Reform Is on the Way

With the passage of the homeland security bill, it appears that next year will provide the time for Congress to consider postal reform thoughtfully.

It has been more than 30 years since meaningful reform legislation was enacted into law. If Congress and the Bush administration can agree and pass legislation, it is unlikely they will want to reconsider the subject in just a few years. Therefore, reform needs to address and provide solutions to the real problems of the U.S. Postal Service.

The fundamental problems facing the USPS were not addressed by the legislation that almost passed Congress this year.

Let’s start with the basic problem. First-Class mail, the postal service’s main product line, accounting for 55 percent of revenue and more than that in profit contribution, has begun its long-anticipated decline. Measure that problem against the core element of reform legislation, the ability of the USPS to raise postage rates annually up to the increase in the CPI.

A mismatch exists between this primary solution and the postal service’s primary problem. The solution assumes that the USPS will be able to keep its annual cost increases under the CPI. Universal delivery service to an increasing number of addresses with less First-Class mail at a cost growth less than the CPI – does that compute?

A second major problem is the size and expected annual increases in the postal service’s health benefits program. The program’s annual cost is $6 billion. According to a Dec. 12 New York Times article: “A recent study found that health care spending, excluding Medicare, had stopped declining and appeared to be leveling off at 7.5 percent annually.”

This rate is two to three times the CPI. Yet the reform legislation apparently does not let the USPS, as part of its union contract discussions, negotiate changes to health benefits. Though this issue is contentious, it does seem to be a major omission from meaningful reform legislation.

Another major issue involves management compensation. There is no guarantee that raising the limits on management compensation, currently restricted to governmental ceilings, will improve postal financial and service performance. But increasing financial remuneration will expand the pool of management talent that the USPS can draw upon.

It’s extremely difficult for the USPS to recruit outside for senior management positions because of the salary cap and lack of meaningful performance-based bonuses. Yet the reform legislation does not remove the current ceiling on compensation. One would think that the compensation was coming out of the government’s pocket.

At the core of postal problems is a lack of volume-based revenue growth, or new product opportunities. An issue arose recently involving a new “product” opportunity: RPNs, or repositionable notes. These are affixed to envelopes to enhance promotional appeal. The USPS determined, surprisingly, that RPNs do not affect the automation machinability of the mailing piece and, therefore, do not increase its processing cost.

However, because they have promotional value, the Postal Rate Commission approved the postal service’s request for a one-year test that envelopes with RPNs pay a higher rate.

Essentially, the USPS has asked that it share in the increased value of the mailing piece. The mailing industry has reacted too hastily against this position.

Perhaps this is a chance to explore other avenues in which the USPS might share the gain, if it was willing to share the pain or loss on a particular mailing. Prospect mailings, as part of a negotiated service agreement, might be good candidates on which to try this potentially volume-increasing concept. What we do know is that the USPS needs to test new concepts/products to increase its volume.

As 2004 ends, it’s appropriate to note two senior members of postal management who are retiring after many years of service: John Rapp, senior vice president of operations; and John Wargo, vice president of service and market development. Rapp has been a driving force behind much of the postal service’s automation accomplishments. Wargo has been a presence in marketing and customer relations. Business mailers will miss them both.

I’d also like to note the passing of George Gross. George served in numerous high-level public administrative positions. I got to know George when he was vice president of government affairs for the Magazine Publishers Association. George was an early proponent of postal reform. His quiet but steady leadership was admired by all who knew him.

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