Sen. Akaka: Impact of Eliminating Saturday Delivery In Hawaii
Senator Daniel K. Akaka Prepared Remarks To Postal Regulatory Commission
The Impact of Eliminating Saturday Delivery Service on the People of Hawai‘i
October 4, 2010
Chairman Goldway, thank you for inviting me to submit written remarks providing my views on behalf of my constituents on the impact of the Postal Service’s proposal to eliminate Saturday delivery to the people of the State of Hawai‘i. I understand the difficulties in holding field hearings throughout the country. Although it is unfortunate that you were not able to visit Hawai‘i and Alaska, I do appreciate the Commission visiting a diverse selection of regions that, while not exactly the same, reinforce some of the concerns that I will express as well.
One of the unfortunate truths already facing the people of Hawai‘i is that the mail simply moves slower because of a combination of logistical, physical, and financial barriers. The service standards enacted by the Postal Service in 2007 reflect these challenges, establishing a delivery standard of nine to ten days for standard mail from the contiguous United States to Hawai‘i. The need to distribute mail to six islands further slows mail delivery. In addition, because all of Hawai‘i’s mail is processed at the Honolulu Processing and Distribution Center, including inter-island mail, all classes of mail are subject to further delay.
Another disadvantage is the shipment of non-first class mail over water on cargo vessels. Unlike USPS trucks or rail contracts, inter-island and island-mainland shipping is not always a daily service, and the Postal Service has fewer options to achieve efficient delivery. These inherent inefficiencies are unique to Hawai‘i mail service, and decrease service. I urge the Commission to take this into account as it develops an advisory opinion.
For the people of Hawai‘i, the Postal Service is a government service that is extremely important and integral to daily life. With ocean waters separating us from friends, family, and business partners on neighbor islands and the mainland, the Postal Service provides important links within Hawai‘i and to other places. Residents do not have the luxury of getting in a car and delivering items to another island. The same goes for courier services for important personal business items. Residents must rely on the Postal Service.
Prescription drug delivery is a particularly important service in Hawai‘i. Many residents in Hawai‘i rely on mail-order pharmaceuticals provided through employer plans, including the Employer-Union Trust Fund Health Plan. These prescriptions often come from the mainland, and a delivery delay at processing facilities could prove dangerous to consumers. As Keith McFalls, Vice President of Operations of PrimeMail and Triessant Prime Therapeutics, testified at a Homeland Security and Governmental Affairs Subcommittee hearing in June, timely delivery is especially important for pharmaceuticals.
Even Hawai‘i’s elections could be impacted by the proposed delivery changes. Earlier this year, Hawai‘i, like some other states, performed a vote-by-mail election, where all residents would cast their ballots through the Postal Service. This is possible around the country because of the protections afforded by sending mail securely through the Postal Service. Cutting a day of delivery would decrease the likelihood that a ballot will be delivered on time to be counted.
Small, local businesses in Hawai‘i, such as community newspapers that rely on the Postal Service for delivery would be greatly impacted as well. Hawai‘i is unique in that we rely on our local businesses for services and goods to a higher degree than our mainland counterparts. In turn, those businesses often rely on the Postal Service to deliver those goods. Cancelling a day of service would limit options and will severely impact many businesses in this already dire economic environment.
Perhaps the most important issue facing Hawai‘i is the lack of alternatives for important Saturday deliveries. The Postal Service offers a predictable, low-priced Priority Mail service throughout the State of Hawai‘i. Sending a one pound Priority Mail package from Hilo to Honolulu costs less than $5.00, and it can be delivered on a Saturday. FedEx and UPS do not offer Saturday delivery service in Hawai‘i, so customers would be left with just one option, USPS Express Mail, costing approximately $15.00. Express Mail is, in many cases, more expensive than FedEx and UPS for weekday delivery. Moreover, Express Mail is a competitive product, meaning USPS could halt Saturday Express Mail delivery in Hawai‘i if the service is losing money.
Should Saturday delivery be eliminated in Hawai‘i, the alternative suggested by the Postal Service is renting a Post Office Box at a local retail facility. Unfortunately, in many areas in Hawai‘i, P.O. Boxes are already scarce. Requiring those who want Saturday service to rent a P.O. Box that they only need one day a week will further increase existing shortages and force residents to pay more just to retain the services they have come to rely on. Postal facilities in Hawai‘i are already understaffed, stretching Postmasters, Supervisors, and other employees. The Postal Service says that in order to make Saturday Express Mail delivery, post office staff may be required to make special deliveries, calling in to question how many staff will be available at retail facilities on Saturdays.
I have broader concerns about imposing five-day service to the entire United States. Cutting a day of delivery could cost up to 40,000 postal jobs, according to the Postal Service. As Chairman of the Federal Workforce Subcommittee in the United States Senate, I am concerned about the impact on federal workers in these challenging economic times, as well as the dedicated postal workforce in the State of Hawai‘i.
The Postal Service has told us that reducing service could save $3 billion per year. However, there are differing estimates, and not enough sound, independent analysis. If such a dramatic shift in delivery service is to take place, policy-makers need to see a thorough analysis of the true savings and costs of reducing mail delivery to five days. I strongly encourage the Commission to gather more information before forming its final opinion.
It is important to also note that cutting one day of delivery would eliminate 17 percent of delivery service, for a projected five percent savings. This is a heavy trade-off, and one that could further reduce customer demand for postal services. Furthermore, it leads me to question at what point would cutting delivery frequency start to violate the Postal Service’s universal service obligation?
One of the important reasons that we created an independent regulator for the Postal Service was to provide an independent voice to ensure sound policy decisions. I look forward to the input that we expect from the Postal Regulatory Commission in the coming months, and I think that your advisory opinion will be invaluable to Congress as we weigh the future direction and role of the United States Postal Service.
I am concerned about the impact of such a change on Hawai‘i, as well as to the Postal Service and its employees. I urge the Commission to take these considerations into account, along with concerns raised by others in the Hawai‘i and Alaska delegations.
DANIEL K. AKAKA
U.S. SENATOR
USPS OIG: 5-Day Delivery? What About 3-Day?
From the USPS Office Of Inspector General’s Blog:
Although eliminating Saturday delivery has been heavily debated, reducing delivery to 5 days a week may not be enough. There has been some discussion of whether the viable model for the U.S. Postal Service of the future will incorporate 3-day delivery.
A 2010 study by the Boston Consulting Group for the Postal Service forecasts that the average pieces of mail per delivery point per delivery day will drop from 3.8 to 2.8 by 2020. If this projection holds true, then more household will likely receive no mail on any given day. With the increasing availability of alternative communication choices, it is unlikely that the demand for mail delivery will ever return to previous levels. Therefore, postal delivery may only be needed 3 days a week. Some homes could receive mail on Monday, Wednesday, and Friday, while others, on Tuesday, Thursday, and Saturday.
Alaska Sen. Murkowski Remarks On USPS Proposal For Five-Day Delivery
Filed under: mail delivery, postal, postal news, PRC, press releases, usps
Remarks Submitted to Postal Regulatory Commission
Senator Lisa Murkowski
Remarks As Prepared
U.S. Postal Service Proposal for Five-Day Delivery Week
September 16, 2010
Chairman Goldway, Commissioners, thank you for inviting me here to speak to you about the potential effects of the Postal Service’s proposal to eliminate Saturday delivery on Alaskans. As you were unable to schedule a field hearing to listen to Alaskans in person, I am pleased to be here to speak briefly on their behalf regarding several important issues that would be negatively affected by this proposal.
As you are aware, mail delivery in Alaska and Hawaii is very different from the other 48 states, as is our constituents’ reliance on that mail delivery for basic and necessary items. The information you received from hearings held in large, lower 48 cities will bear little relevance to the conditions and concerns of many of the people of our states. I understand that Senator Akaka is scheduled to appear in October. I will defer to him to express Hawaiians’ position on this issue. I am here today to advocate on behalf of Alaskans.
Given the distance between the Lower 48 and Alaska (especially rural Alaska), as well as the challenges of terrain, transportation, and weather, it takes longer for mail, including Express and Priority Mail, to arrive in and be delivered within Alaska. To give you some perspective, consider this. Just to get mail up to Alaska from Seattle, it must be flown farther than the distance from Washington, D.C. to Dallas, Texas. Once it arrives in Alaska, getting it out to our many far-flung communities is another major challenge.
Throughout most of Alaska, there are no roads. In most communities, don’t have mail trucks, we have mail planes. The sheer size of Alaska is hard to imagine for those who have never been there. The distance from Anchorage to Barrow in the north is greater than it is from D.C. to Quebec, Canada. It’s farther from Anchorage to Dutch Harbor out on the Aleutian chain than it is from D.C. to Memphis. And from Anchorage to Ketchikan in the Southeast, the distance is comparable to that of D.C. to Orlando, Florida. Consider further that these communities are hubs, not the very small villages that are even more difficult to reach. Fog, blizzards, rain, and gale force winds also play a large role in the ability of the Postal Service to deliver the mail in Alaska. There are some communities that can be “weathered in” for days or even weeks at a time.
Ending the processing and delivery of mail on Saturdays will lengthen the time it takes to deliver mail that much more. This delay will be further aggravated during those weeks when a holiday falls on a Monday. While it would be inconvenient to have to wait an extra day or week to receive a Netflix movie, a sweater, or so-called “junk” mail, the Postal Service plays a much more vital role in the lives of Alaskans than delivering everyday conveniences.
The U.S. Postal Service is literally a lifeline for the many Alaskans who do not have access to a pharmacy in their community where the only way to receive antibiotics, insulin, or other medications and medical devices is through the mail. Even Alaskans who do live in communities with a local pharmacy rely on prescriptions by mail because their insurance plans incentivize this practice as a cheaper alternative. In 2008-2009, one of the major mail order pharmacies, CVS Caremark, filled over 70,000 prescriptions for Alaskans. According to Caremark’s testimony to the Commission in June, “Reducing mail delivery to five days a week by eliminating Saturday delivery would keep vital medications out of patients’ hands…” Further, 90 percent of Caremark’s
prescriptions are delivered via the Postal Service, 20 percent of which are delivered on Saturdays alone. Adding to their concern is that the company also receives approximately 100,000 prescription requests on Saturdays, so this proposal would jeopardize the company’s ability to efficiently process prescriptions and send them on their way. These concerns were shared by the Pharmaceutical Care Management Association, which represents pharmacy benefit managers for several large mail order pharmacy companies.
In Alaska, the likely degradation of efficient and timely delivery of medication and medical devices is of enormous concern—one that, in my view, the Postal Service has not adequately addressed. In fact, the solutions they have proposed are unacceptable. The Postal Service has suggested that in order to be assured of getting prescriptions delivered on Saturday Alaskans should either rent a post office box or have the item shipped via Express Mail.
As you likely know, the cost of prescription drugs is high, so high as to often be a barrier for Americans who need them. For those who can barely afford the cost of their drugs as it is, adding yet another fee on top of that will be unacceptable.
Only in our very rural, remote communities where home delivery is not offered, are post office boxes available for free. For most Alaskans, however, post office box rentals cost between $28 per year and $820 per year depending on the community and the size of the box. In 27 communities, including each of our four major military bases, the minimum yearly cost is $92. Another community that falls in this fee group is Nikiski, where last year 22 percent of the population was receiving unemployment benefits at some point during the year. This past July, nearly 7 percent of the population was receiving unemployment benefits—at the height of the fishing and construction season.
In addition to the barrier of increased cost, many communities in Alaska lack a sufficient number of available post office boxes to which medications and other vital and time-sensitive mail could be delivered. For example, in Anchorage, mail is delivered to the homes of 102,461 residents. There are, however, only 8,771 post office boxes available in the entire city. If more than eight percent of Anchorage residents need or want a post office box for Saturday delivery, they would be out of luck. Nor could it be guaranteed that a box would be available close to the home of those who require one. In Homer, over two thousand residents receive their mail at home, yet there are only 369 available post office boxes. In Palmer, over 6,000 residents have home delivery, yet there are only 538 available boxes in the Palmer post office available to accommodate those who would need access to Saturday delivery. In Fairbanks, over 30,000 residents have home delivery, but there are only 3,424 boxes available.
Alaskan business owners are also concerned about degradation in efficient pickup and delivery of their commercial packages. While our postal workers work hard and do their best to provide efficient service, there are communities that have experienced serious problems with efficient mail delivery. In Skagway, for example, I’ve spoken to business owners who have entirely given up on the post office and are now putting tourists’ purchases on the railroad to Canada and shipping them to the Lower 48 from there. Many residents and tourists have also experienced difficulty receiving services during the past year when the Postal Service was unable to hire staff to work there. I am very concerned, therefore, that this proposal will lead to further breakdown of an already strained system in our small communities that rely so heavily on the U.S. mail.
In addition to the effect on the Postal Service’s customers, I am concerned about the loss of jobs for our Alaskan postal workers. While the Postal Service anticipates reducing their workforce by 40,000 people nationwide, they are not able to tell me how many Alaskans will be out of a job if this proposal is adopted. And, while the Postal Service hopes to be able to achieve their goal by not filling the positions of soon-to-retire postal workers, this is not guaranteed. In this economy, any loss of a job—indeed the loss of any position that could be filled by a willing worker, is problematic.
In closing, I would also like to note that in my view, this proposal will only lead to a further disintegration of the Postal Service’s market share, as they cede an important part of their business to UPS, FedEx, and other for-profit companies that will be only too glad to pick up the slack. This is hardly a long-term solution to the Postal Service’s problem.
Again, thank you for taking the time to listen to these concerns that are unique to Alaska and Alaskans. I hope that you will give them every consideration as you deliberate on the Postal Service’s proposal.
Editorial: No Saturday mail delivery is a bad idea
There is no doubt that the Postal Service is facing the same economic hardships as almost every sector of the economy. It lost $3.5 billion in its fiscal quarter that ended June 30. However, some technological changes in society are also at work: The rise of e-mails and social networking has decimated the private first-class mail business, while the economic slowdown has resulted in far fewer parcels being delivered across the nation and internationally.
A reduction in service is not the way to convince the public that it is essential, however; in fact, it will likely push more people away. And as the Postal Service pushes away customers, it will also push away or drive out of business those companies that depend on the mail delivery system for everyday functions. The spiral will continue.
Full story from Times Call, Longmont, Colorado
Closing Post Offices And Ending Saturday Mail Delivery Not On Congressional To Do List
Filed under: Congress, mail delivery, postal, postal news, usps
Lawmakers are set to tackle several big issues in the coming weeks before packing up and going home for reelection campaigns. The future of the Postal Service: Two things to watch — and neither involves ending Saturday mail delivery or closing post offices — two no-go options in an election year.
Full Story: Washington Post – Other items on the Congressional to-do list
Economist To PRC: Ending Saturday Delivery May Give Business To Private-Sector Competitors
In written testimony to PRC regarding USPS’ request for five-day delivery, Michael Crew on behalf of NALC wrote:
Ending Saturday delivery will cause mail volume to drop, will likely produce unanticipated transition costs and could threaten the long-term viability of the Postal Service. Moreover, once Saturday delivery is eliminated, it will likely be irreversible. Rather than abandoning a valuable part of its enterprise, and cutting service to its customers, the Postal Service should seek other means to address its financial challenges, including by focusing on making its services more accessible and attractive to its customers.
I conclude that implementation of the proposal may cause a far more significant drop in mail volume than the Postal Service projects and that such a drop in volume could erase a substantial amount of the savings that the Postal Service hopes to realize by ending Saturday delivery. In addition, I conclude that implementation of the proposal may cause the Postal Service to incur larger than anticipated transition costs, further eroding the potential savings that its proposal is designed to produce.
More importantly, by ending Saturday delivery, the Postal Service would be abandoning a valuable part of its enterprise, giving existing or future private-sector competitors the opportunity to fill the gap in service. By allowing others to take part of its business, the Postal Service’s plan to implement five-day delivery could aggravate, rather than ameliorate, the Postal Service’s financial condition and in the long-run could threaten the Postal Service’s viability.
Rather than take a step in the wrong direction — a step which in practical terms would likely be irreversible — I believe the Postal Service should consider other means to address its financial challenges. In particular, it is my opinion that rather than cutting services, the Postal Service should make its services more accessible and attractive to its customers.
Read full document submitted to Postal Regulatory Commission
Postal Union Delegates Take to the Streets: Save Saturday Service!
Thousands of APWU members, led by union president William Burrus and the Rev. Jesse Jackson, marched through the streets of downtown Detroit on Tuesday afternoon to Save Saturday Service and rally for good jobs.
Wearing blue APWU T-shirts and chanting “Five Day – No Way!” delegates shut down busy streets and assembled in Campus Martius Park to alert the public to the need to stop USPS plans to abolish Saturday mail delivery.
“Everywhere we go, the Postal Service is closing and consolidating post offices,” Rev. Jackson told the cheering crowd. “We are postal workers fighting back. It’s time to save our jobs and Save Our Service!”
Burrus said that members must “tell America that we’re not fooled” by the USPS plan to close the mailbox on Saturday, and we must let the public know that they shouldn’t be fooled either.
Christopher Ulmer, president of the Detroit District Area Local, said that the rally was crucial to make the public more aware of the dangers of the Postal Service’s proposal.
The demonstration showed that the APWU was a “force to be reckoned with,” Ulmer said.
Members of other labor unions pledged support for the fight.
“Over 200,000 working members of the Detroit AFL-CIO stand with you,” said Saundra Williams, president of the Metro Detroit Central Labor Council. “We will defeat this crazy notion of five-day delivery. We will not support diminishing services.”
Mark Gaffney, president of the Michigan State AFL-CIO asked rally participants: “You wanna know who’s on your side? Everyone with a mailbox.”
Albert Alson, Jr. of the Greater Connecticut Area Local said the public needs to know about the detrimental effects of the USPS proposal.
“The Postal Service needs to keep six-day delivery,” Alston said. “We provide a good service.”
Linda Peabody and Gail Ganiszewski, members of the Tri-County (PA) Area Local, said they hoped the rally motivated the people of Detroit to support the union’s efforts.
“This city especially needs to see people working together, and here we are, thousands of people together, fighting for jobs,” Ganiszewski said.
more: Delegates Take to the Streets: Save Saturday Service!
NALC Pledges Increased Letter Carriers Push to Retain Saturday Mail Delivery
NALC Press Release
Rolando Pledges Increased Letter Carriers’ Push to Retain Nationwide Saturday Mail Delivery
ANAHEIM, Calif., Aug. 9 – Letter Carriers union President Fredric V. Rolando opened the 67th biennial convention of the National Association of Letter Carriers (NALC) today, pledging to continue to fight the U.S. Postal Service’s “extremely unwise and dangerous plan” to discontinue Saturday mail delivery, while the union works directly with major corporations and postal customers to foster innovations and expansion of the government’s nationwide delivery network.
Rolando said the union’s actions are necessitated because the Postal Service currently is dedicated to cuts in service, not service expansion.
“The very idea of abandoning a day of service, harming customers, forcing them to alternative delivery systems, undercutting public reliance on postal deliveries is so wrong that it borders on the lunatic,” Rolando said in a keynote speech to nearly 8,700 delegates at the Anaheim Convention Center.
He said in recent months, the NALC has begun discussions with major companies both inside and outside the postal industry to explore future uses of the postal network. “I am determined to break through the traditional, excessively conservative USPS style,” he said.
“We want to invite businesses and customers — and our members — to come to us with ideas to explore,” he said.
Rolando said there is a world of possibilities for exploiting the Postal Service’s unmatched last mile network, saying, “We just have to be flexible and open-minded enough to take advantage of them.”
The NALC, which represents 295,000 active and retired city delivery letter carriers in all 50 states and U.S. jurisdictions, will continue its convention through Friday. It is the largest convention among AFL-CIO affiliated unions.
Rolando acknowledged that future of the Postal Service “must be constructed from the ashes of a great national trauma” caused by the nation’s financial problems.
“So as we turn this week, in this hall, to the troubled times we face, let us not do it with fear, nor with a sense of decline, but with a renewed sense of how strong and determined we are,” he exhorted the delegates, adding that the Postal Service has panicked in the face of the financial troubles, choosing to eliminate Saturday mail delivery instead of finding ways to provide new services to increase revenues.
“The task for us all — employees and the Postal Service — is to act now, while we still have a big, big business, to develop the new products and new services that will take advantage of the huge network of employees and facilities still in place — and of our last mile franchise,” Rolando said.
The union leader explained that the Obama administration and a bipartisan majority of Congress have endorsed the continuation of six-day delivery. On July 29, both the Senate Appropriations Committee and a House Appropriations subcommittee adopted bills that mandate the continuation of Saturday delivery.
The Postal Service and the NALC are confronted with two staggering financial burdens:
USPS has overpaid $75 billion in pension contributions, resulting from a misguided and grossly unfair set of calculations by the Office of Personnel Management (OPM) over the past 40 years, and it faces a requirement to pre-fund $87 billion in future retiree health benefits at a cost of $5.5 billion per year.
“No other government agency and no private business — none — are required to pre-fund future retiree health benefits,” he said. “Not one dollar — let alone $5.5 billion per year.”
Rolando also touched on the challenges facing the union in bargaining on a new contract when the current National Agreement expires at the end of next year.
“If the Postal Service approaches bargaining in good faith, and with creativity, it will have a willing partner. If it respects the central role of letter carriers in the future business model and the sacrifices letter carriers have already made to help the Service survive the crisis, we will have productive talks,” Rolando said. “But if the USPS approaches bargaining with the goal of gutting our pay and benefits, or tries to exploit the national economic crisis by making demands for sharp cuts and givebacks, it will have a bloody fight on its hands.”
Rolando noted that the NALC is working closely with Congress to enact legislation that will help the Postal Service out of its financial quagmire, including a bill (H.R. 5746) sponsored by Rep. Stephen Lynch (D-MA), chairman of the key House postal subcommittee, that would credit the Postal Service with between $50 billion and $75 billion in pension assets unfairly allocated by OPM. Such assets would be used to cover future retiree health benefits and reduce USPS operating expenses by $5-$8 billion annually. On July 21, H.R. 5746 was adopted by the postal subcommittee.
Rolando said the union is also working with the Postal Regulatory Commission on the issue, and said NALC is mobilizing its state and congressional district operations to aggressively lobby members of Congress to back the critical legislation.
SOURCE National Association of Letter Carriers
PRC Thanks Public For Comments On USPS Proposal To End Saturday Delivery
The Postal Regulatory Commission says it has received over 12,000 comments from the public on the postal service’s proposal to end Saturday mail delivery. The PRC issued this thank you to to the public:
Dear Members of the Public, thank you for writing us.
The Commission has received more than 12,000 letters, cards, emails, and faxes so far in response to our request for public comments on a Postal Service proposal to end Saturday mail delivery service across the United States (Docket N2010-1). Your correspondence has provided the Commission with a valuable range of suggestions, ideas, emotions and experiences that augment the comments and testimony we received at seven field hearings conducted throughout the country this spring, and through the formal proceedings now underway at Commission Headquarters in Washington, DC. We appreciate having thoughtful input from civic-minded citizens to help guide our deliberations. We continue to welcome further input and expect to issue our Advisory Opinion in the fall.
The Commission also is here to help you.
We are pleased to assist customers who experience problems with their postal service. The Commission now has expanded authority under the postal law enacted in 2006 to ensure that service and rate issues sent to us by postal customers are resolved by the Postal Service in a timely and appropriate manner. As of the end of June, we have helped customers by resolving 391 rate and service inquiries. In addition, the Commission has created a variety of online resources to assist postal customers in accessing information and assistance. Simply scroll down this web page to find links under the heading “Information for Postal Customers.”
Please do not hesitate to contact us in the future. My fellow Commissioners and I look forward to hearing from you.
Thanks again for writing.
Ruth Y. Goldway
Chairman
source: Postal Regulatory Commission
Former USPS Chief Financial Officer: Eliminating Saturday Delivery Is Not Necessary
Eliminating Saturday Delivery Would Hurt USPS In the Long-Run
Excerpts from testimony filed with the Postal Regulatory Commission by former USPS Chief Financial Officer and Senior Vice-President Michael J. Riley. Riley testified on behalf of the National Association of Letter Carriers, AFL-CIO:
From August 1993 to July 1998, I held the position of Chief Financial Officer (CFO) and Senior Vice President of the U.S. Postal Service. While I was CFO, the Postal Service overcame the biggest deficit in its history and posted billions in profits. During my tenure, the Postal Service’s Finance Department received the first Alexander Hamilton Award given by Treasury and Risk Management magazine. Also during my tenure as CFO, then Vice President Al Gore touted our successful efforts to turn around the Postal Service in publications about reinventing government.
In support of its proposal to eliminate Saturday delivery, the Postal Service’s current CFO, Joseph Corbett, asserts that a change to five-day delivery is “necessary and unavoidable.” (USPS-T-2, at p.2). He asserts that the Postal Service is now in “dire financial condition,” (id. at p.3) and that eliminating Saturday street delivery is needed to help “close the gap” between the Postal Service’s costs and revenues (id. at p.14). In fact, the Postal Service’s costs and revenues are not fundamentally misaligned and no radical change like ending Saturday delivery is necessary.
The financial challenge now facing the Postal Service stems from two principal sources. First is the requirement in the Postal Accountability and Enhancement Act of 2006 (“PAEA”), P.L. 109-435, that the Postal Service spend billions to pre-fund its retiree health care obligations — an unfair requirement that Congress can and should change. Second is the most severe economic downturn since the Great Depression, which continues to depress mail volume.
The statutory obligation to pre-fund retiree health obligations — which no other business or government agency bears — added $12.4 billion in costs to the Postal Service’s balance sheet from FY2007 to FY2009. See NALC-LR-N2010-1/6 (USPS Annual Report), at p.48. During those same three years, the Postal Service had a cumulative net operating loss of approximately $11.8 billion. See id. at 2. Thus, without the unique burden imposed by the PAEA’s pre-funding requirement, everything else equal, the Postal Service would have enjoyed a cumulative profit during those years. And such profit would undoubtedly have been even greater had the recession not dragged down economic activity and mail volume with it.
The Postal Service’s present financial situation is also a result of its having been unfairly overcharged $75 billion in retiree pension costs, as explained in the January 10, 2010 report of the Postal Service’s Inspector General (IG). See NALC-LR-N2010-1/10. Were the Postal Service credited with the amount by which it was overcharged, that would be enough to pre-fund all of the Postal Service’s retiree health obligations and have more than enough left over to pay off the Postal Service’s debt.
Moreover, I would argue, the Postal Service’s current financial situation is in part self-inflicted, to the extent that postal management failed until just recently to seek rate increases that would generate additional revenue. Successful service businesses raise prices as needed to maintain financial health.
The Postal Service acknowledges in its latest annual report that its current prices are a comparative “bargain”: in 2009, first-class mail in the US was 44 cents, but was 47 cents in Canada, 64 cents in Great Britain, 77 cents in Germany, 78 cents in France, 83 cents in Japan and $1.25 in Norway. (See NALC-LR-N2010-1/6, at p.1) That American mail is now relatively cheap means that even with a rate increase it would remain reasonably priced.
The PAEA allows for reasonable price increases beyond the inflation cap when made necessary due to “extraordinary or exceptional circumstances.” See PAEA Section 201. I believe that faced with the worst economic downturn since the Great Depression, the Postal Service could make a credible case that these are “extraordinary or exceptional circumstances.”
Indeed, I understand that on July 6, 2010, the Postal Service filed with the Commission a request for an exigent rate increase in which it argues that such “extraordinary or exceptional circumstances” now exist. See Docket # R2010-4.
A reasonable rate increase would undoubtedly help close the current gap between
the Postal Service’s revenues and costs. Commission Chairman Goldway correctly noted in her April 22, 2010 testimony before the U.S. Senate that the demand for mailing services is largely price inelastic. This means that there would most likely be a substantial increase in revenue and in added profit from a reasonable price increase. Large mailers provide the majority of postal revenue and their behavior is such that they adopt to price increases with minor changes in volume. Even for those services that are slightly demand price elastic, there is a significant positive contribution.
As a rule of thumb during my time as CFO of the Postal Service, we assumed that a 10% price increase for market-dominated products (also known as “mailing services”) would yield a net revenue gain of about 9%, since it would reduce volume by about 2% and costs by about 1%. So a 10% increase on FY 2009’s $56.9 billion in market-dominated products, see NALC-LR-N2010-1/6, at p.82, would likely have produced approximately $5.1 billion in additional revenue. It would have improved the Postal Service’s bottom line by more than the
$3.1 billion in net annual savings that the Postal Service says it would achieve by eliminating Saturday delivery. See USPS-T-2, at 16. It would also have made FY 2009 a profitable year for the Postal Service even with the PAEA pre-funding payment made that year and despite the recessionary drop off in economic activity.
I understand that in its recently filed exigent rate case, the Postal Service is seeking an aggregate rate increase of approximately 5.6%, which it estimates would yield a net increase in annual contribution of $3 billion. See Statement of Joseph Corbett, Docket No. R2010-4 (July 6, 2010), at p.19. Such an increase in annual contribution would be about what the Postal Service says it would save from eliminating Saturday delivery.
IV. ELIMINATING SATURDAY DELIVERY WOULD HURT THE POSTAL SERVICE IN THE LONG-RUN
Eliminating Saturday delivery is not only unnecessary, but would be a grave error that would hurt the Postal Service in the long-run. The proposal to eliminate Saturday delivery reflects Postal management’s view that it must react to financial challenges with relentless cost-cutting. But no service business achieves success by a single-minded focus on cost. Of course, constraining costs is important and the Postal Service should continue to explore ways to further automate or streamline its operations, so as to maintain productivity growth. But it should not engage in cost-cutting that eliminates valuable services to its customers.
The CEO of Coca-Cola once said that his company’s goal was that no one in the world should be more than five minutes away from a cold Coke. To achieve success as a consumer-oriented business, the Postal Service too should focus on making its products and services more available to its customers, not less. Dropping Saturday delivery would create a hole in the Postal Service’s current operations that would make customers have to wait a day longer, or more, to get their mail. It would also, for example, force customers who work during the week and who are not home to accept packages have to spend part of Saturday waiting in the pick-up line at the post office. It would inevitably cause customers to look to alternatives.
Eliminating Saturday delivery would also do harm to the Postal Service in less tangible, but no less significant ways. The Postal Service correctly describes letter carriers as “excellent ambassadors in promoting the agency’s image,” (USPS-T-1, at p.3), yet eliminating Saturday delivery would mean that many customers who work during the week would no longer have the chance to see and speak to their letter carrier.
Reducing the frequency of service would also send a signal to customers that their needs and preferences no longer matter to the Postal Service. It would reinforce the negative stereotype of the Postal Service as an inefficient government entity rather than a vital service oriented enterprise. Such a negative stereotype would not only dampen the public’s demand for postal services but would erode its support for the Postal Service as an institution.
Saturday delivery provides the Postal Service a competitive advantage over its package-delivery rivals. Rather than eliminating Saturday delivery, the Postal Service should be touting it. But the Postal Service has to a large extent failed to exploit this advantage. Most businesses with a competitive advantage use advertising to remind individuals of the benefits of their service. Yet the Postal Service does little advertising to explain the advantages of Saturday delivery to its customers.
V. THE POSTAL SERVICE SHOULD ADOPT A CONSUMER-ORIENTED STRATEGY
When I was CFO of the Postal Service, we adopted a business strategy that put an emphasis on the individual customer. We recognized that the preferences of the individual customer is what drives mail volume and that what was important to the individual customer were things like convenience, courtesy, safety, security of the mail and consistency of delivery.
And we tried to make it easier, not harder, for consumers to use our services. Just one example: in 1993, the Postal Service began accepting payment by credit card and customers responded enthusiastically. Our focus on the customer in those years paid rich dividends. Mail volume rose nicely despite the advent of the Internet. From FY 1995 through FY 1998, the Postal Service posted billions in profits. During that period, the Postal Service was able to pay off its debt and triple its capital spending. Indeed, many in the mailing community expressed the view that the Postal Service was earning too much money and that the profits were excessive. After my tenure, new Postal management promised to solve that problem, and solve it they did. Billion dollar profits were soon replaced by billion-dollar losses.
Rather than continue its failed approach of focusing single-mindedly on costcutting, the Postal Service should focus again on strengthening its relationship with consumers, because that undoubtedly is where long-term success lies.
We live in an era where service companies are increasing days and hours of operation to appeal to their customers. The Postal Service should take the same approach. For example, as Chairman Goldway has suggested, the Postal Service should consider having a network of post offices in key locations that are open more hours, and even on Sundays, and should maintain at least one 24/7 post office in every big city.
Yet the Postal Service has been going in the opposite direction, apparently ignoring the desires of its customers. For example, while the Postal Service increased the number of collection boxes in the 1990s, it began eliminating them in the following decade. It eliminated 24,000 such “blue boxes” in 2009 alone. Individual customers cannot help but notice these changes and see that the Postal Service is making it more difficult for them to use the postal system.
Reducing the frequency of mail delivery would mark yet another retreat by the Postal Service from the consumer market. Unfortunately, it would give customers yet another reason to abandon the mail and to seek out alternatives.
VI. CONCLUSION
Contrary to the Postal Service’s assertions, eliminating Saturday delivery is not necessary to improving its finances. In my opinion, what the Postal Service needs is a reasonable price increase for market-dominated products, relief from the PAEA’s unfair retiree health pre-funding requirement and a revival of the economy. Indeed, going to five-day delivery is not only unnecessary but would be harmful to the long-term health of the Postal Service. To be a successful service-oriented enterprise, the Postal Service must focus on making its services more, not less, available to its customers.