USPS' Next Challenge: The Labor ContractMembers of the U.S. Postal Service's board of governors must be feeling pretty good about now. They've selected Bill Henderson as new postmaster general, and the postal rate case has been concluded with a Jan. 10 implementation date. Both met fairly universal appreciation.
Financially, the USPS will conclude FY 1998 with its fourth consecutive yearly profit, which is again likely to exceed $1 billion. In fact, with the higher rates going into effect in January, the postal service should have five consecutive $1 billion-plus profit years.
Henderson has elevated Allegheny area vice president Clarence Lewis to chief operating officer, and the announced resignation of chief financial officer Mike Riley permitted him to elevate controller Richard Porras to CFO. Now it's on to the most important and difficult of all problems, the people problem.
Henderson has said that the USPS needs to improve its people skills and that there are four key areas to the goal: fairness, opportunity, safety and pride. A most significant part of that goal is the need to reach a negotiated settlement with the craft employee unions.
The current contract expires Nov. 20. In the last two contract negotiations, the parties have failed to reach settlements and had to rely on arbitration. Here's some background on the key participants in the negotiations and the environment in which they will be negotiating.
The vast majority of union employees belong to two unions: the American Postal Workers Union (APWU) or the National Association of Letter Carriers (NALC). Both are headed by men who have led their union for many years and have been through many contract negotiations. Moe Biller heads the APWU, and Vince Sombrotto leads the NALC. These are two tough, crafty and experienced veterans who can be somewhat skeptical of new ideas introduced at the bargaining table.
For the USPS, Jack Potter, senior vice president of labor relations, will lead the negotiations. Potter is a career postal employee, having spent most of his time in various operational assignments but with limited experience in contract negotiations. However, I've spent some time with him and am impressed with how thoughtfully and thoroughly he is taking on this assignment.
Now to the issue of the environment. As noted earlier, the postal service is well on its way to one or two more years of billion-dollar profit. Clearly, union members think the next contract should provide them some reward.
Another key element is mail volume growth. The growth of advertising mail (Standard A) has been robust over the last couple of years, but what about First Class? First Class mail is much more important than Standard A, as the USPS gets almost 60 percent of its revenue from First Class compared to 25 percent from Standard A.
For First Class, the trend is relatively flat. For the last four years, its growth rate has averaged under 2 percent. Of real concern is that through eight months of FY 98, the increase is only 0.9 percent. What's particularly ominous is that for the first half of FY 98, single piece First-Class mail -- the single largest postal revenue item -- accounting for about one third of total postal revenue, is down 2 percent.
The flattening of First-Class mail means that management and labor need to be working together to increase productivity to ensure that the USPS stays profitable. Profitability through rate increases will hasten the loss of mail volume to electronic alternatives.
This environment is similar to that of the automobile industry and their unions a decade ago. The postal service and its unions must develop a contract similar to the one signed in the automobile industry. That is, a contract that includes flexibility for management with meaningful bonuses for employees if productivity targets are met. It's interesting to note two significant labor contracts recently signed that provide bonus potential for labor. The first was an agreement between AT&T and the Communication Workers of America that has a potential bonus of $850 per employee if targets for revenue, earnings and savings are met.
Perhaps even more significant is the recent agreement that New York City signed with its sanitation workers. This contract includes a bonus based on hauling an additional amount of trash and recyclables each day which could reach $2,000 a year per employee.
I fully understand the risk in relating trash collection to mail delivery, but why not a bonus based on the amount of mail delivered each day (or week)?
There are myriad equally interesting concepts for incentives. But if the Communication Workers of America and the NYC sanitation union, both with somewhat militant reputations, can agree to a contract with incentives why not postal unions? It only takes trust and the desire to "think outside the box" to achieve a truly historic agreement.
Cary H. Baer is a direct marketing consultant and chairman of the Advertising Mail Marketing Association.