Postal regulation reform may need a second look

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My column often results in e-mail comments back to me. The June 25 article, "Tension and contention for postal world increases," resulted in more than the usual number of responses, most of which were quite thoughtful. Several corrected or put a different spin on several of my conclusions. I thought, therefore, that I might expand and respond here to several readers' comments.

First, there were a couple of responses concerning my forecast of a postal rate increase next year, on top of this year's increase. One lettershop owner said: "I wish I could raise my customers' rates this often." Perhaps others as well do not realize that a basic tenet of the postal reform legislation, passed late last year, is that it gave the Postal Service the right to raise rates annually, as long as the increase did not exceed the level of the Consumer Price Index. This, supporters of the legislation said, was a good thing. So let's be clear: Annual postal rate increases are here until or unless there is a change in postal reform legislation.

A second reader wrote to correct a comment I made concerning the current contract impasse with the city and rural letter carrier unions. I had noted that both contract talks had failed to reach a negotiated agreement, had entered binding arbitration and that binding arbitration had not happened in a while. A member of the rural letter carriers wrote to remind me that the last contract with the rural carriers also went into arbitration. I appreciated the correction. However, it says something that the rural carriers, with a very low rate of contract grievances, are unable to again reach a negotiated settlement. This is not a good omen, as most new delivery routes are going to rural, not city, delivery carriers. Surprisingly, with the arbitration process just beginning, the Postal Service continued negotiating and reached an agreement with the city letter carriers. I'll discuss that agreement later.

But perhaps the most important comments I received dealt with mail delivery. I noted that automated sorting of letters and, I hope, flats, results in longer delivery routes and therefore more carrier time in the street delivering mail. I implied that this was a cause of contention with the letter carriers. This may or may not be the case, but according to the mail I've received, it's not the major letter carrier issue.

The major issue, and one that is generating a lot of publicity, is contracting out to private delivery services a very modest amount of mail delivery. Indeed, as I noted last month, a bill has been introduced in the Senate to restrict the contracting out of any new delivery routes. Frankly, it's not surprising that contracting out delivery has become such a lightning rod. This hot-button issue is a direct result of the inadequacies and deliberate omissions in postal reform legislation. Recall the three key highlights of reform: The Postal Service can raise rates annually, up to the level of the CPI; the current labor and management, wage, benefits and work rules negotiation process (with binding arbitration as a last resort) stays in place; and increases greater than the CPI need to go before the Postal Regulatory Commission for approval.

Recall the current postal environment: First Class mail, accounting for more than half of postal revenue, is in decline; postal delivery addresses are increasing by almost two million each year; USPS is delivering less mail to more locations; unit labor costs of wages and benefits for active employees and retirees are increasing at greater than CPI; and contracts in arbitration are likely to result in labor contract increases close to CPI.

What does it all mean? It's quite simple: Without significant productivity increases, staff reductions, mail volume growth or reduced service levels, the Postal Service will be unable to operate within the parameters established by the reform legislation. This all was obvious at the time reform legislation was being pushed through Congress. It was obvious to supporters of the legislation both in industry and Congress. They just chose to ignore the obvious.

Well, here we are in 2007. While there may be service glitches here and there, with Chicago an example of a long-standing service glitch, the USPS functions pretty well. It's just that its business model will not continue to work without significant change, or significant price increases. Something has got to give or change. If not, the Postal Service will wind up the same basic basketcase as the so-called Detroit big three automakers.

And while the recently concluded contract with the city carriers provides some labor peace, it resolved no real issues. The agreement provides wage increases of more than the CPI, abolishes the use of low-wage temps or casuals and replaces them with bargaining-unit "transitional employees," establishes a six-month moratorium on contracting out delivery, and establishes a union and management task force to develop an "evolutionary approach" to contracting out. The only financial benefit to the Postal Service is an increase in the share of healthcare premiums paid by city carriers by 5 percent over the five-year life of the contract.

Frankly, I don't understand why the Postal Service agreed to these terms. It's hard to believe they would have done worse through arbitration. And it's pretty obvious that the rural carriers will wind up with at least as a good a deal with the arbitrator or through a negotiated settlement. In any case, unless there is a set of mirrors I'm missing, this settlement guarantees that the Postal Service will be unable to operate under the CPI.

My guess is that in about three or four years Congress will need to get back into the act.

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