News from the May 28, 2003 Meeting of the
President's Commission on the Postal Service
Summary of Key Points in Testimony and Answers

Financial experts from J.P. Morgan Chase:

• Current trends suggest that large rate increases will be needed in the future to maintain the USPS' break-even mandate.
• If the USPS were a private company, it would need considerably more operating and financial flexibility to make it in today's environment.
• The ability to retain earnings would be valuable to the USPS' ability to maintain financial stability.
• The Postal Service maintains to its financial advisors that it perceives itself as a government agency charged to provide an essential public service.
• Labor and labor-related costs comprise 78% of all postal costs.
• $1.7 billion in capital investment is sufficient to meet the USPS' current needs, even though this is half of what it was years ago.
• Cost-cutting will be essential for the USPS to manage in a slow-volume growth or declining volume environment.
• The Postal Service is not limited in its ability to enter "alliances" with other entities, but it is constrained from putting equity at risk.
• The book value of the USPS' real estate is $15 billion. Market value probably would be larger given today's marketplace. Real estate holdings can be monitized.

Michael Bradley, an economist often used by the USPS for rate cases:

• The Postal Service goes to 94% of its 140 million addresses everyday. The economics of this network structure is fairly unique.
• Attributable costs for a network firm such as the USPS, the rate of attribution is in the right ballpark.
• The USPS' fixed and common costs (network, transportation, and retail costs) and are not attibutable to any particular class of mail.
• The USPS needs to improve its volume network measurement.
• Attribution on bases other than causality will lead to distorted postal prices.

James Holsen, vice president of industrial engineering for UPS:

• UPS attributes on the basis of activity-based costing, and all costs are attributed.
• This sort of costing is essential to providing customers tailored services.
• Customers demand more information. Today, providing customers this information is as important as the basic service itself.
• Marginally profitable products draw excessively on resources and the attention of the management team. It's much more important to focus on making a reasonable return.

Tom Rand of Aon Consultingt:

• Postal workers are provided benefits (paid leave, retirement, and health benefits) that are 25% more generous than those provided to comparable workers in the private sector.
• Postal workers are protected from any adverse effects of inflation.
• Postal workers can retire at full benefits by age of 55, something that is rare in the private sector.
• USPS workers contribute some 50% less of their own money to pay for these benefits.
• The USPS should be allowed some flexibility in how these benefits plans are provided (subject them to bargaining, particularly with regard to benefit features).
• The only way the USPS can get to the "comparability" requirement of the Postal Reorganization Act is by making downward adjustments incrementally.

William Clay (former House post office and civil service committee chairman), Chairman, Consumer Alliance for Postal Services (CAPS)

• CAPS opposes the closing of postal facilities without extensive public involvement.
• The frequency of mail service should not be reduced.
• Technology is NOT making mail service obsolete.
• The Postal Service is NOT in grave financial straits, and does not require significant changes.
• Business mailers are given unwarranted discounts for their mail.
• The Commission needs to determine to what extent bulk advertising mailers are not paying their fair share.
• The U.S. has the best postal service in the world at the lowest cost and shouldn't be altered.

Jim Martin, President, 60 Plus Association

• The USPS should get back to the core business of delivering the mail. Forget Priority and Express Mail.
• The USPS is a public service, not a business.
• Rates must be kept affordable.
• The Postal Rate Commission should be strengthened, and a "senior" should be added to the postal governing board.

Gary Mulloy, Chairman and CEO, Advo

• Continued cost containment and productivity improvements are essential.
• Cost control and cost cutting is no guarantee of success.
• Cost reduction shouldn't be manifested in a rush to automation that will lessen mail's value as a business medium.
• Advo is prepared to leave the postal system if doing business with the USPS proves no longer financially feasible.
• Advertising mail is not "junk," and shouldn't be referred to in that way. It generates economic growth.
• All commercial mailers pay their own way and make a significant contribution to postal overhead. There is no subsidy.
• Competition should be fostered.
• The USPS should be changed from an operational focus to a market-based focus.
• Universal service is the USPS' "proud burden" as well as its competitive advantage.
• The USPS needs a pricing strategy that focuses on revenue and profit growth.
• Negotiated service agreements should be expanded.
• The USPS lacks flexible payment terms, and this should be changed.

James O'Brien, Dir., Distribution and Postal Affairs, Time Inc.

• Current mail classes and prices are inefficient and send the wrong signals to the marketplace.
• Current rates do not reflect the actual costs of service.
• Rates must be de-averaged and unbundled to reflect actual costs.
• Mailers should pay ONLY for those services that they use.
• The Postal Service should be required to live with inflationary bounds.
• Services must be measured against public and understandable service performance standards.

Max Heath in behalf of the National Newspaper Association (NNA)

• The Commission should recommend continued worksharing, particularly for local delivery. Carrier route-sorted, delivery-entered mail must be preserved.
• The USPS may force this efficient mail for more costly upstream processing on flats automation.
• Ineffective mail processing has hampered the quality of service given to newspapers.
• NAA opposes NSAs based on volume.

Guy Wendler in behalf of American Business Media (ABM)

• The USPS doesn't lack the will to control costs; it does lack the necessary flexibility.
• The present rate system is not at the root of the Postal Service's challenges.
• ABM can support flexibility in the area of competitive services.
• ABM opposes unbridled USPS pricing flexibility.
• Captive customers should not be made liable for whatever pricing flexibility the USPS is provided.
• The USPS should be permitted more flexibility of facilities.
• The Commission should look at the military's base closing model to manage this process.
• The Postal Rate Commission should be provided sub poena power.

Brad Nathan, President, Quebecor World Logistics

• Outsourcing initiatives in the logistics area should be expanded.
• USPS should be provided more flexibility in transportation management.
• Dropshipping initiatives should be encouraged and expanded to reduce transportation costs.
• USPS should partner more with the private sector to optimize its use of transportation resources.
• The Postal Service should develop and publish service performance standards.

(See also the proceedings of May 29, 2003)