Current and Future Postal Challenges

The postal commission appointed by President Bush heard testimony at its first public meeting Jan. 8 from postmaster general John E. Potter and USPS chief financial officer Richard Strasser.

Potter gave an excellent introduction to the U.S. Postal Service’s status. He said that the USPS was challenged by “changes in the marketplace, primarily electronic communication.” Further, the key question facing the postal service is how it can continue affordable universal service given the likelihood of declining mail volume.

Strasser’s testimony focused on a historical perspective of USPS performance, current workload and financial status.

Mail volume. First-Class mail, which accounts for 55 percent of USPS revenue, undoubtedly has begun its oft-predicted long-term decline. In the 2002 fiscal year, which ended Sept. 30, First-Class slid 1.2 percent. This statistic undoubtedly was distorted by 9/11. In the first quarter of FY 2003, which ended Nov. 29, First-Class declined 2.7 percent compared with the same period the prior year.

Single-piece First-Class mail, essentially collection box mail, which accounts for about one-third of USPS revenue, has declined since FY 1999. In the first quarter of FY 2003 it fell another 3.6 percent. This decline is being driven by the reduction in paper check use.

Standard A mail faces tough competition from alternative media including newspapers, TV/radio, Internet and telemarketing. Volume in FY 2002 was down 3 percent. Standard A mail shot up 7 percent in the first quarter of FY 2003, but much of this increase came from nonprofit Standard A.

It will be interesting to see whether Standard A growth continues, since rising state and federal privacy concerns will tighten restrictions over the availability and use of mailing lists. These restrictions will reduce Standard A prospecting mail volumes.

Priority Mail, a significant profit contributor once thought to be the postal service’s salvation, has declined since 2001. Volume fell 10.7 percent in 2002 and declined 13.2 percent in the first quarter of FY 2003.

Package services account for 3.1 percent of USPS revenue. A doubling of USPS market share is unlikely in its highly competitive environment. More importantly, it would not solve the USPS’ long-term revenue decline.

Delivery addresses. Delivery addresses, which underpin workload, continue to grow by 1.7 million yearly. The result continues to be less mail volume to more delivery addresses.

Management compensation. The USPS should compete with private industry for managerial talent, but is unable to offer anything resembling equivalent salary and benefits. The result is senior management with little, if any, non-USPS experience.

Enforcement responsibilities. Unlike its competitors, specifically UPS and FedEx, the USPS through its Inspection Service has investigatory responsibility over criminal activity that seems to have little to do with USPS operations. For example, it seems that many stock-fraud cases, with no apparent USPS connection, are investigated by the Inspection Service.

It has been estimated that more than $100 million is spent investigating criminal activity that has a very tenuous link to the postal service.

Governance. The USPS Board of Governors has ultimate responsibility for management of the postal service. But most presidential appointments to the board, which oversees an institution with almost $70 billion in annual revenue, have little experience managing companies with even $1 billion in annual revenue. The USPS competes in an environment requiring an increasingly technical sophistication. Yet none of its board members has a background that can help or question USPS technical direction.

The Postal Rate Commission’s responsibilities resemble those of state utility commissions. Yet most current PRC appointees have little prior regulatory experience.

Congress often opposes postal plant closings or service changes without concern for their effect on USPS costs.

Competition. Competition among business organizations usually stimulates innovative ideas, best practices, lower costs and best values for customers. Yet in several key areas the USPS has monopoly control over its delivery network, stifling competition.

Postal competitors change prices with minimal customer notification and no direct competitor input. Meanwhile, USPS regulations require a 10-month PRC regulatory process for rate changes, with competitors able to influence the process.

Given the postal environment described above, substantive changes clearly need to be made in the laws and mores that determine USPS operating principles, practices and governance. I trust the postal commission’s report will recommend meaningful changes in those areas.

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