Reform Needs to Tackle Tough Issues

At last month’s National Postal Forum in Anaheim, CA, senior officials from the U.S. Postal Service, including Postmaster General William J. Henderson, stated on several occasions that the postal service needs postal reform. In spite of the tireless efforts of Rep. John McHugh, R-NY, H.R. 22, the postal reform legislation, did not get through this session of Congress.

However, while there was much discussion at the forum about the need for reform, there was minimal discussion of the form it should take.

I’m of the opinion that H.R. 22 did not make it through the legislative process for a number of reasons. The primary reason is that Congress tends not to act unless it believes there is a problem that needs solving. Since there is no public awareness of any problem with the postal service, there seems to be no need for a solution. Furthermore, in support of that view, the postal service did not indicate its position in favor of the legislation until rather late in the process.

In addition, there also was little meaningful mailing industry support for the legislation that was proposed. Yet conversations with many industry leaders reveal that they truly believe reform is necessary.

So why the lack of progress? In my view, H.R. 22, in an attempt to provide a compromise among various positions, both for and against reform, failed to satisfy the basic needs of the postal service and the mailing community.

Let’s go back to the kickoff of postal reform. It was former Postmaster General Marvin Runyon who said that it was great being postmaster general, except that he had no control over people, products or prices. On the other hand, the mailing community is looking for legislation that will do something about the postal service’s inability to control its costs.

Let’s discuss some of the tough issues that meaningful postal reform needs to address and were not addressed in H.R. 22.

First is labor. Since labor costs, which are primarily the craft union workers, account for 80 percent of all postal expenditures, any reform should deal with this issue. But the legislation was totally silent on labor issues. Current law provides for contract negotiations between the USPS and its unions. If the sides are unable to reach an agreement, they jointly select an arbitrator.

After hearing both sides, the arbitrator decides all aspects of the contract. In recent years, almost every contract negotiation has resulted in a stalemate requiring settlement through binding arbitration. It sure does seem as if the current contract bargaining system is broken and needs to be addressed in reform legislation.

Another aspect of labor that is calling out for change deals with the compensation of managers and executives. At the recent forum, Henderson noted that 71 percent of USPS executives are 50 or older, and the bench seems thin. In today’s hi-tech economy there is a huge competition for talent. According to the postmaster general, the postal service is losing that competition. Yet current law puts the agency in a difficult position. The law limits compensation of the postmaster general to that of a Cabinet officer, about $145,000, and stipulates that no postal employee can be paid more than the postmaster general. Therefore, by today’s standards, salaries are capped at a relatively low level, and meaningful bonuses based on meeting significant revenue or productivity objectives are, for all practical purposes, out of the question.

A second important area in which the legislation provided the postal service with limited flexibility was pricing. The legislation did provide meaningful flexibility in areas in which the USPS does not have a monopoly, such as Express and Priority Mail, and parcel post. However, for monopoly services such as First-Class mail, Standard-A mail and periodical delivery, the legislation provided little flexibility. For example, under today’s inflation rate of 3 percent, the USPS would have the pricing flexibility in First-Class of about 1 cent. Not very much for the class that provides more than 55 percent of total revenue and is under attack from electronic commerce, including e-bill payment.

The added flexibilities that the USPS needs from reform legislation will not come without a cost. Specifically, what monopoly protections that the postal service currently enjoys will it be willing to give up? The USPS argued strenuously against any give-ups in the current legislation. But it seems clear that unless some monopoly protection is given up, however gradually, any legislation is unlikely to get through Congress.

It’s interesting to look across the Atlantic and see how monopoly protection that the European postal services enjoy is gradually being reduced. Today in the European Community, the postal monopoly has been eliminated for mail weighing more than 350 grams (12.3 ounces). In the future, probably within the next five years, the monopoly is likely to be eliminated for mail weighing more than 50 grams, just 1.75 ounces.

A number of other issues recently have received added importance and will need to be addressed in reform legislation. Early versions of H.R. 22 let the USPS establish a “private law corporation” that could make nonpostal investments. This provision was dropped in the final version. In the past year, several European posts have been making significant investments in companies that provide logistics services. We’re also seeing e-commerce initiatives from the postal service. A recent congressional hearing indicated that there may be some question of the propriety of one or two of these e-commerce ventures. Postal reform legislation needs to resolve this confusion and determine what kinds of investments are appropriate.

It has been 30 years since Congress enacted postal reform. If past is prologue, the next postal reform legislation may well last as long. Therefore, the players in the postal arena need to ensure that all significant issues are considered as part of any legislation.

Cary H. Baer is a direct marketing consultant and chairman of the Association for Postal Commerce (Postcom), New York.

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