Law doesn’t repair broken USPS business model: postmaster general

While the U.S. Postal Service is pleased that the legislation enacted Dec. 20, 2006, offers needed flexibility in pricing and product differentiation, it said the legislation does not repair the agency’s broken business model, according to Postmaster General John Potter, who spoke yesterday before the House Subcommittee on Federal Workforce, Postal Service and the District of Columbia.

The subcommittee is a part of the House Committee on Oversight and Government postal reform.

“With the diversion of messages, transactions and packages from the mail, we can no longer depend on volume growing at a rate sufficient to produce the revenue needed to cover the costs of an ever-expanding delivery network,” Mr. Potter told the panel. “This is not to say that the new law does not offer opportunities. We are in a better position than ever to respond quickly to market conditions. And we will operate far more nimbly in the expedited and package products sector.”

The legislation Mr. Potter was referring to strengthens the authority of the renamed Postal Regulatory Commission. In addition, it grants the USPS more autonomy in setting rates, particularly for its competitive products. However, its ability to increase rates for market-dominant products is limited by changes in the U.S. Consumer Price Index. Moreover, the legislation streamlines the USPS’s ability to introduce new postal products.

Mr. Potter said growth is the agency’s greatest challenge as it shifts from a transaction-based mail stream to one centered on marketing and advertising, which rely heavily on lower-margin Standard Mail.

“The good news is that marketers have learned that direct mail adds to the value of campaigns that also utilize other media, including the Internet,” he said. He added that people are also finding new uses for the mail.

“The state of Oregon conducts elections through the mail, resulting in greater voter participation,” Mr. Potter said. “This is encouraging and presents a unique opportunity for our democracy. Overall, direct mail is among the fastest-growing and most effective advertising channels in America today,” he said.

“That’s why I’m bullish on the mail,” he said. “But I’m also a realist. Success under the new law will not be easy. We have never worked under a fixed-rate cap. We have never had to manage our costs by class of mail. Both are extremely challenging.”

Mr. Potter also said that because the USPS has little control over some major costs – including fuel and employee retirement and health benefits – it must maintain an intense focus on managing other costs.

“Keeping our rates under the cap and being able to pay our employees a fair wage requires us to find ways to remove an additional $1 billion in costs each year,” he said.

“One way is through the expansion of contract delivery services. … It is not our intention to take existing work from our letter carriers or to lay any carriers off. That is something I pledge not to do.

“However, procedures governing contracting out are contained in the labor agreements with our unions. They are the products of the complex give-and-take that marks collective bargaining. Our ability to operate under a rate cap requires achieving our productivity targets. There are two paths to this goal.”

Mr. Potter said management and the unions could work together to increase productivity in processing operations, retail and delivery.

“If we do not do that, we will have created a situation that requires additional contracting out,” he said. “Stand ready to work with our unions to secure the future of our organization, its people and the people we serve.”

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