An Open Letter to the Postmaster General

I take this unusual step of communicating with you in a public forum because the issues at stake are so important to our country and to our nation’s dedicated postal employees. The 270,000 employees I represent have an institutional interest in your decisions as postmaster general, but under normal circumstances I would refrain from telling you how to operate the Postal Service as long as you refrain from telling me how to run the union. However, present circumstances have potential consequences of such magnitude that I feel I must depart from that philosophy.

As you are aware, the Postal Service is facing the most serious challenges in its 220-year history: We have a slumping economy that is causing dramatic drops in mail volume and a new law, the Postal Accountability and Enhancement Act, which — although it was heralded two years ago as the Postal Service’s legislative savior — is having calamitous consequences.

In addition to these objective realities over which the Postal Service has little control, we are grappling with strategic management blunders: an unhealthy and unproductive relationship with major mailers; a misguided policy that relies on work-hour cuts as a response to financial difficulties; and your expressed reluctance to use every available means to maintain the fiscal solvency of the United States Postal Service.

The Postal Accountability and Enhancement Act

“The Postal Service is facing the most serious challenges in its 220-year history.”

It is undeniable that the legislation passed nearly two years ago has been a disaster for the Postal Service. (To your credit, you joined with the APWU at the 11th hour in opposition to many of the suggested changes.)

History will show that changing the structure for rate increases from a three-year cycle — which permitted the recovery of prior-year losses — to annual adjustments limited to the rate of inflation will have disastrous consequences for the Postal Service. (Do you recall that advocates of the PAEA said a benefit of the law was that it granted the USPS the authority to “bank” surpluses?)

In addition, the 2006 law saddled management with enormous financial liabilities for its employees’ future healthcare costs. These liabilities would become relevant only if the Postal Service ceases as a functioning institution. (The law also imposed changes to the Workers Compensation program, which have a negative effect on injured workers.)

I do not have a degree in business administration from a prestigious university, but my half-century of service qualifies me as a knowledgeable observer of our revered institution. Throughout these many years, I have never seen the level of uncertainty now confronting us. Without significant adjustment to its business strategies, the Postal Service will not survive as a government institution and a public service.

You recently announced that mail volume has declined 12 percent and that the deficit for Fiscal Year 2008 exceeded $2.3 billion. The struggling economy is expected to further depress mail volume in 2009, and you have warned that we should anticipate an additional $2 billion or more in expenses over revenue next year. In other words, under the rosiest of scenarios, you expect to experience deficits of $5 billion as we enter Fiscal Year 2010, with six years to go before the USPS will satisfy the healthcare liability.

“Without significant adjustment to its business strategies, the Postal Service will not survive as a government institution and a public service.”

There are options you can pursue to avoid this race to oblivion, but some of them require the concurrence of others. To win relief from the oppressive payment of $5.6 billion annually (from 2006 to 2016) for future healthcare liabilities, you would need approval from Congress. Of course, any such relief would contribute to the nation’s deficit at a time when the federal government is bleeding red ink. If you can pull a rabbit out of the hat and evade these stifling obligations you have my support, but it is clear that the odds are stacked heavily against us.

Even if the Postal Service is given the opportunity to delay payment of the healthcare liability, you must weigh the benefit of satisfying this debt over a 10-year period versus stretching it out – with corresponding long-term debts. With future rates tied to inflation, will you be able to afford the inclusion of $1 billion or more in financial commitments on annual budgets far into the future?

A Possible ‘Exigency’

Another short-term solution to postal woes may be to invoke the “exigency” clause in postal law that would permit an increase in postage above the rate of inflation because of “extraordinary or exceptional” circumstances. It is not known what effect such an increase would have on mail volume and whether volume losses (if they occur as expected) would be reversible in the future. If you decide to follow this path, you must be prepared to repeat the step in 2010 and — in the face of future deficits, which are to be expected — in the years beyond. I am not certain that you would be able to convince others that “extraordinary or exceptional” circumstances are legitimate responses in successive years.

Short- or long-term, these options are likely to meet with resistance. Even if they could provide a measure of relief, it would be unwise to depend on their adoption. So it would seem that the Postal Service has little recourse but to resolve its crisis internally.

The Plan Isn’t Working

If there is any hope for such a momentous achievement, the effort must begin with the recognition that the current USPS business plan is not working and cannot be expected to work in the future. There must be an acknowledgement that subcontracting, outsourcing, work-hour reductions, workshare discounts, and an unhealthy level of cooperation with major mailers and their agents have been ineffective.

Although each of these so-called strategies standing on its own can be trumpeted as having saved money, the focus is much too narrow. The savings associated with subcontracting and worksharing should not be viewed in isolation, because the effect is not limited to the costs (or savings) associated with the contracted activity. For example, the $10,000 cost of a subcontracted highway route must be added to the expense of ongoing postal activity. In most circumstances, the reduction of postal productivity more than offsets the reduced labor costs achieved through contracting.

The same applies to workshare discounts. Removing mail volume from the postal system through discounts does not eliminate the USPS need to purchase equipment, maintain sorting facilities, and utilize postal employees to perform distribution. Too often your associates have focused solely on the contracted savings as though the USPS costs have disappeared. In fact, the total costs often increase.

The long-term effect is to make your most highly compensated employees (postal workers) less productive, while making your lower-paid employees (contract employees) more productive.

Ill-Pledged Allegiance

You must evict the Mailers Technical Advisory Committee (MTAC) from postal headquarters. It is unhealthy to have individuals whose allegiances are to their private-sector employers located inside postal headquarters. There is no similar arrangement elsewhere in our society, where by sheer proximity a major customer has unlimited access to the nerve center of a company. Do you believe that UPS or FedEx would permit a customer to set up shop inside its headquarters? Can you imagine providing the APWU with offices at postal headquarters? Evicting MTAC will change the psychology of the relationship, and shift them from partners to valued customers.

You must also reject every theory that says energy costs or the economy are responsible for USPS deficits. These are factors you have no control over, and they should be accounted for when designing a business plan. After-the-fact whining is nothing more than an excuse offered by inefficient and irresponsible managers who should be replaced with individuals who can be held accountable.

Work hours have been reduced by 36million and yet the institution is still suffering a deficit of at least $2.4 billion, so it should be obvious that work-hour reduction does not lead to solvency. And those who cite labor costs as the driving force behind the deficit should be reminded that postal rates are increasing at the rate of inflation, while wages lag behind.

No institution can survive through cost cutting. When you choose to measure efficiency by the number of work-hours reduced, you have failed before you begin. Progressive and vibrant organizations have business plans that promote growth, not cuts. Work-hour-reduction plans and consolidations are measures of desperation that ultimately will lead to bankruptcy.

If I still have your attention, I would like to make one final point. Perhaps the most important advice I can offer is that you must dispel from your mind the notion that rates or mail enhancements such as (Intelligent Mail) drive volume. When measured against inflation, U.S. postal rates are at a historic low, and comparisons to rates in every other country show that ours are far lower. In fact, when workshare discounts are taken into consideration, our rates are only 50 percent of the rates charged in other countries.

If rates generate volume, why haven’t your friends at MTAC — who pay the lowest rates — generated more volume for you in your time of need? Large mailers are not doing you a favor when they use the mail. They have made a calculated decision that mail is competitive with other types of communication in cost; it is vastly superior in targeting; it reaches a wider audience for each dollar spent, and has great name recognition — U.S. Mail!

Mailers use our services because we serve their interest. Rate manipulation and personal relationships reduce revenue while failing to add a single piece to the mail stream. As the political mantra has it, “It’s the economy, stupid.” The economy drives volume; every decision should reflect this reality.

Focus on USPS Strengths

I suggest that there should be a shift of your focus from the Postal Service’s negatives to USPS strengths – and there are many.

You have a monopoly. You may increase rates without direct competition. You have name recognition and a national presence. You have state-of-the-art mail processing capabilities. People accessing your services must come to you — as opposed to you going to them — and as the economy and the country grow, you automatically gain more customers. You have an army of letter carriers visiting every American home every day, wearing the USPS uniform.

Every decision you make should be directed toward a goal of maximizing these strengths. Instead of establishing a new configuration for retail sales that follows the people, why not funnel retail traffic to locations that add value to your network? Have you ever seen a Wal-Mart in a shopping center? Citizens do not use the mail simply because it is convenient. They use the mail because it is a cheap and efficient means to send messages and transport goods.

Why dilute your monopoly through contracting when you can apply the strength of numbers in all of your activities? You can purchase 1,000 vehicles at an appropriate discount; your typical contractor purchases only 10, at a higher cost, and passes on the inflated costs to you. Why not maximize the volume through your automation program instead of providing incentives for mailers to avoid USPS facilities?

And as you so often have said in public forums, your greatest asset is your workers. Why not maximize their use as agents of a growing enterprise instead of promoting uncoordinated ad hoc programs that often fail to increase overall volume?

I hope you realize that I am offering this perspective in the interest of saving the Postal Service and without a selfish motivation of simply trying to preserve postal jobs. I believe if we are successful, jobs will follow. As the Postmaster General, you have the responsibility to ensure the future viability of the United States Postal Service. It’s a tough job, and these are exceptionally tough times. We are heartened that you come from a family of postal employees, because our future is in your hands.

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