Courier, Express, and Postal Observer

Becoming a Multi-modal Postal Company

2009-12-17T15:07:00.004-05:00

Today, RR Donnelley announced a new mobile application for broker/dealers and financial advisors. This application is part of a suite of digital products and services that RR Donnelly offers to the financial services industry.

RR Donnelley's significant presence in digital documents may be a surprise to many readers of this blog who only know of the company as the largest printer of documents that are delivered by mail in the United States. Illustrative of this change is how RR Donnelley describes its business.

RR Donnelley is a global provider of integrated communications. Founded more than 145 years ago, the company works collaboratively with more than 60,000 customers worldwide to develop custom communications solutions that reduce costs, enhance ROI and ensure compliance. Drawing on a range of proprietary and commercially available digital and conventional technologies deployed across four continents, the company employs a suite of leading Internet based capabilities and other resources to provide premedia, printing, logistics and business process outsourcing services to leading clients in virtually every private and public sector. (Emphasis added)

In this entire description, the word "printing" appears only once. Instead, RR Donnelley sees itself as a communications company and "printing" is only one modality to deliver communication. RR Donnelley clearly envisions a world in which it is multi-modal provider of document delivery, whether by print, the Internet or through a mobile smart-phone.

RR Donnelley is clearly still primarily a printing company. Most of the services described on its website relate to the process of taking communication concepts and turning them into printed documents. In a similar fashion, RR Donnelley does not break out the revenue of its digital document business separately in its quarterly financial statements, suggesting that the revenue in that business is still not large enough to note separately.

The change in its definition of its business suggest that RR Donnelley understands that to continue to serve its print customer needs, it must be capable of providing solutions that allow the delivery and/or storage of documents digitally to reflect the demands of recipients. Other firms that serve parts of the postal supply chain, such as Pitney Bowes, Canada Post, Deutsche Post, and Xerox, are making a similar transition. For all companies in the "postal" business, the changing environment raises three questions:

Is my company prepared to be a competitive multi-modal postal firm?
What changes does my company need to make to remain relevant in a multi-modal world including acquisitions, divestitures, partnerships and mergers?
What strategy does my company have to deal with legacy physical-delivery focused assets and divisions so that they can generate an acceptable financial return for as long as customers exist for that portion of our business?

Closing Post Offices ... in Switzerland

2009-12-15T07:27:00.001-05:00

The United States Postal Service has announced that the list of post offices being closed is down to 168. The process of whittling the number of possible closures from 3,600 to 168 raise real questions about what the Postal Service was doing when it made the original announcement of closures.

Why did the Postal Service even started the process with such a long list of possible closing Post Offices?
Why did it not do the due diligence and confidential local market research that resulted in trimming the list of post offices to be closed prior to announcing possible closings rather than once the closings were placed before the Postal Regulatory Commission?
Would the Postal Service had had an easier time dealing with the turmoil that announcing post office closings had if it had started with a shorter list of potential post office closings backed by proper due diligence and confidential local market research?
How much did the entire process cost the Postal Service in the time of lawyers and other employees and how was that cost affected by starting with such a long list of potential closures?
How much did the entire process, including the repeated reduction in the number of potential closures, cost the Postal Service in lost credibility before the Postal Regulatory Commission and on Capital Hill?
Would the Postal Service have had a different result in post office closings if it had a plan in place for each possible closing for replacing the location with a contract or franchised outlet?

The issue of post office closing is not unique to the United States. The attached video from Swissinfo.com that was posted last April shows that announcing the potential closure of a post office generates the same arguments that are made in the United States. The one difference is the tag line of the report. The Swiss Post has a plan B, a retail outlet in the local supermarket. The only change would be the elimination of the Post Office's service of collecting bill payments at a window.

Congress and the Postal Service

2009-12-14T08:57:00.002-05:00

The United States Postal Service is unique among publicly-owned postal operators in that no executive department has the "shareholder." responsibility for the enterprise.   By default, this responsibility has fallen on Congress. Since the passage of the PRA, Congress has tended to downplay its shareholder role which has resulted in Congressional actions that undermine the competitiveness of the Postal Service and the value of the enterprise.

The problem with Congress reflects the inherent conflict between its interest in the Postal Service as shareholder and its institutional interest in reelection.   As such, the Postal Service has frequently become a tool to help balance the Federal Budget, with these actions constantly weakening the financial position of the Postal Service.   (See. USPS-OIG white paper, Federal Budget Treatment of the Postal Service) Other actions reflect institutional interests in serving constituent groups that could be affected by postal business strategies, many times to the detriment of the enterprise.

The Postal Service has not helped its shareholder see these conflicts as its business strategy has been opaque to even many seasoned observers.   Its current strategy focusing on reducing costs by reducing retail locations and delivery days raise this question again.   As the observer, Rag Content notes:

The potential impact of changing operations is something the Postal Service seems to be doing without much thought to its customer base these days. As it hides behind the line - matching resources to revenue, it continues to downsize its operations from closing post offices to reducing the remittance mail processing on Sundays in some locations to its AMP consolidation effort. The post office closing is the only docket open before the Postal Regulatory Commission at the moment, yet every change the Postal Service is making operationally affecting its ability to provide uniform service throughout the country.

A similar question is now being raised by shareholders by another troubled enterprise, General Electric. General Electric, a diversified financial, manufacturing, and entertainment company, has gone through probably the worst year in the company's history. The company had to take funds from TARP funds to shore up its financial unit and has sold nearly $10 billion in assets and slashed its dividend by two-thirds in order to improve its liquidity.

Now shareholders are looking for a clearer picture of how General Electric will earn a competitive return on investment dollars going forward. A recent Bloomberg News story covering General Electrics upcoming December 15,2009 shareholders meeting illustrates how involved shareholders think about a company with an unclear business plan.

General Electric Co. Chief Executive Officer Jeffrey Immelt says a financial crisis like the one he faced this past year often demanded action first and explanations later. Later is now, investors say.

“People want them to do a better job explaining what the return hurdles are for the businesses going forward,” said Mark Demos, who helps manage $19.8 billion at Fifth Third Asset Management in Minneapolis. “GE has a mixed track record on putting capital to work over the past five years.”

The shareholder of the Postal Service needs to ask the same types of questions that the shareholders of General Electric are asking GE's management.

What is your long-term strategy to ensure a commercially viable, and more importantly self sufficient enterprise?
How do short-term cost cutting efforts affect that long-term strategy?
What is the long-term business strategy that the changes identified in the Postal Service's business model paper support?
Is that strategy financially viable and what risks could derail its viability?
How much capital and cash is needed to execute that strategy?
If existing capital and cash is not sufficient, what is your strategy to raise more capital?
What are the risks to the shareholder and the existing holders of Postal Service debt and other unfunded obligations?

While these are questions that Congress, as shareholder should ask both now and on a regular basis in the future. Given Congress's track record on taking their responsibility as shareholder as seriously as General Electric's shareholders do, it may make sense to explicitly give some other government entity that responsibility, especially if solving the current financial crisis will require the Postal Service, like General Electric to seek relief from either unfunded obligations or expansion of its borrowing capabilities.

Publicly Traded Industry Firms

2009-12-13T15:08:00.002-05:00

Direct Communications Group has updated its list of publicly traded firms in the courier, express or postal service industry. The list of firms includes firms that provide:

Physical Delivery Services
Printing and Document Preparation
Mailroom, Sortation, and Mail Preparation Equipment
Software
Consulting/Outsourcing
E-Commerce

The list can be found on the new Direct Communications Group website.

Purolator USA, Canadian in the US Parcel Market

2009-12-12T10:02:00.008-05:00

When DHL exited from its United States domestic business, most commentators suggested that shippers would face only the duopoly of UPS and FedEx. The Postal Service was considered a marginal player that could not meet the service quality needs of business to business customers. More importantly, it rarely was price competitive on shipments over 5 pounds.

In a previous post, I noted that Amazon in its drive to shorten the time from order to delivery is expanding the number of competitors that compete in the parcel delivery market as it uses same-day couriers to delivery parcels that UPS or FedEx would have delivered previously. Amazon can expand the list of potential vendors to include same day and regional parcel carriers because its warehouses are close to the customers that it wants to serve but can only be served by carriers that can operate with more flexibility than the two national carriers.

New competition in the United States does not just come from these regional carriers. Purolator USA, a Canada Post subsidiary, is slowly expanding its domestic United States business as a complement to its cross-border business. By expanding its domestic United States business, it can serve more of the North America needs of its customers, making it easier for it to get a larger share of the business of customers with significant cross-border parcel and express traffic.

The growth of Purolator USA can be seen by looking at its web site and some of the older items that Purolator has not updated. Purolator, operating as a subsidiary of the Canadian courier has been in the United States since 1997, and under the Purolator USA name since 2004. For most of its existence, its focas has been on cross border traffic into Canada where it is the largest parcel and express carrier.

In its brochure describing its cross-b0rder service, Purolator describes four (4) United States based consolidation terminals in Seattle, New York, Buffalo and Chicago. It's website now lists the ten (10) gateways listed below. Clicking on any of the gateways will show the service times that Purolator USA promises to customers served by that gateway. The maps are comparable to service times of UPS and FedEx but somewhat narrower than what is offered by some regional carriers.

(Readers using Internet Explore may have some difficulties with some of these downloads as you have to tell IE that you want to download the file and then try a second time. They all work fine in Firefox. If you have a fix send a comment.)

Buffalo, NY
Dallas-Fort Worth, TX
Itasca, IL
Los Angeles, CA
Melville, NY
Newburgh, NY
Philadelphia, PA
Raleigh-Durham, NC
Seattle, WA
Taylor, MI

The growth in gateways, and the service area of each gateway suggests that Purolator USA is growing its cross boarder business and using that growth to organically grow regional and inter-regional traffic within the United States. This is similar to the strategy that Roadway Package Express used to grow the ground network from scratch that is now FedEx Ground. This contrasts with the failed strategy of DHL to buy US market share by buying Airborne, a company that at best was marginally profitable as an independent firm. Purolator USA's strategy in the United States domestic market has a reasonable chance of success if it can offer domestic US service as good as the cross-border service it offers its customers as well as the service offered by UPS and FedEx.

Given the success of numerous regional carriers, Purolator USA may now be enticed to speed the process by buying profitable regional operators. The DHL experience will likely ensure that any mergers are pursued cautiously and will likely focus on regional operators in areas that it does not now have gateways.

Purolator USA's domestic service unlikely provides more than a fraction of 1% of the total US domestic parcel and express market. However, even niche competitors can have an impact on the pricing strategies of UPS and FedEx as they negotiate with US customers that currently use Purolator for Canadian destined shipments.

Is the Future in Letter Mail?

2009-12-10T07:02:00.002-05:00

In his most recent statement, Here We Go Again, on the current debate on postal policy, APWU President Burrus makes a fairly bold statement.

The future of the Postal Service is tied to the revenue generated from letter mail. (All quotes in this post are in italics.)

His statement is both true and troubling. It leads to two simple questions.

If the future of the Postal Service is tied to letter mail, are there initiatives that can grow letter mail enough to replace revenue lost to the transition to the digital documents in order to maintain a workforce of 600,000, current levels of service quality, and the current operating and retail network; pay the costs associated with an accurate calculation of the Postal Service's retiree obligations, debt incurred for current operating losses and workers compensation payments; and generate sufficient cash to invest in improving service and efficiency to meet the needs of mailers in 2020 and beyond?
If not, what changes are necessary to ensure that mail remains a critical economic driver as we work our way out of the great recession as well as 2020 and beyond?

These are questions that I had to think about as I looked at potential business models for the Postal Service. I saw the same facts that President Burrus did.

Fact: In and of itself, restructuring has not and will not increase mail volume. Correct, restructuring is a response to changes in mail volume. To the extent that that restructuring makes the Postal Service more efficient, the Postal Service more competitive in shipping service products, and introducing the value of mail to customers who previously thought it was too expensive.

Fact: Major mailers independently determine the amount of hard-copy mail they send, and “reform” will have little influence on their decisions. The PAEA, which the large mailers unanimously supported, was followed by the most significant decline in mail volume in the history of the Postal Service. Mail volume since PAEA has been driven by the emergence of digital strategies developed by the major customers of the Postal Service and the increasing dependence of the Postal Service on economically sensitive advertising and parcels. The decline of single-piece letter mail that began over a decade ago reflects both a switch to digital alternatives for payments and a decline in payments reflecting lower economic activity. It is not clear whether a rebound in the economy that will increase mail payments or the new mortgages, phone services, credit cards, etc will only offer paperless transactions.

Fact: There is stiff resistance to government competition in the private marketplace. Therefore, it is unlikely that the USPS will be permitted to engage in banking, phone sales, and other new commercial activity. There is minimal tradition at any level of government in the United States of government entities competing in the private marketplace. This means expanding to provide customers complementary services in conjunction with letter or parcel services or expanding retail much beyond existing "postal products" will meet resistance from the private sector and Congress as long as the Postal Service remains a governmental entity. This restriction on the Postal Service serves neither postal customers nor postal employees. It is one of the reasons that I concluded that governmental models were wanting.

Fact: The opportunity to fix the PAEA by removing the crippling obligation to prefund retiree health care – a correction that is desperately needed – is hampered by Congressional “scoring” procedures, which prevent Congress from passing bills that add to the deficit. (Although the USPS is not part of the federal budget, it is part of the “unified budget,” so the Congressional Budget Office demands “offsets” when changes are made to the payment schedule.) The retiree health care illustrates a second failure of governmental models. As long as Congress has an opportunity to tie the Postal Service to the federal budget it can tax postal customers and employees with onerous calculations of retiree obligations, refusal to pay for services performed for free, and other assaults on postal cash and revenue.

Fact: Because they fail to address the fundamental challenges facing the Postal Service, reducing the number of employees, slashing the number of mail processing plants, and eliminating retail units are not long-term solutions. They are misguided cutbacks that diminish service and harm those who are the least “connected.” Burrus here highlights his real problem. Almost all of the proposals that the Postal Service have suggested to deal with declining volumes affect APWU members more than any other postal stakeholder.

Lower volumes will require continuous re-optimization and most likely consolidation of the operating network. As a previous post noted, the Postal Service may have both too few retail outlets and too many corporate outlets and existing outlets offer a range of services that are too limited to serve the needs of its retail consumer and business customers. Changing to a more aggressive network optimization strategy and a customer-focused retail strategy requires the Postal Service to show why these strategies will in the long-run improve service, maintain service to the least "connected," and provide postal employees with the best possible jobs that it can offer. By only showing cost savings, the Postal Service left stakeholders with a feeling that all it is thinking about is how it gets through the next fiscal year. All other stakeholders have a longer and broader perspective that is left unaddressed.

Given these facts, where options are there?

As it is in the interest of President Burrus to maintain the jobs APWU for as long as possible, he focuses on options for increasing revenue, as the Postal Service can avoid significant reductions in its workforce if revenue starts growing again. He rejects the "dream of a Postal Service that survives by providing a smorgasbord of services “around the edges” of mail processing and delivery." He sees these ideas, including some presented at a recent Congressional hearing as having negligible impact on the bottom line. It is here that he presents two options that can generate sufficient revenue growth that he sees is needed to "maintain the national network of more than 30,000 facilities; employ more than 600,000 workers, and deliver mail to every home six days a week."

Here are his options:

Raise rates - He argues that rates do not drive volumes, factors beyond the Postal Service's control drive the overall trend and therefore rates can be raised without much affect on the long-term trends. While the price sensitivity measured in volume forecasts suggests that customers are not sensitive to price changes and price increases would have minimal affect, the positive impact of the summer sale on volumes suggest that large customers when given price incentives to mail do increase both volumes and total revenue. The impact of the summer sale suggests that we should be less confident about the value of price sensitivity measures filed with the Postal Regulatory Commission when evaluating pricing innovations. More information is needed on the value of mail for specific types of customers, and in some cases specific customers, to set prices that both maximize volume and revenue. Otherwise, the Postal Service is most likely leaving revenue on the table and mail pieces unprinted. A customer-focused pricing structure should be able to increase revenue and avoid the rate increases that his approach would produce.

Relying on higher rates that are not designed around the specific value of mail to specific customers will likely depress volumes, revenues, and net income. Until more customer-specific pricing becomes common place, along with the internal infrastructure and regulatory framework to support it, increasing prices will remain an unpalatable option for growing revenue.
Expand Services to Small Businesses Underserved by the Postal Service. This idea repeats his earlier statement that the future of the Postal Service is in advertising. Here he goes further to note there are many postal customers that are underserved by the Postal Service as well as the private sector. His description of the problem that small business have with Internet advertising is the same problem that they have with all other media, their ads get lost in the clutter.

For example, let’s assume you operate a small “gutter cleaning” company and you want to inform homeowners about your services. Television is a very expensive way to advertise, and viewers may or may not have trees around their homes. The same is true for advertising on the radio or in newspapers. If you use the Internet for advertising, your business will be listed with hundreds of other gutter-cleaning companies. As a result, you may decide to post signs at traffic lights and distribute leaflets in parking lots. You probably never thought that you could afford to send a letter to every home in the community that might need your service.

This is an opportunity to marry the Internet to hard copy and, in the process, save the Postal Service.

In many ways, President Burrus understates the problem of underserved potential customers. Small businesses are underserved by the problem goes beyond small businesses to those that want to advertise in communities that fall outside the core city in a media market or looking to replace advertisements that previously were delivered to every address within a newspaper. The private sector attempts to meet these needs through envelopes filled with coupons, marriage mail, and pennysavers that are delivered by mail as well as free newspapers that are delivered to a local community.

The kind of partnership that President Burrus envisions involves more than accepting the efforts that private sector firms catering to serve small businesses. In his words: We have a golden opportunity to do what no other company can do: transform an idea into an advertising message, convert it to hard-copy mail, and deliver it to a specific audience. This is known as one-stop shopping. (If you want to apply real discounts, give them a package deal.) President Burrus is describing introducing vertical integration to the process from concept to delivery as a way to cut costs and improve service. In implementing this idea, the Postal Service would confront one of the key facts that President Burrus outlines, resistance to government competition with the private sector.

The kind of product that President Burrus envisions also requires rethinking the definition of postal products. Postal products, regardless of class, need to be thought in terms of day certain delivery. The internet and mail work together best if the sender is certain when both will arrive. Networks need to reflect this and untamed processes, now managed by the private sector and the Postal Service, for moving mail from concept to delivery have to be eliminated to remove delivery uncertainty.

In summation, President Burrus has shown that even his best ideas to save the jobs of his members cannot succeed due to barriers that exist in the current business model and regulatory framework. Three barriers are noted in this post: resolution of the retiree benefit payment issue, independence from the Federal budget and Congressional interference, and inability to fully take advantage of all opportunities to serve customers due to the Postal Service's status as a government entity. Removing those barriers in a new round of legislation would give his members their best shot for maintaining the greatest number of existing good-paying jobs. Removing these barriers will require a new business model that includes changes far greater than envisioned by the authors of the PAEA.

Mail Model for Rural America

2009-12-08T06:24:00.012-05:00

In previous posts, this blog has described the retail strategies in Germany, Sweden and Denmark. While northern Sweden has some rural areas which are as rural as any in the Continental United States, these countries have a urban-rural mix equivalent to a state east of the Mississippi with the most rural areas similar to rural areas in these states as well. (See: Should the Postal Service Close All Post Offices?, Marketing the Packstation, Packstation Vender, Creating a Self Servi ce Footprint and Section 3.5 (page 26) of Examination of Potential Postal Business Models)

Australia is much more characteristic to the population density of mountain West and Great Plains. Australia has a number of large cities with population well over a million but most of the country is sparsely populated. Vast stretches of Western Australia is desert and much of the country not near the coast are home to ranches, farms, and mining villages.

Australia Post has a tighter universal service requirement for providing retail access than the United States Postal Service. Australia Post is required to have 4,000 retail outlets with 2,500 located in remote and rural areas. Given that the United States has nearly 14.47 times the population, the Postal Service would have to have nearly 58,000 outlets with 36,000 in remote and rural areas. The focus on remote and rural areas reflects the fact that Australia has a population density of 7.5 people per square mile compared to 82.9 in the United States. (For reference: Sweden is 53.7; Germany is 594.0; and Denmark is 331.7)

So how does Australia Post handle this burden and not go broke and in fact exceeds its mandate and operates 4,433 outlets? (Information from this post drawn and quoted from Post and Parcel. (quotes are in italics))

Corporate Owned Stores (827 locations, 19% of all outlets) are standard post offices offering the full range of Australia Post services in facilities owned or leased by Australia Post. Employees working in corporate owned stores are Australia Post Employees

Franchise Outlets (28 locations, 1% of all outlets) serve small communities that have between 800 and 1,000 customers. These locations sell Australia Post products and services exclusively. Australia Post has the lease for all franchise outlets, pays for their fit out and owns the inventory. Franchises are set for a fixed ten year period. Operators pay a fee for the licence and receive an exit fee when they end the lease.

Licensed Post Offices (2,941 locations, 66% of all outlets) act as agents for Australia Post products and operate in large and small markets. Approximately half operate in association with another business. There is no fixed period for a licence and outlets are bought and sold on the open market. Licensees are responsible for the premises and own the inventory in the post office. They are independently owned businesses and their retail merchandise range is traded on a wholesale basis. Licensees are only obligated to stock a core product range which is primarily mail service related.

Community Postal Agents (637 locations, 14% of all outlets) are small operations usually located in rural and remote areas. They provide mail delivery services and are also required by Australia Post’s community service obligations to sell stamps and accept mail from people living in rural and remote areas. These facilities are outsourced and operators receive payment based on their volume of activity.

Australia Post's retail outlets offer a range of services that make them like a combination of a Post Office, an office supply store, and a card and gift shop. Some are co-located with coffee shops, making them more like community centers where people come to do business but may stay and chat over a cup of coffee or tea. In addition to postal products and mailing and shipping supplies, these outlets sell general merchandise such as CD's and DVD's books, souvenirs, gift cards, technology products, pre-paid cell phone time cards, and in some locations provide banking teller services under contract with one or more Australian banks.

A better picture of Australia Post's dominant retail model, Licensed Post Offices, comes from advertisements for the sale of these businesses. A web search identifies a couple of outlets that are available for sale in small markets and illustrates that retail services can be provided profitably in even very small towns.

Currently on the market is a licensed postal outlet in Cloncurry, Queensland, Australia. The business is selling for 370,000 Australian dollars plus the value of inventory.

The advertising indicates that the business makes sense for a married couple working with one part-tine clerk.

The outlet is in a town of less than 2,500 people (less than 4,000 in the county (shire) and 75 miles from the nearest postal outlet. The town and the surrounding area are populated by people working the mining and ranching.

The business that is being sold includes not just the retail outlet but the right to operate the 5 delivery routes that serve the surrounding territory. The pictures clearly shows the type of stock that the outlet carriers that in addition to the stock that postal outlets generally carriers also sells soft drinks and Darrell Lea Chocolates.

The sale price also includes the building that includes two offices that are currently rented.
What Australian Post has done is show that even areas that are the most rural in the United States can be served profitably by contract operations. However, Australia Post's approach is very different in setting up these contract outlets. Australia Post give its outlets sufficient management support to make the contract operation a turn-key business solution including all non-postal and shipping supply inventory but also offers a full range of non-postal services at wholesale prices that its contractors can buy as well. Australia Post most likely advises its outlets how to expand their business by expanding the breadth of products that they offer with the hope that Australia Post becomes the supplier of those products. Finally, it appears that Australia Post offers rural outlets to expand its revenue and profits by offering both retail and delivery services in a territory. In that way a local business person becomes a partner because growing his business also grows Australia Post's business.

Australia Post's effort to transform its contract outlet business toward a franchise model further shows the difference between the approaches that the Postal Service and Australia Post have taken to expand retail access. The brochure on franchising is designed to allow Australia Post to compete with all other firms offering franchise opportunities and shows that creating a successful contract approach requires more than just allowing someone to sell postal products.

Transitioning to a contract model for rural service would be traumatic for employees now working in those offices. The Postal Service could ease the transition in one or two ways.

First, it could offer significant early retirement and/or severance packages to those employees that could be affected. As a rule of thumb, the cost of these packages, including transfers and training would be about equal to half a year's salary.

Second, it could offer local postmasters the right of first refusal to buy the postal outlet moving from a corporate to a contract model. This is similar to what happens during a condominium conversion. The latter model would be less expensive for the Postal Service, even if the selling price was modest. This opption would also give existing postmasters real opportunities to advance and remain in their community. As illustrated by what rural post offices do in Australia, postmasters that chose to buy the local postal outlet would have substantial opportunities to use their knowledge of their community to expand their product offerings to add revenue and profits to the outlet. It is foreseeable that these new contract postal outlets would be responsible for delivery routes originating from the outlet as well.

Changing to a contract outlet model would also require revamping the whole concept of managing retail. Instead of managing employees, the Postal Service would be managing a large number of independent businesses. Managers would then focus on and be rewarded for making the contract outlets and the local "postmasters" within their responsibility as successful as possible. Headquarters would have to create a Post Office University just like McDonald's Hamburger University.

Fleshing out this model would be a substantial effort. Those looking at potential business models need a more detailed examination of this approach including the financial and organizational impacts on the Postal Service and the possibility of profits for those chosing to buy a local post office outlet. Postmaster Associations, whose members know their communities and their community needs better than anyone in Washington, could provide valuable input into what would be required to allow a postmaster to take over the local operation and turn it into a profitable business. Now is the time to begin this effort.

Amazon: Avoiding the Post Office

2009-12-06T14:05:00.006-05:00

In Rethinking the Parcel Market, I noted Amazon's effort to offer same day delivery and what that means for UPS, FedEx and the Postal Service in the United States. Today's Times Online reports that Amazon has launched "a secret search for bricks-and-mortar stores to support its rapidly growing website. It is understood to be scouring the country for high-profile sites."

According to the article, Amazon is not looking to open retail outlets where customers can buy goods that the store has in inventory. Instead, the stores will provide a delivery point for customers that order larger items that mail or truck delivery is inconvenient.

[Monday 12/7/2009 Amazon has subsequently denied the story. Given the success of Apple stores and Amazon's success in revolutionizing the retail supply chain, the idea that Amazon would add a brick and mortar option seems logical. The brick and mortar option clearly fits with Amazon's clear interest in reducing the time from order to delivery. The post was edited following its original posting to reflect why Amazon may have explored the possibility of retail even if it has for now rejected the available brick and mortar options.]

Amazon's move if completed would put it in direct competition with Argos, Tesco and John Lewis which all offer similar services. The Times reports that Argos' customers pick-up 18% of their Internet purchases in brick and mortar outlets rather than have the items delivered by parcel carrier or road transport. Argos will generate half of their television sales this Christmas via the combination of a purchase on the Internet and delivery to a brick and mortar outlet.

If Amazon goes ahead with a retail strategy, it should be able to haul items for pick-up to its "stores" using contract carriers dedicated to their retail network. Amazon's business case would most likely show that both customers prefer to pick-up their larger items at a retail outlet and the overall delivery costs, including the cost of operating retail outlets, is less than the cost of home delivery. Amazon could then decide to hold some inventory of fast moving items at retail outlets to further reduce costs and allow for same day pick-up of these items. For this strategy to be successful, the customer's experience in retail outlets has to be just as good as the experience on the website.

A retail initiative by Amazon's would be a direct assault on Royal Mail, DHL, UPS, TNT, FedEx and road transport companies that handle items that weigh over 75 pounds (34 kilo). The reported new initiative would also be a direct assault on retail outlets of Royal Mail and its competitors that could provide a similar service to replace the loss of sales as single-piece letter mail volume decline.

Amazon is unlikely to pursue a similar strategy in the United States. Pursuing this strategy in the United States could require Amazon to collect sales taxes on sales in those states where it opened retail outlets. Losing the sales tax advantage would eliminate a price advantage that Amazon has over Best Buy, Sears and other s that offer store pick-up of Internet sales. Given the peculiarity of U.S. tax law there is an opportunity for FedEx, UPS, and the Postal Service to work with Amazon to expand the hours of a limited set of their retail outlets to make them pick-up points for Amazon and other Internet retailers. Alternatives any of these competitors could follow the lead of the German and Danish Post Offices and open self-service lock-boxes for after hours parcel delivery.

National Conversation on the Future of Mail

2009-12-06T09:12:00.003-05:00

The Postal Regulatory Commission has recently posted on its website the text of a letter that Chairman Ruth Goldway sent to 162 organizations asking for input for what she calls a "national conversation on the future of mail and hardcopy communications in the United States and how changes currently underway may affect your members." (The entire letter and the list of organizations contacted is included at the end of this post.)

She asks for input in three separate areas:

The Postal Service's effort to close stations and branch Post Offices;
A new PRC study the Commission is initiating "on the present and future role of mail in American society and the societal impact of the existence of the postal system;" and
The Postal Service's proposal to reduce the number of delivery days from 6 to 5.

In her letter, she notes that input into the first and third areas should come within established Postal Regulatory Commission (PRC) proceedings. The PRC actions in these two items follow standard legal requirements when the Postal Service makes changes in service.

The second item is new and is not in response to any action taken by the Postal Service nor is it a mandated study required by the PAEA. This should be a significant effort as if done right. It could provide a reasonable picture of the range of possible demands on the postal system, including both physical and digital delivery of documents as well as the delivery of parcels both five and ten years hence. That time frame is important given both the speed of legislation, organizational change, and regulatory change will likely result in a new business model and regulatory framework taking between five and ten years to implement.

Most likely, the PRC will use the information that the organizations contacted provide as the basis for its testimony before Congress on the PRC's view of what the Postal Service's future business model and regulatory framework should be. The organizations that the PRC contacted should look at this request as their first chance to frame the record that Congress will use to develop the new business model and regulatory framework for the Postal Service.

* * * * * * * * * * * * * * * * * * * * *

TEXT OF THE CHAIRMAN’S INVITATION AND LIST OF INITIAL ORGANIZATIONS CONTACTED

In December 2006, the Postal Accountability and Enhancement Act became law, changing the nature of government regulation over postal service in America. Under the Act, the U.S. Postal Service was given more flexibility in setting rates, entering into special postal service contracts, and offering new products. However, in exchange, the Service was also required to provide greater transparency for the public in areas such as financial reporting and service performance measurement. In addition, the renamed Postal Regulatory Commission was granted increased regulatory responsibility over the Postal Service.

Within our regulatory framework, I would like to encourage a national conversation on the future of mail and hardcopy communications in the United States and how changes currently underway may affect your members. (emphasis in original)

As you are probably aware, the Postal Service faces serious financial challenges. For some time, consumer shifts toward electronic communications and online bill payment have resulted in gradual declines in First Class mail volume. The current economic downturn has greatly exacerbated the problem, causing substantial, across-the-board mail volume declines.

The Postal Service has responded by downsizing their workforce and operations, reducing the number of facilities, eliminating a large fraction of mail collection boxes, altering delivery routes, and proposing further changes that could potentially have a significant impact on its customers and service nationwide. The Commission seeks your views on what these changes mean for you, your members and our nation.

Your input would be most helpful in the following three areas:

First, the Commission requests comments on a recent Postal Service proposal to consider whether the closing of station and branch post offices throughout the nation will result in a substantial nationwide change in postal service, and if so, whether that change would be in compliance with applicable laws. This includes a review of issues such as the public communication process and appeal rights for affected customers where a final determination has been made to close an office.

The Postal Service recently provided the Commission with an initial list of several hundred offices that it is reviewing for possible closure. These offices are located in metropolitan regions throughout the nation.

The Commission welcomes information on what effect such changes might have on your members and our nation’s mail service. The list of offices being reviewed and the public records on this proceeding can be found at our website (www.PRC.gov) under Docket N2009-1 – Station and Branch Optimization and Consolidation Initiative.

Second, we would welcome your thoughts on a study the Commission is initiating on the present and future role of mail in American society and the societal impact of the existence of the postal system. Your perspective and insights would be very much appreciated.

Finally, the Postal Service will likely seek an advisory opinion from the Commission on a proposal to decrease mail delivery service by one day a week, from the current six-day-a-week service to five-day delivery. If and when this occurs, we will solicit public comments and hope that you and your members will transmit your views on this proposal and its impact.

Please note that last year, at Congress’s request, the Commission completed a study of the Universal Service Obligation (USO), which assesses the level of postal services required to be provided in this country. The final report and the appendices are available on the left hand column on the home page of the Commission’s website http://www.PRC.gov.

Your unique perspective is valuable to the PRC in carrying out its responsibilities. We will provide you with whatever documents we have available and assist your staff in understanding the Commission review process. If you have any questions on the most appropriate way to participate in this dialogue and to submit comments in any of the Commission dockets, please contact the Commission’s Public Affairs and Government Relations office. Contact information is below.

Sincerely,
Ruth Y. Goldway
Chairman
Postal Regulatory Commission

CONTACT INFORMATION:
Postal Regulatory Commission
Public Affairs and Government Relations Office
Attn: Ann Fisher, Director
901 New York Avenue NW #200
Washington, DC 20268
Email PRC-PAGR@prc.gov

Phone: 202-789-6800
Fax: 202-789-6886

Initial Stakeholder Contact List

Access Technology Association
Aricultural Circulation Association
Alliance of Independent Store Owners & Professionals
Alliance of Nonprofit Mailers
American Association of Collegiate Registrars and Admissions Officers
American Association of Retired Persons
American Association of Retirement Communities
American Association of State Colleges and Universities
American Association of University Administrators
American Bankers Association
American Booksellers Association
American Business Media
American Catalog Mailers Association
American Chamber of Commerce
American Council of the Blind
American Council on Consumer Interests
American Federation of State, County and Municipal Employees
American Hospital Association
American Institute of Philanthropy
American Library Association
American Medical Informatics Association
American Public Health Association
American Real Estate and Urban Economic Association
American Seniors Housing Association
American Association of Museums
Antiquarian Booksellers Association of America
APPA (The Association of Higher Education Facilities Officers)
American Postal Workers Union
Assisted Living Federation of America
Associated Mail & Parcel Centers
Association for Education & Rehabilitation of the Blind and Visually Impaired
Association for Mail Electronic Enhancement
Association for Postal Commerce
Association of American Colleges and Universities
Association of American Publishers
Association of Fish and Wildlife Agencies
Association of Fundraising Professionals
Association of Governing Boards of Universities and Colleges
Association of Public Television Stations
Association of Small Foundations
Authors and Publishers Association
Blinded Veterans Association
Braille Authority of North America
Check Payment System Association
Citizens Against Government Waste
City & Regional Magazine Association
Coalition of Religious Press Associations
Consumer Federation of America
Continuity Shippers Association
Council of State Community Development Agencies
Council for Affordable and Rural Housing
Council of Literary Magazines and Presses
Council of State Chambers of Commerce
Council of State Governments
County Executives of America
Custom Publishing Council
Direct Marketing Association
DMA Nonprofit Federation
Edison Electric Institute
Electronic Funds Transfer Association
Envelope Manufacturers Association
Executives Council for Community and Economic Research
Farmers Educational and Cooperative Union of America
Financial Services Roundtable
Florida Gift Fruit Shippers Association
Fulfillment Management Association
IDEAlliance
Independent Charities of America
International Association of Audio Information Services
International Association of Clerks, Recorders, Election Officials and Treasurers
International Downtown Association
International Economic Development Coun.
International Municipal Lawyers Association
International Mailers' Advisory Group
International Rural Sociology Association
Lexington Institute
Mailing & Fulfillment Service Association
Magazine Publishers of America
Mail Contractors Association
Mail Order Association of America
Mail Order Gardening Association
Mail Systems Management Association
Mailers Council
Major Mailers Association
National Association of State Universities and Land-Grant Colleges
Nation Institute
National Alliance of Postal and Federal Employees
National Association of Consumer Advocates
National Association for Printing Leadership
National Association of Advertising Distributors
National Association of College and University Mail Services
National Association of Consumer Agency Administration
National Association of Counties
National Association of County and City Health Officials
National Association of County Recorders Election Officials & Clerks
National Association of Election Officials
National Association of Independent College and Universities
National Association of Letter Carriers
National Association of Perishable Shippers
National Association of Postal Supervisors
National Association of Postmasters of the United States
National Association of Presort Mailers
National Association of Realtors
National Association of State Administrators and Supervisors of Private Schools
National Association of State Utility Consumer Advocates
National Association of Towns and Townships
National Association of Working Women
National Black Chamber of Commerce
National Catholic Development Conference
National Congress for Community Economic Development
National Consumers League
National Council of Local Human Service Administration
National Council of State Agencies for the Blind
National Council on the Aging
National Family Business Council
National Federation of Independent Business
National Fraternal Congress of America
National Governors Association
National Grange of the Patrons of Husbandry
National Industrial Transportation League
National League of Postmasters of the United States
National Newspaper Association
National Postal Mail Handlers Union
National Postal Policy Council
National Retail Federation
National Rural Letter Carriers' Association
National Small Business Association
National Small Business United
National Star Route Mail Contractors Association
Nationwide Alternate Delivery Alliance
Netflix
Newspaper Association of America
9to5, National Association of Working Women
Offering Envelope Association
Parcel Shippers Association
Periodical Publications Association
Pharmaceutical Care Management Association
Printing Industries of America
Public Broadcasting Management Association
Public Citizen
Public Library Association
Recording Industry Association of America
Red Tag News Publications Association
Saturation Mailers Coalition
Small Business Council of America
Small Business Legislative Council
Specialized Information Publishers Association
Stamps.com
The Association of Boarding Schools
The Association of Educational Publishers
The Media Institute
United Amateur Press Association of America
United Farm Workers of America
United States Chamber of Commerce
United States Hispanic Chamber of Commerce
United States Junior Chamber (Jaycees)
Urban Affairs Association
Urban Financial Services Coalition
Urban Land Institute
Urban Libraries Council
Writers Guild of America, East
Yellow Pages Association

Mailing to Santa

2009-12-04T14:25:00.006-05:00

Santa Claus's Main Post Office
Arctic Circle, Finland

Given all of the troubles the USPS is having with mail to Santa this year, I took a quick look at how it is handled in other countries. Mail to Santa is a worldwide phenomena and countries close to the North Pole all receive thousands of pieces of mail addressed to Santa. Many have formalized programs to answer the letters.

A couple of Posts have websites that help children (and their parents) send letters to Santa. All of these countries reflect English culture. Here are three.

Australia Post - handles over 100,000 letters to Santa. They have a special address and Postal Code. Australia Post works with Santa's elves to ensure children who write a letter to Santa at his special address receive a reply. The website includes pdf files of special stationary for Santa letters

Canada Post - replied to 1.4 million letters and 63,000 emails in 2008. Like Australia Post, Canada Post has a specific address and zip code for Santa letters. Its website also has the link to Santa's e-mail address which allows it to digitally savvy children. The website also includes holiday games and a weekly posting from Santa.

Royal Mail - has a special address for Santa letters and responds to as many as possible.

Posti (Finland Post) - has both a mail and e-mail address for Santa. Finland Post receives mail from children worldwide at a real Post Office on the Arctic Circle. It appears that you can get request a letter from Santa as well.

What is common among all of these postal operators is that they turn the Santa letters into a way to promote the corporate image to both children and their parents. Too bad the Postal Service is constrained from taking advantage of this image building opportunity.

Cutting Hours or Cutting Post Offices

2009-12-04T07:48:00.005-05:00

Sometime in the next few months the Postal Service will receive an advisory opinion from the Postal Regulatory Commission (PRC) on the potential closing of less than no more than 241 post offices, stations or branches. This is a far cry from the more than 3200 sites in its initial proposal that it presented to the PRC. Once the opinion is issued, the Postal Service will likely close most of th 241 sites now on the list.

Those communities that found their Post Office on the original list but are no longer under consideration for closing are likely relieved that their Post Office will remain open. These communities will be less pleased when the hours that the Post Office is open shrink as the Postal Service looks at ways to deal with declining demand for retail services.

The Postal Service has reduced operating hours at Post Offices across the U.S. for much of the past year. The Portland Press Herald recently reported on decisions affecting 52 offices in New England. Similar actions have taken place in Maryland, including my local post office in Silver Spring.

What the Postal Service is now doing is not much different than what public libraries, recreations centers, parks and other government service centers do when struck with declining budgets. When the agency cannot close a library do to community or political pressure, it finds it politically easier to cut hours of all libraries instead. Community pressure is less intense if the hours are cut by 10% instead of cutting 10% of facilities.

The impact of politics in this process does not necessarily improve service. While a community may like a library nearby, the library provides no service at hours when the community needs the service. For example, years ago, the City of Rochester had to choose between cutting library hours across the board or closing its least used facility and expanding hours at the closest nearby facility and maintaining extended evening and weekend hours at other libraries. A study of use of library services by patrons showed that customers would be best served by expanded hours. An examination of the addresses of patrons that used each branch showed that the branch to be closed was used by patrons that often used the neighboring branch as well. In the end, the least used facility was closed, and the expanded hours resulted in increased library use in the community that lost its neighborhood branch.

The Postal Service's actions show how its decisions, as influenced by regulatory, political, financial, and labor contract constraints, reflect the pre-eminence of the governmental characteristics of the organization. While the Postal Service does offer other ways to buy stamps and postage, its "retail strategy" appears to be no more than to shrink its business by reducing access at a rate most likely equal to the rate of retirement of postal clerks. The Postal Service appears to be managing more to the budget available to provide retail services rather than in following a coherent strategy to serve retail customers.

The Postal Service's strategy will likely drive business away, particularly among small businesses that will ship their overnight and two-day items via FedEx or UPS because their retail outlets are open an hour or more longer than Postal Service outlets. These customers will be paying FedEx and UPS's higher retail prices just because they have no other choice that day.

The Postal Service could follow actions that its domestic competitors and foreign postal operators have chosen and switch their retail presence from primarily corporate offices to primarily franchise offices. It could expand the use of automation and replace part of the line of retail windows with a line of automated postal centers like food and home retailers like Giant Foods, Stop and Shop, Kroger, Safeway and Home Depot have.

The Postal Service needs a real retail strategy with real revenue, capital and expense budgets that is focused on serving retail customers profitably. These budgets should reflect what is needed to successfully serve retail customers profitably, not just what can be done with existing capital resources and current employees. These budgets have to reflect the decline in retail letter mail, work to stem the decline in retail parcel traffic.

With a real retail strategy that retains widespread access to the network, the Postal Service could transition to a new retail approach without scaring communities that they will be abandoned. This transition will not be easy. Retail postal customers in Sweden where corporate Post Offices were all closed were resistant to the closure of their local corporate offices and often expected the worse. Surveys conducted since the switch to an all franchise operation show that customers are more satisfied with Sweden Post's retail services. In particular, the expansion in hours and shorter lines made Sweden Post's retail products more competitive with others offering retail parcel and express services.

Dynamex - Earning Profits in Local Delivery

2009-12-03T16:38:00.002-05:00

I recently posted that Dynamex will be a significant part of Amazon's new effort to offer same day delivery. Dynamex is the largest same-day delivery firm with operations in the United States and Canada. They are also the only one that is publicly traded which provides a window on a segment of the Courier, Express, and Postal Market within which UPS, FedEx and the Postal Service do not compete.

The company just announced its First Quarter Earnings of $0.31, 5 cents better than analyst estimates of $0.26 cents. Dynamex (DDMX) was able to increase its earnings even though revenue was down 13.9% overall and 9.2% excluding changes in fuel surcharges and the value of the Canadian dollar.

How did Dynamex increase its profits in tough times? The company made a strong effort to control sales, general and administrative costs. Compensation and benefit costs declined by 12.9% which included a major effort to streamline overhead through the closing of their Canadian administrative office. Most of all of Dynamex's delivery drivers are contractors and the decline in demand is reflected in a decline in spending for contract transportation.

In its conference call, Dynamex President James Welch stated that they have seen little improvements in economic activity over the past year. He acknowledged that sales activity today is the best it has been in the year he has been at the company. Given that Dynamex has been able to earn strong profits through the recession, it would seem that its prospects going forward could improve if their sales activity becomes actual sales and the economy improves.

Financial Insolvency

2009-12-01T08:11:00.007-05:00

In a recent post, APWU President suggested that the Postal Service's financial problems has one cause and one cause only, the onerous payment schedule for funding retiree health plans. He is right that this is a serious problem. There are reasonable arguments that both the amount that Office of Personnel Management (OPM) says the Postal Service owes significantly overstates what the Postal Service actually owes and that payment schedule makes no sense for the enterprise. (See USPS-OIG white paper, PRC Report) Furthermore, the position that correctly measuring the Postal Service's CSRS payments by excluding obligations for time credited while not in USPS employment needs to be reexamined on its merits regardless of the Federal budget consequence.

Given the problems with retiree health plan expenses, I have come to think of the disagreement between the Postal Service and OPM in two ways

OPM, and Congress, by putting the payment terms in legislation, is acting as a creditor with overwhelming power over individuals that owe it money. It can both determine the amount of the debt using whatever assumptions it chooses make and change the payment schedule at whim.
OPM and Congress are acting like creditors with severe liquidity problems and see the Postal Service as borrower that it can squeeze to improve its financial position. In this position, the creditor is more concerned about its own finances than the impact that its actions have on debtors ability to operate as ongoing entity.

Unfortunately, even if the retiree health benefit disagreement was resolved to the Postal Service's satisfaction, it would still leave the Postal Services earning losses for many years to come. The following graph illustrates losses under the current legislated payment schedule. The graph was presented by Mary Anne Gibbons Senior Vice President & General Counsel U.S. Postal Service Linda A. Kingsley Senior Vice President, Strategy & Transition U.S. Postal Service presented in their presentation at the Center for Research in Regulated Industries Workshop on November 20th (Page 8 of the presentation: A New Business Model for the United States Postal Service)

Now what happens to that gap if one changes the Postal Service's payment for retiree health benefits in order to fund various measures of its unfunded liability. The next chart compares current law with payment estimates calculated by the USPS-OIG, PRC and one assuming that the entire pre-funding obligation is covered in over payments in CSRS obligations. This chart shows that all potential options result in losses through 2012. Eliminating additional pre-payment of retiree obligations puts the Postal Service to break even in 2013 and earn a minuscule profit, assuming a long range revenue forecast is right in 2014. All other payment schedules continue to generate losses through 2014.

This graph uses the Postal Service's numbers with little information on the Postal Service's long range pricing and revenue generation strategy, its plans to manage operating costs and overhead; and its capital spending plans including whether those plans are sufficiently robust to make the investments necessary to sustain the business or maintain its existing its existing infrastructure.

Given these projections, financial insolvency appears inevitable without a combination of 1) change in the pre-funding requirement; 2) additional revenue from existing products; and substantial cuts in operating costs beyond what attrition generates. These projections suggest that Congress, in trying to develop a new business plan will likely have to deal with the challenge of funding operating losses for the foreseeable future unless there are significant changes.

Potential Business Models

2009-11-30T18:56:00.004-05:00

The range of potential business models include nearly a continuum of options that run the gamut from a government department to a corporation owned by private shareholders. How close a particular model is to one end of the continuum or the other depends on choices regarding to corporate governance, employment and labor law, financial management, operations management and marketing management. This paper divides potential models into two groups, governmental and corporate models, depending upon whether the characteristics of the model are more similar to the characteristics of the models on either extreme of the continuum. In total five models were looked at:

Governmental Models

Government Department – This is how the federal government currently provides air traffic control, weather, agricultural marketing, national parks, museums and other services to businesses and consumers. In all of these examples, the service is provided under standard federal government law, civil service and all or a significant portion of revenue is generated from the users of the government service or private donations.
Government Enterprise as defined by current Postal law – This is the existing model under which the Postal Service operates
Government Enterprise with relaxed human capital, financial, and operating constraints – This model maintains the governmental characteristics of the enterprise but modifies specific characteristics in a manner similar to other government enterprises.

Corporate Models

Government Owned Corporation – The Postal Service operates under standard private-sector law and is owned by the federal government.This is most similar to the structure of municipal owned utilities and publicly owned commuter railroads. Many foreign postal operators fall under this business model. A government-owned private-law corporation can be loss making or profit making.
Private Sector Corporation with or without government shareholders – A private sector corporation would include private sector owners and operate under a charter granted by the federal government. Services provided on behalf of the federal, state or local governments would be provided under contract and could include services that fall within the charter that are not sufficiently remunerative to justify their provisions .

The three governmental models reflect the general approach that the federal government has taken with business-oriented services. The corporate models reflect what foreign posts have chosen. The corporate models also reflect the models of all of the Postal Service’s competitors including those offering physical and electronic delivery, and those that compete by providing sortation or transportation of mail. The table below (can be seen on pages iv through vi of the full document as I am not sure how to put it in the blog) summarizes how well each of the models handles the challenges facing the Postal Service and policymakers. Examination of how well each of these models would handle the challenges facing the Postal Service finds all of the governmental models wanting. While relaxing the some of the constraints of the current model would be a reasonably safe choice, it would not be sufficient to serve the Postal Service’s retail and wholesale customers, and ensure that the Postal Service’s obligations to the Treasury are paid. Instead, the best solutions would involve preparing the Postal Service to operate as a government corporation, working under private sector law.

Making this transition will not be easy.The Federal Government has done this only twice with the US Enrichment Corporation and ICAAN. Neither organization was as large as the Postal Service. In particular, neither had the challenge of transferring more than a few hundred employees from civil service to private sector employment, nor did the have significant financial needs to cover modernization, debt and unfunded. However, the experiences of foreign posts, many which employ tens of thousands of employees and had similar financial woes illustrates how this can be done, and how it can be done with minimal disruption of the careers of postal employees.

Executive Summary Part 1: Choosing a Mail Industry Policy
Executive Summary Part 2: Challenges facing all Business Models
Executive Summary Part 3: Potential Business Models (this post)

Full Paper: Examination of Potential Business Models

Challenges Facing All Potential Business Models

2009-11-30T18:43:00.003-05:00

Potential business models all have to deal with eight challenges. They are:

Maintaining Mail’s Importance to the Economy – The mail industry is responsible for over eight million jobs and $800 billion in economic activity.The business model can accelerate or retard economic growth depending on how well it serves customers that need mail delivery.
Minimizing Financial Risks to the Federal Treasury – At the end of the third quarter of 2009, the Postal Service’s obligation to the Treasury for debt, retiree health benefits and workers compensation payments is $ 72.7 billion.
Ensuring Financial Self Sufficiency – Since the passage of the Postal Reorganization Act, financial self sufficiency has been an objective of postal policy but was never defined much beyond the concept of accounting break even.While the Postal Accountability and Enhancement Act (PAEA) has as its objective that revenue and retained earnings of the Postal Service should be sufficient to endure financial stability, the current operating losses and limited cash reserves suggest that the Postal Service faces a significant challenge of being truly self sufficient.
Adjusting to New Market Realities Serving Wholesale Customers – With the decline of the Postal Service’s business handling transactions and correspondence, both the Postal Service’s ability to provide universal service and its financial viability will depend upon meeting the service needs of its wholesale customers that send 500 or mail pieces at a time and will in the future generate more than 70% of revenue and 80% of the volume that the Postal Service handles.
Adjusting to New Market Realities Serving Retail Customers – Over the next decade the Postal Service will see demand from retail customers declining below the 30% of revenue it is today.Adjusting the retail interface and operating network serving these customers creates significant financial, operating and political challenges.
Adjusting Operating Costs to New Competitive Realities – The market realities of serving postal customers requires a leaner processing and transportation network and a modernized retail network.
Funding Transition and Modernization Costs Rationalizing - Postal Service operations to reflect new market realities in wholesale and retail markets will require substantial cash outlays to cover the costs of right-sizing the network and workforce, modernizing the retail network and optimizing the processing network. The business model must find ways to raise this cash when operating losses, retiree health care payment schedules, and debt to cover prior-year losses provide few options
Creating a Workforce for the Long Term – The new market realities and the operating and retail networks that serve them can provide good jobs for postal employees.However, the existing civil service based employment law framework, labor agreements and consultative requirements with management associations all reflect significantly different market and operating realities and the labor-management environment that existed four decades ago. These challenges are not unique to the Postal Service.

Similar challenges existed for nearly every foreign postal administration that has gone through a transformation of their business model. In addition, the Federal Government has had experience in dealing with the bankruptcy of Conrail and other railroads in northeast.

Executive Summary Part 1: Choosing a Mail Industry Policy
Executive Summary Part 2: Challenges facing all Business Models (this post)
Executive Summary Part 3: Potential Business Models

Full Paper: Examination of Potential Business Models

Choosing a Mail Industry Policy

2009-11-30T18:38:00.004-05:00

In choosing a potential business model for the Postal Service, policymakers are as much choosing a path for the entire industry within which the Postal Service operates as choosing a path for the Postal Service itself. The United States Postal Service is only one supplier within a much larger communications and parcel delivery market.This industry supplies households, businesses, government entities, and other organizations that need to:

Solicit, conduct, and complete transactions;
Distribute advertising, news, and other types of information;
Communicate with friends, family, and business associates; and
Deliver packets and parcels.

The public face of the Postal Service is its service to individual citizens through its 6-day delivery service and local retail post offices. However, the survival of the Postal Service, and for that matter the ability of individuals, governments, non-profits, and businesses to send hard-copy communications and parcels rests on the Postal Service’s ability to serve the business customers that generate over 88% of all revenue, a proportion which has grown as increasingly individuals have chosen electronic alternatives offering more convenient and cost-effective solutions. With non-household derived revenue likely to determine the long-term viability of the Postal Service, policy makers need to focus on ensuring that the future business model of the Postal Service can provide non-household mailers with a positive return on their mail spending in order that there is sufficient volume in the system to make the continuing use of mail by the general public affordable, reliable, and convenient.

Executive Summary Part 1: Choosing a Mail Industry Policy (this post)
Executive Summary Part 2: Challenges facing all Business Models
Executive Summary Part 3: Potential Business Models

Full Paper: Examination of Potential Business Models

Future Business Models for the USPS

2009-11-30T18:14:00.005-05:00

The Postal Service has just posted on its website five papers on potential business models. Besides a paper presented by the Postal Service, four papers were prepared by independent consultants. As one of the four consultants, I will not comment on the other papers at this time.
The papers are lengthy and total over 200 pages so I urge those interested in the future of the Postal Service to download the papers and read them carefully as they all provide useful insights about the problems at hand.

In the next three posts, I will provide the readers of this blog with the executive summary of my paper. The links listed below connect you to the text of the executive summary and the full document. The paper is long so I urge you to take your time when reading it as well as the other papers. I know that those reading my paper will find a number of mistakes that a good edit would remove. Those who have stuck with this blog have been gracious in their willingness to overlook some of my basic logical, grammatical and typing errors and found some merit in the time that you have spent reading these posts. I look forward to comments of my readers on my paper as well as the other five papers

Executive Summary Part 1: Choosing a Mail Industry Policy
Executive Summary Part 2: Challenges facing all Business Models
Executive Summary Part 3: Potential Business Models

Full Paper: Examination of Potential Business Models

Job Cuts or Wage Cuts (2)

2009-11-24T11:17:00.002-05:00

According to Radio Netherlands Worldwide, the Dutch postal union has agreed to an new contract with TNT that chose job cuts over wage cuts. The union agreed to the contract once it realized that the job cuts were inevitable.

Immediately, 5,000 postal employees or around 22% of all postal employees will be laid off. An additional 6,000 jobs will be eliminated with retirements, not renewing temporary contracts, and not filling vacancies. When the process is over TNT will have little more than half of the employees the have today.

TNT has an advantage over the USPS as it can afford the severance, early retirement incentives, and unemployment expenses associated with the layoffs. Also TNT does not have to deal with RIF rules that make determining who is left aft a layoff a real challenge for management.

While the Postal Service may not have to drop employees by half, further reductions beyond what attrition produces appears inevitable over the lives of new postal union contracts. Developing methods to make the reductions as painless as possible for employees and management would seem to be an area that will come up in the current negotiations.

The Future of the Document is the Future of Mail

2009-11-24T08:03:00.011-05:00

In order to understand the future of mail, one needs to first understand the future of the document. The word "document" immediately congers up an image of a written, printed format. That image is too narrow in today's multi-modal communications world that includes information that can be provided printed on paper but also in numerous forms on a computer display or in text-messages, or other format on a wireless smart phone.

At the recent Document forum, Craig Le Clair of Forrester Research illustrated that companies develop three types of documents: Structured documents - identical or nearly identical documents that are sent to a large number of recipients at the same time;
On-demand documents - documents that are created in a way that allow the recipient to receive the document on their own schedule; and
Interactive documents - documents that use personalized information to create a document designed for one person. A fourth type of document, called Transpromo, represents an interaction between structured and interactive documents. These documents reflect the ability of new digital printers to develop personalized documents but print them as if they were a structured document. As such they neither fit the structured or interactive category but fall somewhat in between.

As the chart above shows mailed documents are primarily structured documents and to a lesser extent interactive documents. In both types of documents, and the transpromo documents that fall in between, the sender determines the schedule that the recipient receives the document.

The recent declines in mail volumes and shifts in mail mix reflect the growth of on-demand documents and a shift from structured and interactive mailed documents to their digital alternative (e-mail.).

Shift from Structured to On-Demand Documents
The documents that have shifted rapidly in this direction include financial payments and printed news and opinion, price lists and big-book catalogs. Travel and college brochures and catalogs are other examples of structured documents that have been replaced with websites that allow the recipient of the message to view information that once was printed.

Shift from Interactive to On-Demand Documents
The entire process of distributing specific prices to specific customers has changed so that much of this is produced. The use of web forms allow customers to do the paperwork on their own schedules that once required printing in an office. (Just think of how different the process is of opening a bank or brokerage account or making changes to the account. While a bank officer can combine your personal information into the loan documents in the branch off of the bank's computer, individuals can now do it on their own schedule without requiring the bank employee to act as an intermediary.)

Shift from Mailed Interactive to E-mailed interactive
This is the shift of personalized documents from printed to digital form. Business correspondence reflects this change. Also collaboratively produced documents that once were sent hard copy to other writers by mail or Express, now are sent as file attachments to that all parties can edit digitally, allowing the original author to make changes faster than ever before. E-mail also allow writers to use structured digital documents, whether in the form of pdf files that cannot be altered by the recipients in formats that are less restrictive.

Shift from Mailed Structured to E-mailed Structured
E-mailed structured documents are mass mailings from one sender to many recipients. These documents include:notices of bills and statements, newsletters, notices of new web content that is available for viewing, advertisements from vendors that the recipient has allowed to send e-mail and pernicious spam promoting get-rich-quick schemes or spreading viruses.

In many ways structured e-mail is nothing more than an digital glossy envelope. The real content is either an attachment to the e-mail or on a site which can be accessed by clicking on the link on the e-mail.

The one problem that senders have with e-mailed interactive and structured documents is that the recipient treats the messages, attachments and links in a similar fashion to on-demand web content. The more e-mail that the recipient gets the more likely that a particular message will be ignored until after the sender would like the e-mail viewed. The sender wants the recipient to look at the attachment or click on the link and take the appropriate action. For example, companies that e-mail bills want the link clicked so that the bill is viewed and payed. Advertisers want the advertisement clicked so that the advertisement is read and a sale made.

Senders of digital documents have found that mail can help increase the value of the documents that they have shifted to digital formats. Mail sent in conjunction with e-mails increases the sales that the the e-mail generates. Websites that offer a full catalog of products, describe a college, provide information on resorts or the schedule of a theater or outside venue will more likely be be accessed if potential customers receive mail enticing them to look. The combination of mail with e-mail and website content is receiving the greatest attention among advertisers but those sending bills and statements may find that combining post cards with e-mail bills may increase the speed that customers pay.

The mail sent from now forward will be different than what was sent before. Many mailers will find that electronic delivery is sufficient without supplementary encouragement of mail. For these senders, mail will become a legacy delivery method available only existing customers who have not chosen to switch to electronic delivery or to those new customers that request it. This is the expected direction of transactional mail, mail that represents over half of First Class volumes.

Those customers that that still use mail will use formats that are smaller and lighter generating less postage per piece. The proportion of letters, flats and cards will shift as customers experiment with formats that minimize their paper, printing, and postage costs. J.C Penney has announced that this fall it will send its last big book. J. C. Penney is not abandoning the mail. Instead it will send smaller specialty catalogs tailored to the interests of the recipient, directing them to the website for both a wider selection of options and the order process. Eddie Bauer has replaced some of its catalogs with post cards that direct the recipient to the website to see all of the deals available.

In the next six months, various parties will propose business models for the Postal Service. The viability of these models will depend on whether they will allow the Postal Service to adjust fast enough to decisions senders make regarding how they will produce and send documents and the impact that this will have on mail volumes, Postal Service revenues and the operating networks necessary to sell, collect, transport, sort and deliver mail.

Note: If you would like a clearer picture of the drawing, e-mail me at alan.robinson@directcomgroup.com and I will send the PowerPoint slide.

The USPS and Apple.

2009-11-23T06:13:00.004-05:00

It is about time. The Washington Times reported today that the Postal Service is finally making Click-N-Ship compatible with Apple Computers and the Safari Browser. Apple has a 9% market share. Apple now has a market share among consumers of at least 21%. Consumers are one of the target markets for Click-N-Ship, so this step is probably a year or more overdue.

Not being compatible with Apple computers will likely hurt the Postal Service during the peak consumer parcel shipping period starting now. Apple computers are expensive and therefore are likely more common in higher income households that are the heaviest users of mail services. These consumers are driven by convenience as much as price. If they find that shipping with UPS or FedEx is more convenient, and lines at FedEx Office, the UPS Store, Staples, Office Depot or independent shipping stores are shorter, they will use UPS or FedEx even if prices are somewhat more expensive.

According to the article, the Postal Service will have its Apple compatible Click-N-Ship operational by next summer. For the Postal Service's sake, lets hope its Iphone apps, Android apps, and Blackberry apps are as far behind competitor's similar applications.

The End of Mail? (Just Kidding)

2009-11-18T13:34:00.007-05:00

In its 10-k, the Postal Service honestly reported that 2009 was a terrible year. Its forecast for 2010 is not much better as it projects:

a loss of an additional 10 to 15 billion pieces of mail;
an operating loss of 7 billion which means the USPS will have an operating loss of $1.5 billion before accounting for retiree health benefit payments;
the need to borrow $3 billion in 2010 and borrowing needs in 2011 that will exceed its statutory borrowing limits; and
a continuation of the freeze on construction of most new facilities, which severely limits its capability to optimize its processing and transportation network; and
a cut in employee work hours of between 80 and 90 million on top of the 115,000 cut in 2009.

Many postal stakeholders are counting on the economic recovery to generate volumes better than what the Postal Service projects in order to stave off some the worst of the impacts on postal finances, rates in 2011, and postal jobs. Unfortunately, looking at mail volume trends over the past decade, and efforts by major mailers to adapt to customers who want access to information that traditionally was suggest that many years may pass before mail volumes stabilize.

This conclusion is drawn by looking at volume data over the past decade combined with information that the Postal Service published in its most recent Household Diary Study. The rest of this post presents the data upon which I drew this conclusion.

For the purpose of this analysis, it is useful to think of the Postal Service as serving four types of customers.

Single piece mailers of payments
Single piece mailers of correspondence
Volume mailers of financial documents (e.g. bills, statements, proxy statements, etc.)
Volume mailers of advertising and parcels (e.g. all mail other than First Class mail financial mail)

The following table shows the year to year change in mail volume for these four types of customers.

From looking at this table it is clear that the future of single-piece mail and in particular single-piece bill payments is bleak.

Single piece payments now represent around 52% of single piece mail and its share of single piece mail declines as consumers choose other methods to pay bills. Single piece bill payments were declining at more than 6.5% year to year even before the recession began in 2007. (Note the recession began in the fourth quarter of 2007 which would have been the Postal Service's first quarter of 2008.)

Single piece correspondence declined in every year but one would expect that a forecast of single piece correspondence would see annual declines of 1-2% less than declines in payments.

The volume-tendered transaction mail column shows some moderate impacts of the economic cycle in 2007 through 2009. However, it is not clear how much of this change reflects the economic cycle, and how much reflects consumers who are no longer making payments by mail choosing to no longer receive their financial documents by mail either. A recovery in financial/transaction mail would normally follow the increase in the number of financial accounts households open as the economy improves However, there are serious questions about whether households will continue to prefer hard-copy mailed bills, statements, and reports in the future. For the cohort of households in 2015 headed by someone younger than 30 today, familiarity with the web and smart-phone technologies will make a preference for mail increasing less likely.

The advertising mail column clearly shows a product that is sensitive to economic cycles. Volumes of volume-tendered advertising were growing when other mail products were stagnant or declining. When the recession hit, the bottom fell out of advertising mail volumes. Again, there is anecdotal evidence that some of the decline in mail advertising reflects shifts to electronic modes. Expectations of volume increases in the current recovery should by muted to reflect the availability of low-cost, impact-measurable electronic alternatives that did not exist when the Postal Service came out of previous economic downturns

So what would be reasonable working expectations to assess whether econometric forecasts generate reasonable results for the Postal Service of 2015?

Single piece payment volumes will continue to decline by at least 6.5% a year as, service providers begin to mandate electronic payments, comfort with electronic alternatives grow with older Americans, and an increasing share of the bill-paying public never start the practice of paying bills by mail.

Single piece correspondence continues to decline at a rate slightly less than that of payments. The most optimistic scenario would result in correspondence mail hitting a plateau sometime in the next 6 years.

Volume-tendered financial mail will begin to decline even as the number of accounts that require communication of financial information grows. Fewer customers that do not use the mail to pay bills will receive their bills, statements and other financial documents by mail. The rate at which volume-tendered financial mail declines will depend upon the recipients’ preference for mail or electronic delivery, and the entry into the workforce of individuals that have since they opened their first checking account only used the web, smart phones, and ATM’s to receive and send financial information. Demographic factors will likely drive this decision as much as any incentives that mailers employ to encourage electronic delivery.

Finally volume-tendered advertising volumes will depend on three factors. First the speed and extent of recovery will determine the overall amount of spending on advertising. Second, how the value of mail for the sender relative to other advertising modes changes as electronic forms of advertising improve their ability to serve needs of advertisers. Third, the ability of the Postal Service to adapt to new service requirements for the delivery of parcels and advertisements and in particular the ability of the Postal Service to ensure advertisers that both the mail and e-mail will arrive on the same day. The fact that all non-financial/transaction mail has grown at less a 1% annual rate since 2000 does not suggest that the Postal Service will see volumes grow at a faster rate in the face of emerging Internet competitors.

So what would be a reasonable, back of the envelope, forecast for mail volume in 2015?

Single Piece First Class – 24 billion pieces down from approximately 33 billion handled in 2009.

All Other Mail – 141 billion pieces up from approximately 139 billion handled in 2009.

(Authors note: 2009 numbers based on estimate of 2009 4th quarter. Currently the Postal Service reports that total volume in 2009 was 176 billion pieces, slightly more than the sum of the two figures for 2009)
If this forecast turns out to be right, then by 2015, single piece mail will drop from the 20% of volume today to around 15%.
The Postal Service will need to downsize its retail network, collection efforts, and origination sortation, and transportation from origin to destination facilities to what is needed to handle almost a third less volume. The destination sortation network would require some modest trimming as well, reflecting the decline in single piece mail.

Finally, in 2015 the Postal Service would be delivering about the same volume of mail to more households. With delivery density declining, the Postal Service's carriers would likely find themselves delivering less mail over their workday. Today's delivery optimization efforts would need to be intensified to deal with lower density.

Congress will likely require a public forecast from the Postal Service, the PRC and other entities with econometric skills and budgets. Congress would be well served if multiple analysts examine the future of mail volumes so that a consensus emerges about the scale of changes that required for the Postal Service to be financially self-sufficient in 2015 and beyond. The sooner these forecasts are made public, the sooner questions about network optimization, retail modernization, long-term needs for postal operating and management employees can be assessed.

USPS, UPS, FedEx Express and the RLA

2009-11-15T09:33:00.005-05:00

The choice of labor law (Postal Reorganization Act (PRA) vs. National Labor Relations Act (NLRA) vs. Railway Labor Act (RLA)) going forward for the USPS may not be clear, FedEx has a clear preference for keeping the FedEx Express Service under the provisions of the RLA. FedEx Express's current position under the action has been under attack by United Parcel Service and the Teamsters who would prefer that that FedEx Express status be changed so that it would be covered under the NLRA.

The change is currently included in HR915, the House version of the FAA Reauthorization Act. This would make it easier for the Teamsters, or any other union, to organize FedEx Express employees. The Teamsters, UPS and FedEx have run aggressive lobbying campaigns. Both UPS and FedEx have courted support from various interest groups that received extensive coverage by Politico last summer.

UPS's position is clearly presented on its website. FedEx, in addition to posting its position on its site, has run a numerous set of web-ads (that may have appeared on television in Washington DC) making its position as a satire of UPS's white-board ads.

The future of this fight over FedEx Express's status, and the labor law under which it operates will depend upon action in the Senate on the FAA reauthorization bill and a possible House-Senate conference to follow. Aviation News has reported that further congressional actions is unlikely this year, so this fight will carry on into the 2nd session of the 111th Congress.

What this fight shows is that the RLA provides advantages to non-unionized firms in their effort to stop organizing efforts. As the employees of the Postal Service and UPS are both unionized, this advantage for management has little value to them. For these firms, preference for operating under the RLA, NLRA, or PRA would depend on whether they believe that the negotiating process under the RLA is better or worse than what they now have. Unions representing UPS and the Postal Service have to ask the same question.

Market-dominant airlines and railroads have had significant challenges adjusting labor contracts to fit new competitive environments and new transportation technologies under the RLA. This should caution management of market-dominant unionized firms facing a changing competitive landscape of using the RLA as a model for labor law in their industry. UPS and Postal Service unions should be equally cautious as less is known about how the RLA negotiation process may have helped or hurt airline and railroad employees dealing with an industry in transition.

Negotiating under the Railway Labor Act

2009-11-15T09:04:00.003-05:00

In a recent post (Does Labor Law Matter for the USPS), this blog raised the point that the Postal Service, its labor unions, and other policymakers and stakeholders should think carefully about the potential impact of changing the Postal Service's labor law. One of the options that is available would have the Postal Service operate under the Railway Labor Act (RLA). The Airline Pilot's Association provides a detailed overview in question and answer format of bargaining under the RLA. It is presented below in its entirety. Readers interested in seeing all the questions in a list should follow the link the Airline Pilot's Association website.

What is the Railway Labor Act?
The Railway Labor Act of 1926 was the first major piece of labor legislation passed by Congress. Rather than applying to U.S. industry as a whole, the RLA applied to what was then the most critical piece of transportation infrastructure in the country – the railroads. The RLA was amended in 1936 to cover the emerging airline industry. At UPS, the mechanics, dispatchers, and pilots are the labor groups that are covered by the RLA.

What did Congress say was the primary purpose of the RLA?
Railroad management wanted to keep the trains moving by putting an end to “wildcat” strikes. Railroad workers wanted to make sure they had an opportunity to organize, be recognized as the exclusive bargaining agent in dealing with a company, negotiate new agreements and enforce existing ones. Both sides “won” with the passage of the RLA. Workers won the right to form unions, negotiate with the railroads and to have a grievance system imposed on the companies. The railroads won the right to keep commerce from being disrupted without going through a lengthy and complicated process.

Is the RLA the source of the “work now, grieve later” rule?
Yes. Congress decided that keeping commerce moving was vital to the public interest. As a result, Congress mandated that when disputes arise in the workplace, transportation workers covered by the RLA must “work now (i.e. transport the goods) and grieve later.” There are a few exceptions to this. Workers are not required to perform tasks that they reasonably believe to be unsafe. Workers are also not required to perform when the request is “clearly” a violation of the contract. (The courts have interpreted this to mean that if the company can make a reasonable claim that the contract justifies their request –regardless of whether they are right or wrong – then the employee should err on the side of performing the work, and grieving the incident later.)

What is the National Mediation Board?
The National Mediation Board is the federal agency created by the RLA to administer certain functions under the Act. The Board is primarily responsible for: (1) conducting union representational elections, and (2) supervising the mediation of contract negotiations. The Board is composed of three members appointed by the President. The law requires that at least one of the three members shall be from a political party other than that of the setting President. Currently, two Republicans and one Democratic comprise the NMB.

Who are the “mediators?”
The three presidential appointees who run the NMB employ a professional staff to assist them. Mediators are the staff members tasked by the Board with supervising the mediation of contract negotiations.

When do collective bargaining agreements expire under the RLA?
Under the RLA, agreements do not have expiration dates; instead they have amendable dates which are indicated within the agreement. IPA’s contract became amendable December 31, 2003. Until a mutually negotiated change is accepted by both parties to the agreement, the provisions of the original agreement remain in full force. This is commonly referred to as "status quo." Both the union and the company have a legal obligation to maintain the status quo until the process of the RLA has been fully exhausted.

How do parties initiate negotiations under the RLA?
The parties exchange notices of intent to change or amend the existing contract. These notices are referred to as "Section 6" notices. IPA and UPS have complied with this section by entering into a Letter of Agreement that provided for pre-amendable date negotiations and now post-amendable date negotiations.

What are "direct negotiations?"
Direct negotiation is the first step in contract negotiations under the RLA, during which the parties meet without the assistance of a NMB mediator. IPA has been in direct negotiations with UPS since October 2002 in the form of Interest Based Bargaining. Under our Letter of Agreement, these direct negotiations will continue until July 1, 2004. After that date, we will enter into mediation unless both IPA and UPS agree to extend the direct negotiations.

What is Interest Based Bargaining (IBB) and how does it relate to direct negotiations versus mediated talks?
IBB is simply a method of bargaining that is voluntary and offered by the NMB upon the request of the parties. IBB is a problem-solving method of negotiating which focuses on the common interests of the parties and finding mutually acceptable solutions to issues. A hallmark of IBB is a free flow of information exchange between the parties. A “facilitator” is appointed by the NMB to assist the parties in bargaining utilizing the IBB method. These services are made available to the parties based upon the NMB's resources and its judgment regarding the needs of the parties in each situation.

Will IPA and UPS continue with IBB when the negotiations move into mediation?
Maybe. If both sides request the continued use of IBB and the NMB agrees, then IBB could continue to be utilized for a portion, or all of, the mediated talks.

What happens if the parties cannot reach an agreement in direct negotiations?
If either party believes an agreement cannot be reached in direct negotiations that party can apply for mediation with the NMB. Upon application, the NMB will docket the application and assign a mediator to the case.

Can the parties file a joint mediation application?
Yes, parties may file jointly with the NMB for mediation services. If the parties jointly file, the NMB almost always immediately appoints a mediator. In our case, the LOA requires a joint application on July 1, 2004, which has been accepted.

What happens after the application is received by the NMB?
The application is first reviewed to ensure that it is completed properly, and if so, the case is then docketed.

How are mediators assigned to cases?
When an application for mediation is received, the Chief of Staff and Senior Mediators consult concerning case assignment. They consider a variety of factors, including individual work loads, mediator availability, schedules, desires of the parties, the history of a given mediator with the parties, mediator background, complexity of the case, and other factors.

What kind of background or experience do the NMB mediators have?
NMB mediators typically come from either labor or management backgrounds and have extensive labor relations experience in either the rail or airline industries.

During the mediation process, what is the role of the mediator?
The role of the mediator is to assist the parties with productive dialog on their issues. The mediator can and will use a variety of techniques to ensure this occurs.

Can the NMB determine where the parties will meet when they are in mediation?
The courts have held that the NMB has the authority to establish where the parties will meet while in mediation. Normally, however, the meeting site is mutually agreed upon among the parties and the mediator.

Can the NMB determine when and/or how often the parties will meet when they are in mediation?
Again, meetings are normally established by mutual agreement among the parties and the mediator, but during mediation the NMB does have the authority to dictate when the parties will meet, for how long they will meet, and when meetings will be recessed.

Does the NMB ever recess a case during mediation?
The NMB may recess a case for a variety of reasons. It might simply mean that either the parties or the mediator is not available for a period of time. It could also mean that the parties need time to think about their positions. Calling a recess is also a technique used by the NMB to put pressure on one, or both, parties to bring their proposals within a more reasonable range.

Instead of recessing a case, why doesn't the Board release the parties from mediation?
The RLA was designed to avoid strikes in the transportation industry that would substantially impact interstate commerce. In a typical year, the NMB mediates nearly 100 contract disputes in the rail and airline industries. If the NMB routinely released the parties from these disputes after only a few weeks or months of mediation, the public would be faced with 5 or 6 strike deadlines a month. This would be highly disruptive to the transportation system and contrary to the stated purpose of the RLA.

How long does mediation last?
There is no time limit for the mediation process. It can take just a few meetings, or several months, depending upon the complexity of the negotiations and many other factors unique to each contract negotiation. The NMB has the authority to decide when, and if, to end mediation. Under the RLA, the NMB ceases mediation efforts when it concludes that all reasonable efforts to reach a voluntary agreement through mediation have failed.

What is a "proffer of arbitration"?
When the NMB believes that further mediation efforts will not result in an agreement, it issues a proffer of arbitration, which is an offer to the parties to arbitrate any remaining issues.

Why doesn't the NMB make a proffer of arbitration when one of the parties asks for it?
Under the RLA, the NMB is responsible for making its best efforts to help the parties reach an agreement without resorting to self-help (e.g, lockout, strike). While it will listen to requests from the parties for a release, it is the NMB's responsibility to keep parties in mediation until it has expended all reasonable efforts to reach an agreement.

What happens if either party rejects the proffer of arbitration?
If either party rejects the proffer of arbitration, the NMB releases the parties from mediation and they enter a 30-day “cooling off,” or count down period.

What happens during the cooling off period?
During the 30-day cooling off period the NMB will normally call the parties back to the table for further discussions. While these talks can be called at any time during the 30-day time frame they are generally called at or near the end of the countdown period. These meetings are often referred to as "super mediation."

What if no agreement is reached during the 30-day cooling off period?
If no agreement is reached by the end of the 30-day cooling off period, the parties are free to exercise "self-help." This means that the carrier is free to impose its last offer, temporarily cease operations or engage in other self-help activity (e.g., hiring permanent replacements). The union is free to strike or engage in other self-help activity.

What is a “Presidential Emergency Board?”
During the 30-day cooling off period, the NMB makes a determination regarding the impact of a strike. Pursuant to Section 160 of the RLA, the NMB "notifies" the President that in its "judgment" the dispute between a carrier and its employees cannot be adjusted and "threaten[s] substantially to interrupt interstate commerce to a degree such as to deprive any section of the country of essential transportation service.” Once the President receives such notification, he may, "in his discretion, create a board to investigate and report on such dispute.” The NMB submits a recommended list of potential neutrals to the President. The PEB usually has 30-days to develop a proposed agreement and present that agreement to the parties for consideration. After the PEB delivers its proposed agreement, there is a further 30-day cooling off period.

What happens if either party rejects the PEB's proposed agreement?
If either party rejects the PEB's proposal, the parties may, after the second 30-day cooling off period, engage in self-help.

Is there any circumstance in which the parties are constrained from engaging in self-help after rejecting a PEB's proposal?
Yes. It is possible for Congress to intervene and legislatively mandate a settlement. If this is done, Congress most typically would simply take the recommendations of the PEB and write them into law. This would mean that a contract would be legislated by Congress and no strike or no membership ratification would be allowed.

FedEx Ground and Contract Drivers

2009-11-15T08:19:00.003-05:00

FedEx won a major victory last week in its efforts to retain its current operating model at FedEx Ground. The Internal Revenue Service (IRS) dropped its tax assessments related to FedEx Grounds use of contract delivery drivers for the years 2004-2006. This follows a similar IRS decision for 2002. FedEx expects that the remaining assessments that it contests or 2007 and 2008 will be dropped as well.

The action by the IRS should remove any immediate threat at the federal level to FedEx Ground's use of 15,000 contract drivers. The IRS's actions do not affect suits brought by a number of state attorney generals that FedEx Ground's use of contractors violates state labor laws. (For more information see: Labor Problems at FedEx Ground.)

The state actions have potentially wider consequences as most local and regional parcel carriers, express companies, and couriers use a contractor model similar to FedEx. The trade association of these firms, the Messenger Courier Association of America (MCAA) has had the issue of contract drivers as one of their top policy issues for number of years. Their briefing paper details their position on the issue.

How Does Labor Law Matter for the USPS?

2009-11-12T06:23:00.004-05:00

Currently the Postal Service operates under a unique labor law that is contained in the Postal Reorganization Act. This is in contrast to its competitors that operate under provisions of the Railway Labor Act (RLA) (e.g., Federal Express) and the National Labor Relations Act (NLRA) (e.g., UPS, printers, pre-sorters, etc.). There are numerous differences among the three laws that can be grouped into three major areas:

How the laws affect the ability of employees to organize and form unions;
The process of negotiating contracts including the ability of employees to strike, management to lock-out employees, and requirements for binding arbitration and other methods to prevent strikes and lock-outs; and
The process of handling employee grievances.

United Parcel Service is unique among the major competitors in the United States courier, express and postal market in that they have unionized employees that fall under both the RLA (its pilots and aircraft mechanics) and NLRA (its delivery drivers, over-the-road drivers, and distribution center employees.) and that it negotiates with a single union (the Teamsters) regarding employees covered under the different laws. Learning about the preferences of UPS and the Teamsters in negotiating contracts and handling grievances under the two private sector labor laws could provide some guidance about what the impact would be on management and labor if the Postal Service's labor law was changed. (The issue of organizing a union is not an issue as UPS operate a unionized airline.)

The one question that looking at UPS's experience with the RLA and NLRA would not answer would be what would happen if a new business model gave Postal Service unions the right to strike and binding arbitration was not required. The binding arbitration provision was included because mail was considered an essential service and Congress did not want to introduce the right-to-strike to any group of federal workers.

Public transit is an example of another service for which work stoppages could harm the economic well being of the communities affected. Public transit workers fall under variations of the RLA, NLRA and postal-like labor laws that affect contract negotiations and the ability of unions to call a work-stoppage or management to lock-out employees.

Recent negotiations in Philadelphia with SEPTA and Washington DC with METRO illustrate how the different processes affect the communities involved and type of contract employees receive from an employer with limited financial resources and the impact that settlements have on transit fares. In Philadelphia, a contract was signed after transit workers struck for 6 days. In Washington, a contract was imposed in a binding arbitration process that does not allow for a strike. While the strike was unpleasant, and forced thousands of people to find alternative ways to get to work, school and other destinations, there does not appear to any long-term affect of the strike in Philadelphia. In both cities, increases in compensation costs in the new contracts and lower levels of ridership due to the economy will likely result in higher transit fares.

The upcoming postal labor contact negotiations will be coming within a postal market environment that is more difficult than what transit agencies now face. In fact, the market environment is probably more similar to what transit agencies and their predecessor companies faced from the late 1950's though the 1960's as Americans moved to suburbs and switched from public to automobile transportation for most personal trips. In both instances, the change in the competitive environment forces labor and management into negotiations regarding changes in long standing contract provisions and expectations about pay increases and employee benefits. Determining whether the current method of negotiating contracts or alternatives used by UPS ground, UPS aircraft mechanics public transit workers in Philadelphia or public transit workers in Washington DC would ease the process of concluding negotiations successfully with the least harm to the mail market is now worth considering.