US Postmaster General optimistic despite need for change

David Ward, San Diego
Thursday, July 26, 2012

For the past few years, the story of the reliable but often dull US Postal Service has had more plot twists and turns than a soap opera - and that in turn has triggered a great deal of worry among mailers and printers in the US.

Burdened by the 2006 Congressional Postal Reform Act that forced it to come up with $5.5bn annually for a decade to prepay its retiree health benefits going forward, the USPS has been losing several billion every year even as it aggressively reduced staff, announced plans to eliminate some Post Offices and distribution centers and pushed for the eventual elimination of Saturday delivery.

A bill that would make many of the necessary changes the USPS has advocated is now bottled up in the US House of Representatives and has become a focal point for privatization advocates who argue that the USPS should be eliminated and replaced by private carriers.

That bill, which has already passed the US Senate, is unlikely to be dealt with until after the November elections. In the meantime, USPS is likely to be defaulting on several payments in the next few months owed to its retirees’ health fund.

Despite all this turmoil, US Postmaster General Patrick Donahoe struck a fairly optimistic tone as he took time out last week to talk with PrintWeek about his goals for the Postal Service and his plan not only for the organization, but the role the USPS will play in the future of the printing and mailing industries.

PrintWeek: Even in a very political election year, the debate over the future of the USPS seems to be generating plenty of attention and debate in Washington, DC. Does all that noise make it a challenge to focus on the changes that need to be made?

Donohoe: I welcome the noise - it’s good, because when people make all this noise it means they truly care about the Postal Service. And anybody in print should be happy with that. We are looking forward to the continued debate in the House and when the House and the Senate can put a bill together in conference, which will be a great thing for the industry. So the noise is good because it gives us a chance to get the important issues out on the table.

PW: Some of the changes you’ve proposed to get the USPS on a secure long-term financial footing require Congressional approval. But what are some other steps you’ve been able to achieve since you took over in 2010 that have improved the efficiency and productivity of the USPS for both commercial mailers and the general public?

D: We been working at this for a while - before I became Postmaster General I was USPS Chief Operating Officer and so for the better part of 10 years I’ve been working on process improvement, efficiency and service improvement. Through time we’ve been able to reduce the headcount of the organization by about 265,000 people, which is a 34% reduction. And overall we’ve continued to see real good productivity.
Recently we’ve been undertaking network consolidation and between now and next February will be consolidating 140 facilities. We are also in the process of changing how we service customers in our smallest 13,000 post offices, in most cases moving from a full-time model to a part-time model, depending on the customer foot traffic in those places. That will start in the fall, but a lot of work has already started on that.
In that same vein, we’ve been moving a lot of our retail traffic from brick and mortar to online and other providers. Now almost 40% of all retail stamp sales and package mailing is done outside the walls of post offices. We are also very proud of the fact that if you mail a package with us you see an average of 10 scans through the system - so we are as visible through the package system as FedEx or UPS, both excellent companies.
Finally we focused on adding value to the mail so that commercial customers and mom and pop can get the best pricing and best value available. This year we introduced the concept of two ounces for the price of one for first class commercial and that helped us slow down the growth of electronics.

PW: Most major stakeholders, including the USPS employees and commercial printing and direct mail industries, are now on board with the proposed change to five-day delivery. Do you remain confident that will eventually happen and did you always expect that that move would take a while to fully happen?

D: These items that get debated like Saturday delivery are emotional things but they will eventually get resolved and we’ll have a five day delivery schedule for regular mail.
We’ve been in a six-day delivery mode for many, many years. Probably the last big change was in the late sixties and early seventies when we went from two business deliveries a day to one and that took some time to do. What happened is we’ve lost a lot of volume and though we wrung substantial costs out of the organization we do need to change some infrastructure.
We are going to keep Post Offices open on Saturday and deliver mail to P.O. Boxes. And we’ll still deliver packages though they may a little extra fee for Saturday delivery. But with the volume drop we’re seeing we have to make some structural changes because the revenue per delivery just isn’t there.

PW: Most US print direct mailers remain very reliant on the USPS for their business. What’s your comment to them as they watch this debate over the future of the USPS take place in the nation’s capital?

D: One of the things that we have been making a point of is the whole idea of a crisis of confidence in the mail and how important it is to get these issues behind us. If we’re able to implement the elements we have laid out in our financial plan, we can very quickly become profitable and very quickly eliminate our debt and be in pretty good shape financially for a number of years. The ongoing debate causes concern with me because it sows the seeds of doubt in the large mailers’ minds and it makes people start to think about alternatives. And that’s something we absolutely and positively need to resolve and avoid.
The fact that we can provide excellent service at a very fair rate for hard copy letters and flats as well as packages is a big and important thing for the American economy. Disrupting that is not good for that and for the fact that this industry combined with the paper and mailing industries employs almost eight million people. We’re one little group in the whole value chain and that why it’s important to get this resolved.

PW: Speaking of crises, the USPS is poised to default on a $5.5bn health care payment due 1 August. Are you concerned about the implications of that?

D: The money that we owe for the 1 August and the 30 September, we’ve told everybody that we don’t have the cash to make that payment - so we won’t. Our goal is to keep everything operating so we’ll do that and keep the focus on resolving the legislative issues - and the key legislative point is resolving that pre-pension funding.
The Senate has a good solution in the bill that they’ve passed that resolves the pre-payment number, though it doesn’t go away completely. But it leaves the door open to us to take over our own health plan and few other things that would almost eliminate the need to pre-fund going forward.

PW: Are you confident that after all is said and done, the USPS will get what it needs from Congress to ensure the long-term viability of the Postal Service - even if you don’t get everything that you’ve asked for?

D: We’ve spent a lot of time, not just with our customers, but with a lot of mailing associations and print associations as well as our unions. And what it turns out to be is a little bit of sacrifice from everybody to straighten this place out so we’ll all be better in the long run. And what we can do toward that is educate. Right now a significant portion of what gets printed ends up in the mail, so having a good secure service at a reasonable rate from the Postal Service is really important for the printing industry.

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