PRC Chair Addresses Key Postal Issues In Q&A

The U.S. Postal Service has been in the news more often than it would like in recent years, but 2011 has taken the federal agency’s fiscal woes and infrastructure dilemmas to new heights.

A precipitous drop in mail volume, massive annual payments for retiree health benefits, and an oversized service network are a few of the key ingredients of the USPS financial mess.

With pending legislation in Congress aimed at rescuing the USPS, Multichannel Merchant Senior Writer Jim Tierney caught up with Postal Regulatory Commission Chairman Ruth Y. Goldway to get her views on some key postal issues on the table.

Q: While the USPS, Congress, and other interested parties pursue legislation to ultimately “save” the Postal Service from its ongoing financial and infrastructure woes, what are your thoughts regarding this and do you think the USPS should consider changing its business model in the future to cope with current market realities?

A: We should all be heartened that Congress is taking such an active interest in the continued vitality of the Postal Service. As the commission indicated in its recent report to Congress on legislative recommendations, while the PAEA has operated well, there are certain structural issues which require prompt attention. The most obvious of those are the overly ambitious pre-payments into the retiree health care fund.

The Universal Service Obligation outlined in the PAEA means that the Postal Service is obliged to perform certain public service functions for which it is not directly reimbursed. In the past, these functions were defrayed by the revenue from the letter monopoly and the mailbox monopoly, but that source of income is decreasing. How to pay for these important functions, whose existence helps to promote commerce, our election systems and other interests, is a very real challenge that Congress and the Postal Service must consider.

The Postal Service can make changes to its infrastructure and to some extent its product offerings. However, Congress is ultimately responsible for the manner in which postal services are offered to the public. Congress also imposes restrictions it deems appropriate on how those services are provided.

Q: The Senate bill proposal, “21st Century Postal Service Act of 2011,” gives the PRC a great deal of authority when it comes to potential 5-day delivery and the USPS offering non-postal products or services. What is your reaction to this?

A: My colleagues and I are prepared to follow the process outlined in the proposed Senate legislation to review Postal Service requests for change in the nature of service. The process currently outlined in the bill for delivery frequency changes (i.e., going from six- to five-day delivery) includes a number of tasks that must be performed by the Postal Service, the GAO and the PRC before such a significant shift can occur.

The proposed legislation represents a thoughtful compromise between those who favor giving the Postal Service flexibility to alter its delivery frequency in light of societal changes and those who view Saturday delivery as a critical communications link for large parts of our nation. I believe that the advisory opinion on five-day delivery previously issued by the commission will provide useful guidance to the Postal Service and the GAO when they formulate their analysis going forward.

Q: First-class mail was around 98 billion pieces in 2006, and is projected to fall to 54 billion in 2016 and 39 billion by 2020. Standard Mail was around 103 billion pieces in 2006 and is projected to slip to around 85 billion in the next decade. Do you think the USPS needs to pursue right-sizing its infrastructure to fit its systemic needs in a different or swifter fashion?

A: Yes. The Postal Service needs to carefully review the needs of its customers, both current and future, and make appropriate adjustments to its network. First-class mail has for several years been in a steady decline, driven mainly by decreases in single-piece volume, and Standard Mail is highly susceptible to the ebb and flow of the economy. It may be that existing mail classifications no longer represent the best way of organizing mail processing operations in the quickly-evolving but still significant markets for hard copy communications.

It is evident that the mail that remains in the system is in, some cases, a critical communication link for many people. Letters sent and received in more remote places may fill different needs than those in places with greater electronic access. Voting by mail may provide the only way some citizens can exercise their franchise to vote. The delivery of pharmaceuticals can be or may be a matter of life and death. Items sent and received by small online sellers may represent that person’s sole livelihood. Also, mail is one of the few methods of communication that is free to the recipient.

Changes in the mail volume and the mail mix may call for modifications in infrastructure and the Postal Service is wise to examine its network carefully to ensure that it will be well suited for its anticipated needs. The Postal Service must be careful, however, to consider the needs of users of the mail who may not have the visibility of the largest postal customers.

Q: You have said in the past that the USPS has done a good job matching its work hours to its changing workload. What is your assessment of that at this point?

A: During most of the economic recession, the Postal Service successfully cut work hours at a rate which met or exceeded the loss in mail volume. The USPS has continued to pursue a number of diverse initiatives that have resulted in productivity gains, and there are other opportunities. For example, a recent report jointly issued by the Postal Service and the commission identified cost saving opportunities associated with the reduction in manual handling of periodicals. But it must be kept in mind that delivery of mail has significant fixed cost components that present challenges to increased efficiency gains.

Q: Do you think 5-day mail delivery will become a reality and, if so, when?

A: The changing nature of communications in the United States is producing a seismic shift in the use and nature of mail. Currently, broadband access is limited in many areas of the nation. As availability of broadband internet access in rural and remote areas increases, reduced mail frequency may become more feasible. Conversely, broadband internet access provides more opportunities to purchase goods online, and the need for timely package delivery is likely to increase. Reduced delivery frequency may impair the Postal Service’s competitiveness in the package delivery market.

In its Advisory Opinion on this issue, the commission estimated the cost savings from 5-day delivery to be less than those estimated by the Postal Service. In addition, the commission highlighted the additional delays likely to be experienced by First Class Mail and Priority Mail and emphasized the disparate impact of this change on rural and remote areas.

Speaking for myself, I believe that five-day delivery should be adopted only after careful examination of costs and benefits, and that special attention should be given to both rural and remote communities, and small businesses that may be significantly impacted by such a change.

Q: There has been so much national discussion about trying to save the Postal Service, and that the Postal Service is doomed. Can the Postal Service be saved and function with its universal service trademark as it has in the past, or do you envision another path for the USPS?

A: One of the commission’s strategic objectives is to ensure the vitality of postal service in the United States. I believe there will always be a need for physical collection and delivery of mail and packages, and the Universal Service Obligation — a fundamental part of the PAEA — will continue to protect those who use and rely on access to the mail system.

Congress may decide to reconfigure the Postal Service, but since those functions will continue to be needed and are not readily provided by the private sector, it seems likely that provision of postal services will remain an important government function.

Q: The highly touted Flats Sequencing System (FSS) equipment was touted as a revolutionary work product for the Postal Service, but it has been plagued by incessant problems. What is the current status of FSS levels, and what is its future?

A: In the course of the consultation meetings we’ve held with the Postal Service to discuss service performance measurement, the Postal Service has shared its experiences and challenges in the deployment and operation of the FSS equipment. These extremely complex machines have experienced many problems. Mailers have expressed frustration with mail preparation changes necessary to accommodate FSS requirements, changes in Critical Entry Times, and service degradation. The full batch of 100 FSS machines has been deployed, but it still remains to be seen whether FSS will produce economic benefits.