept something above CPI price cap increases --- hello, the mailing industry has already gone through numerous company mergers, plant closings, reductions in force, and oh yeah, that exigent increase that has caused us to cut volumes and thus revenues which create a negative ripple effect on “mail multiplier” volume generated by advertising mail. Prospect sources shrink, the most profitable First-Class Mail communications shrink, as does parcel volume -- the golden hair child of the Postal Service.

CPI based price increases are the typical starting point in market place negotiations and are often adjusted down, not up.

The CPI price cap has most definitely and effectively driven postal cost reduction initiatives; the cap needs to be retained to continue to do so.

• For those who speculate the exigent price increase hasn't hurt mail volume, have you spoken to customers? The volume and revenue could have been higher absent the increase.

• How is it acceptable that for several years and during such a critical time, the Postal Service Board of Governors who are to “direct and control its expenditures, review its practices, conduct long-range planning and set policies on all postal matters” has had 5 vacant positions out of 9? Of the four positions appointed ~ 8 years ago, the terms of two expire in December of this year. And among this limited group, there is very little experience overseeing the strategy and expenditures of an organization that is of the size and reach of the Postal Service. Yet, the Senate bill gives the Board of Governors more autonomous rate setting authority, so the monopoly would essentially be unregulated, and the Postal Regulatory Commission would be relegated to an advisory and complaint mediator role, stripping it of its “regulatory” designation.

• Since when is it acceptable to blatantly ignore the checks and balances of our judicial system by suggesting that regardless of the outcome of the appeal on the exigent price increase, Congress can trump the decision and bake the surcharge in to postal prices if they see fit?

• Although finances still wouldn't be great, it is highly doubted that we would even be discussing another attempt at postal reform if it wasn't for the $5 billion/year required payment for the Retiree Health Fund that came about in the 11th hour of PAEA negotiations.

I'm sure every CEO of every commercial mail customer would love to have a crystal ball to see whether similar mistakes in last minute or lame duck negotiations will be made again.

The conclusion is worth repeating... let's KISS with real intent! Everyone at the table agrees that (1) any FERS and CSRS overpayment should be refunded and (2) the RHBF payment schedule should be restructured. These two reforms provide the most immediate financial relief, the greatest bang for the buck, and avoid changes that would weaken the value of mail and inhibit growth in the mail. So can we KISS now, by making these changes in order to move on with the development of fruitful businesses and a healthy postal infrastructure, rather than continuing to go to bed angry and worrying about what the future holds?

1 comment:

Anonymous said...

I don't see how the headline of this article pertains to the content. The Unions and Mailers need to kiss? The unions simply are trying to prevent Congress and the USPS from destroying itself. They understand two steadfast truths; the real reasons behind the manufactured financial crisis and a "business" who's sole offering is service is foolish to degrade that sole offering, SERVICE, as some sort of misguided business plan. This whole premise that the prefunding is just one of many reasons the USPS is in trouble so let's stop talking about the prefunding is ludicrous to me. That prefunding obligation is almost the ENTIRE reason the USPS is in trouble. YES, again I say YES! the USPS ALSO needs to work on a business model for it's future but it is currently so shackled by the prefunding it seemingly is not even thinking straight. They must offer a business plan to Congress and the American people not a list of their "slashing demands" in which the prefunding is simply lumped in with 30 other ridiculously destructive ideas.