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Take the Leg Irons Off the USPS

Mail is big business. The 189 postal systems in the world generate $200 billion in revenue. Eighty percent of that revenue is generated by nine countries: the United States, United Kingdom, Germany, France, Japan, Italy, Canada, Australia and Switzerland. That is a lot of revenue in the hands of a few posts.

And that is not the end of their resources. Postal assets in many countries historically have included their sister monopolies, the telecommunication giants. In the past few years we have seen what can be done when these sleeping giants stir. The shock waves are changing the international mail delivery system through the combination of acquisitions and partnerships. This seismic activity is driven by three things: the move of some governments to cash in on the value of these monopolies, liberalization of postal laws, and the desire of the posts to compete more aggressively in international express and parcel delivery.

Of the large posts, the one least able to capitalize on this phenomenon is ours. Shackled by archaic constraints, the U.S. Postal Service sits helplessly as overseas counterparts move briskly into the 21st century. The postal reorganization act of 1970 seemed like the solution back then, but it now severely limits the options to respond to today's demands. To survive, the postal system must be given the ability to adapt to an increasingly competitive postal world that knows no borders. But adaptation requires the freedom to throw off some of the shackles its European brethren have done.

One of the first and most dramatic forms of postal adaptation was the transformation of the Dutch Post into an aggressive, privately held worldwide postal machine now called the TNT Post Group. Anyone following the breathtaking pattern of mergers and acquisitions by this feisty outfit knows that they are in a take-no-prisoners frame of mind.

Even before this transformation, the Dutch had planted its flag firmly on U.S. soil. And in a recent move to carry its flag further, TPG formed an alliance with Consignia and Singapore Post to compete against other large international carriers in the lucrative international bulk and business mail market.

In the past few years Deutsche Post, with revenue of $30 billion, has transformed itself, first by privatizing large segments of its domestic operations and then purchasing or partnering with more than 20 private companies, including a majority stake in DHL. It now offers one seamless parcel delivery network to 20 countries. Foreign revenue represents 40 percent of Deutsche Post's total turnover.

The British postal ministry vacillated for some years before letting its post step more boldly into the world of competition. Though not without recent growing pains, the British Post has begun to make its moves with acquisition or partnership with more than half a dozen private enterprises.

The list is growing. The European Commission timetable calls for full liberalization of all European Union posts by 2006. With liberalization comes the increased temptation to expand into other postal markets. There are now 10 Extraterritorial Offices of Exchanges in the United States. These are postal drop and pickup points owned by foreign posts. They are used to bring in offshore mail and parcels at rates that are sometimes below those that the USPS receives through approved international exchange mechanisms. More importantly, these ETOEs are used to gathering overseas business mail in bulk and shipping it directly to overseas destinations, bypassing the U.S. postal system.

Competition for the USPS from overseas is not new. Almost 10 years ago, in a conversation with Marvin Runyon shortly after he took the helm of the USPS, I gave him a little litany on the extent to which offshore posts were claiming stakes on U.S. territory.

The Dutch Post, in a joint effort with KLM, was the first to enter the country in the 1980s, focusing on transatlantic shipment of U.S. periodicals. In the early '90s came Royal Mail (now part of Consignia) with a marketing program called Gateway Europe. Deutsche Post soon followed. It was not too long after this conversation that Runyon authorized the formation of the International Business Unit of the USPS, and the battle was joined — but with uneven odds.

The USPS has shown that it understands the international mail market, now worth more than $1.7 billion. Its international unit has developed products that increasingly meet the needs of cross-border mailers at generally competitive prices. ISAL, IPA, Global Express and Global Priority Mail are the workhorses of the industry.

The postal system's initial foray into bulk parcel shipment with Global Package Link was so successful that it drew a crude attempt by UPS to sink it in Congress. This activity has, of course, whetted the appetite of the private competition, and underscores the crying need of a postal reorganization act that would allow the USPS to meet increasing competition both domestically and internationally.

At a postal forum in London last year, John Modd, head of international mail for Consignia, made a telling comment about the importance for posts to “embrace the emotional reality of the need for change.” He said that what blocks the posts from making strides is their tendency to hold onto an outdated status quo. Some of the USPS management has been guilty of this, but many of the problems are imposed on it by a straightjacket of constraints. To compete in world markets, the USPS must be free to move. If it has to give up some reserved services to do this, so be it.

Reforming the domestic rate-making procedure is only the most obvious start. The USPS needs more latitude to negotiate agreements and rates and to enter into acquisitions and mergers; the mechanism to make rate changes in 30 days instead of 300; the ability to compete in response management services; the freedom to lobby on its own behalf; and the right to establish offshore branches.

The initiative by Rep. John McHugh, R-NY, and others to introduce a reform bill is a step forward. It has been sidetracked by world events. But Congress must act now. The USPS has been shackled too long.

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