BY MARK JAMISON
You’ve got to be very careful if you don’t know where you’re going because you might not get there. – Yogi Berra
It’s August and Congress is on its annual five-week summer break. Despite statements by folks like Senator Tom Carper and Congressman Darrell Issa, we don’t seem to be any closer to postal reform than we’ve been for the last three years. Back in January, Senator Carper, who likes to use sports analogies, summed up the state of postal reform with a football metaphor: “I think we narrowed our differences…. In terms of negotiations, we’re in the red zone.”
Maybe we should switch sports to baseball. Rather than the game being almost over, it looks like we’re in for an extended rain delay. Very extended.
Christmas in August
When Congress returns from its break, it will have a lot to deal with besides postal reform. First off, it will need to take up the spending bills that fund the government for the next fiscal year, beginning October 1. That’s likely to degenerate into another protracted battle. Some of the more radical Republicans, like Senator Ted Cruz, have insisted that threatening to shut down the government would be a perfect opportunity to eliminate the Affordable Care Act. It’s likely the House and Senate will spend precious time arguing back and forth before they come up with a continuing resolution to keep the government going.
Also looming on the horizon is another battle over the debt ceiling. Who knows how much time that will waste? There are probably a few surprises on the horizon that will manage to chew up a few more news cycles. Before you know it, it will be time for Congress to take its traditional Christmas break.
Maybe by Christmas time Pat Donahoe and his friends on the Board of Governors will have brought this postal crisis to a head. CFO Joe Corbett keeps repeating his dire warnings about the Postal Service running out of cash. With the threat of an exigent rate increase being bandied about the industry, apoplectic lobbyists will be making sure every contribution counts. These days nothing is more likely to focus a Congressman’s or Senator’s attention than the promise of a contribution or the ability to proclaim himself or herself a hero for saving the public from another dreaded bailout.
So let’s pretend it’s Christmastime in Postal Land. Let’s pretend that the PMG has been a good boy all year, and Santa Darrell and St. Nick Carper are ready to bring him all the goodies he wants. What exactly does Pat want for Christmas?
The PMG’s wish list
Well, a good place to start would be his testimony before Issa’s Committee on Oversight and Government Reform on July 17, 2013. During that testimony the PMG referred to the Postal Service’s Five Year Business Plan and offered these eight points to bring the Postal Service back to profitability:
- Create independent USPS Health Care Plan (resolves Retiree Health Benefits prefunding issue)
- Refund FERS overpayment and adjust future FERS payments
- Curtail delivery frequency (Five-day mail/Six-day packages)
- Streamline governance (eliminate duplicative oversight)
- Provide authority to expand products and services
- Require defined contribution retirement system for future postal employees
- Require arbitrators to consider financial condition of Postal Service
- Reform Workers’ Compensation
That may seem like quite a list, but much of it coincides with the various plans and wish lists promoted by lobbyists like PostCom and GCA. In many ways it also coincides with the Pitney Bowes/NAPA plan for partial privatization of the Postal Service.
All of these so-called reforms are aimed at shrinking the Postal Service’s retail network, a continued consolidation of the mail processing and delivery network, and perhaps changes in mode of delivery, moving away from door and curb delivery towards cluster boxes.
Five of the items on the list are directly focused on the postal labor force. Donahoe has continually insisted that changes in the labor force, like moving to a part-time flexible force with lower wages and benefits, is a necessary step. One of the most oft repeated facts about the Postal Service is that labor makes up 80% of its costs. This is cited as a negative, and Donahoe and the BOG have consistently argued that postal workers and the wages and benefits they receive are one of the main, if not the main, sources of the current problem.
Donahoe is also asking for a reduction from six-day to five-day delivery. He’s modified his earlier proposal to totally eliminate Saturday delivery, most likely in response to overwhelming evidence that the loss of a delivery day for packages would harm future revenue prospects and denigrate service.
Donahoe also asks for more freedom from his regulator, the Postal Regulatory Commission, along with more freedom for his governing board, the BOG.
The PMG has also asked for additional authority to move into other products and services. The management of the Postal Service has been laser focused on the mailing industry for the last ten years or more. Virtually all of the innovations the Postal Service has engaged in have been designed to enhance the effects and prospects of direct mail advertisers.
Other types of innovation, like those that might help average citizens, are not on the agenda. Donahoe has dismissed calls for the Postal Service to move into small banking services as a complement to its money order business. He has argued that developing cooperative arrangements to use the postal network to assist state and local governments or other Federal agencies would not be remunerative. So “other products and services” would likely mean things like more discounts for mobile barcodes and perhaps the delivery of beer and wine.
What happens next?
Since it’s Christmas in Postal Land we’re not going to argue about whether giving Pat Donahoe all these new toys is good or bad. Instead, let’s assume he gets what he wants. Let’s imagine what happens next.
Over the last several years the lobbyists that support the mailing industry have been in general agreement over the direction of the Postal Service. The lobbying organizations — and there are many of them (a list is here) — represent many different interests. Some are focused on specific mailing groups like the National Newspaper Association or the Alliance of Nonprofit Mailers. Others, like PostCom, have a general membership with many diverse groups, from envelope manufacturers to delivery companies to the companies that do direct mail advertising. (STPO has done several articles on these groups, some of which are here.)
So one question is this: If Pat Donahoe gets the Postal Service he wants, will those in the mailing industry get the Postal Service they want?
The Postal Service is very solicitous of those in the mailing industry, from the big mailers to the presort companies and consolidators to the major suppliers, printing companies, and all the rest. The Postal Service goes to all sorts of trouble arranging platforms to ensure that those in the industry can have their voices heard.
There are the various Postal Customer Business Councils, the Mailers’ Technical Advisory Committee (MTAC), and all sorts of other initiatives where the Postal Service seeks mailer input. There’s no question that postal executives care very much for the mailing industry, often to the exclusion of all the other stakeholders, like the American people for instance.
As much as the mailing industry has a general sense of what it wants and what it wants the Postal Service to be, its aims don’t always coincide with what the Postal Service offers. There have been more than a few battles between mailers and postal management over issues like mailing standards and the implementation of technical improvements.
Also, the mailing industry is not monolithic, and its various elements have competing interests. One good example of this was the Negotiated Service Agreement (NSA) that Valassis signed with the Postal Service in 2012. There was a long and complicated docket before the PRC regarding that agreement. The newspapers didn’t like the agreement and neither did other mailers like Val-Pak. There’s also another PRC docket pitting Netflix against Gamefly. This case ended up in court, and it’s still being negotiated before the PRC.
Despite such disagreements, the industry has for the most part given the appearance of unity over the last several years. Conflicting interests and agendas have been subdued while the industry made common cause against postal workers and the idea of a national postal infrastructure. But one has to wonder, if the industry wins that battle, will all of the players still have anything in common?
Diminishing the role of the PRC
Donahoe’s wish list includes re-envisioning the authority of the Postal Regulatory Commission. The PRC has done a reasonable job of fulfilling its purpose. Under current law and statute, the PRC has a rather limited purview. On many of the most important issues, it simply advises. The N-case dockets — those in which the Commissions issues advisory opinions about major service changes like going to five-day delivery, closing thousands of post offices, and consolidating processing plants — have proven to be occasions for the Postal Service to bully its way towards its preferred outcomes.
Senator Carper has been one of the most outspoken voices in seeking to marginalize the role of the PRC in these decisions. He was unhappy about how long the Commission took to do its review of five-day delivery, he’s written a letter to the Commission about speeding up its process, and he unnecessarily gave PRC Chairman Ruth Goldway a hard time about the Commission’s travel habits.
If the PRC’s role is further reduced, more will be sacrificed than simply the protection of the public’s interest. There will be no real authority to arbitrate the disputes between various segments of the mailing industry. And make no mistake, there will be disputes as the dysfunctional management structure of L’Enfant Plaza trips over itself trying to satisfy all the competing agendas.
While the newspapers and the nonprofits have been busy attacking postal employees for the last few years, it doesn’t appear that they’ve given much thought to what their lives are going to be like in Pat Donahoe’s new Postal Service. Once the costs of “excess labor” have been wrung out of the system, will it be enough for other segments of the industry?
There has been a long and bitter fight over rates that are considered under water, i.e., mail that doesn’t cover costs. Will the direct mail advertisers be at the throats of the catalog mailers? When the justification for the postal network as a social good is eliminated, how does one rationalize special rates for periodicals, newspapers, media mailers, or, most of all, nonprofits? Does anyone believe that the battle for the lowest rates and the elimination of costs will stop with cutting jobs and closing post offices? There’s always going to be another ox to gore, another target to aim for, and the newspapers and nonprofits are next in the crosshairs.
There are also a couple of 800-pound gorillas in the mailroom, actually maybe more than a couple. Both FedEx and UPS have very lucrative relationships with the Postal Service. FedEx is the largest vendor of the Postal Service, with $1.6 billion in 2012, much of it for flying the mail, especially Priority Mail. UPS also has a large vending relationship, with $126 million in 2012.
Both have increasingly relied on the Postal Service’s last mile capabilities to keep their costs down while pulling more market share in package delivery. Throw in what may be one of the largest logistics companies in the world, Amazon, and there’s a whole other level of competing interests.
Do the three big gorillas care about delivering advertising mail? There have been many proposals to privatize the retail and mail processing parts of the network, but might FedEx, UPS and Amazon be interested in taking over the delivery network? The Postal Service seems to be paving the way.
Standardizing delivery with cluster boxes and remote parcel units, along with moving mail carriers out of local post offices and into carrier annexes and centralized delivery units, seems very much part of an effort to build the sort of delivery infrastructure that would be ripe for privatization. The costs of delivery are being further reduced by using more contract workers (Contract Delivery Service and Highway Contract Routes).
Reducing the value of First Class Mail
Donahoe has offered conflicting statements about moving away from current delivery models towards cluster boxes. That’s probably because he understands that the farther mail gets from the recipient, the less power it has. Donahoe has already worked hard to marginalize the value of First Class mail by promoting the narrative that the Internet is taking over.
Donahoe has fought for relaxing delivery standards, culling “underperforming” blue collection boxes, and for eliminating the points where average people interact with postal employees. Buying stamps at CVS or mailing a package at Pack and Ship takes customers away from the associations they have with mail, especially First Class mail.
The newspapers have fought five-day delivery as have the folks at the Greeting Card Association, but both have been too willing to jump on the train that’s leaving Postal Land.
The value of First Class mail is dropping, and there’s a fairly large and powerful constituency for that. Bank of America now offers employers a way to pay their employees through debit cards. This gives the bank huge profits on fees. It also undermines the postal money order business and perhaps mail bill pay.
Certainly the major banks see advantages in shifting as many people as possible to electronic bill presentment and payment. There are fees to be made on both sides of the transaction. It isn’t just the poor or elderly who aren’t comfortable with the Internet who are ripe for fee extraction. If the First Class mail system fails, then small businesses offer a tremendous opportunity for the big banks. “Mail doesn’t work anymore. It isn’t safe or reliable. Here buy our bill presentment and payment system.” It really isn’t hard to see the marketing possibilities.
Going after the mailbox monopoly
The change in delivery mode towards cluster boxes is too enticing to stop. It offers an opportunity to save delivery costs. It allows the ideologues, the folks from Cato and Heritage, to argue for an end to the mailbox monopoly. During the markup for last session’s Senate bill, Rand Paul offered an amendment to end the mailbox monopoly, which would mean that any carrier could put anything in your mailbox. That makes the postal infrastructure more ready for privatization. This isn’t some farfetched speculation. There are advocates for these changes and the Postal Service has dipped more than its toe in these waters. The sort of postal reform Mr. Donahoe seeks leads to some fairly predictable and inevitable changes.
For years Gene Del Polito and PostCom have been the loudest in decrying Do Not Mail initiatives. They offer tons of arguments why advertising mail is valuable. It’s pure self-interest, but if Mr. Del Polito gets the Postal Service he claims to want, then he’s going to have to fight hard for more than self-interest. Mail is synergistic.
Move the mailbox away from the house, change the composition of mail so that there’s little First Class and perhaps fewer magazines, the stuff people seek out and want to look at, and pretty soon mail doesn’t matter. Compound this with a poorly paid contracted delivery force and it isn’t hard to see a fairly dystopian future for mail.
The Postal Service is often polled as the most trusted federal agency, and it often rates highly among large corporations. Give Pat Donahoe and Gene del Polito the Postal Service they want, and a great deal of good will evaporates. We can already see that happening where post offices have gone to shorter hours through POStPlan. Revenues are falling in these offices and some of it is leaking out of the Postal Service, not merely migrating to other post offices. People are becoming resigned to the changes, and with that resignation comes a sense that a trusted service has been degraded.
Join or be crushed
The story of American capitalism is not really a story of free markets. For as long as this country has been in existence, large business interests have sought to combine to limit competition. We saw it with the railroads, we saw it with Standard Oil, and we’ve seen it with the telecoms and the airlines.
John Rockefeller once said, “Competition is a sin.” A recent article in Harper’s by Barry Lynn entitled “Killing the Competition: How the New Monopolies are Destroying Open Markets” describes Rockefeller’s strategy:
John D. Rockefeller, whose Standard Oil ruled the energy industry for decades, liked to present his predations as acts of altruism. “We will take your burdens,” he would tell his target. “We will unite together and build a substantial structure on the basis of cooperation.” But all understood perfectly the ultimatum hidden in the honeyed words: Join or be crushed.
We are dangerously close to creating an unregulated monopoly in the package delivery market. We are dangerously close to undermining the value of mail, and with that putting at risk the vaunted $1.3 trillion industry that employs 8 million. We are dangerously close to turning millions of Americans into victims of predatory banks and financial institutions.
If Pat Donahoe gets the Postal Service he wants, if those in the mailing industry get the Postal Service they think they want, then we are all in danger of losing the Postal Service we have.
They should all be careful what they wish for.
[Mr. Jamison is a retired postmaster and a regular contributor to Save the Post Office; his articles are archived here. He can be reached at Mij455@gmail.com.]