Introduction

Good morning! I want to thank the Cato Institute for holding this conference and thank Ed for that kind introduction.

It’s been almost 5 years since Cato’s last conference on postal reform. We were privileged to participate in that conference as well. I guess you could say that postal reform is like a fine wine – no idea before its time. But as I will explain, I believe the time for postal reform is now!

I appreciate the opportunity to talk to you today on behalf of Pitney Bowes and the mailing industry, and to give you a business perspective on postal reform. I don’t want to keep you in suspense, so let me say right at the start that I think the Presidential Commission got it mostly right. Of course they incorporated the ideas of many in this room. I believe their recommendations amount to what I call “revolutionary evolution” in the Postal Service and the postal system.

What I would like to do this morning is to highlight:

• Why postal reform is important;

• What needs to be done; and

• Why now is the right time to do it.

Why Postal Reform is Essential

Postal reform is essential because the Postal Service is a linchpin of the much larger mailing industry, which in turn plays a key role in our economy.

Keep in mind the basic statistics: The Postal Service delivers over 200 billion pieces of mail annually, nearly 8 times that of the next largest post, and more than 40 percent of the world’s letters and cards. It covers a large and dispersed geography. It is more flexible on what it accepts and processes than any other post. It would rank number 11 on the Fortune 500 List, with $69.8 billion in annual revenues and employment today of over 750,000.

Yet as large as the U.S. Postal Service is, it is only the core of a much, much larger American mailing industry. We joke that the mailing industry is the Rodney Dangerfield of industries – it gets no respect. In part this was our own fault. We had never taken the time to actually determine how large we are. So, two years ago Pitney Bowes led an effort by the Mailing Industry Task Force to learn more about our industry.

The results are compelling. The mailing industry in the U.S. is a $900 billion industry, with 9 million workers, and it drives over 8 percent of the U.S. GDP. It ranges from printers and envelope manufacturers, to equipment manufacturers, major mailers, and mail processors.

The industry is so large because organizations understand the power of mail to exchange critical information, products, and payments. Compared with other forms of marketing, businesses and non-profits can reach out to prospects in a non-intrusive manner. Mail facilitates the collection of trillions of dollars of payments. It is the engine of remote Web-enabled commerce, for many businesses and individuals.

In short, mail is critical to commerce. It serves as a vital channel for business. We have to remember that more than 90 percent of the mail stream today is business-related. This mail is business-to-business, business-to-consumer and consumer-to-business. This is what the Postal Service refers to as “commercial mail” or “bulk mail” – mail that originates with known mailers. These mailers use meters or permits for postage. They do much of the work preparing the mail by sorting it, applying automation bar codes, and presenting the mail at designated postal facilities.

The way in which the Postal Service conducts its function has a dramatic impact on American business. Pitney Bowes is vitally interested in postal reform, as a company, as a member of the industry, and as an American taxpayer. Our vision of postal commerce includes the Postal Service as a booster of economic growth rather than a drain on public resources.

What Needs to be Done

The President’s Commission on the USPS did a superb job. First, they came in on time and under budget. This is always impressive to a businessman. Although the Commissioners were not from the mailing industry, they thoroughly examined the issues surrounding postal reform. We believe they developed a blueprint for the future with workable solutions to challenges that face the Postal Service. What they, and lots of others, are calling for are dramatic, aggressive measures that will ensure a viable USPS in the 21st Century. A Postal Service that can continue providing universal service.

The Commission’s recommendations built on a lot of earlier intellectual work in the business community, work from think tanks such as Cato, and on the Hill. The Commission also acknowledged that the Postal Service has been moving in the right direction. The Commission, however, calls for moving farther, faster. We agree, and that’s why I call it “revolutionary evolution.”

I want to highlight five key areas of Commission recommendations.

1. The Mission and Focus of the Postal Service

First, the appropriate mission and focus of the Postal Service. The Commission concluded that the mission of the Postal Service should be maintaining universal access and delivery at affordable prices. They recognized that, at heart, what the Postal Service offers is a ubiquitous “final mile” delivery system.

For that reason, we are pleased that the Commission also agreed that the Postal Service should focus on its core business – accepting, collecting, sorting, transporting, and delivering physical mail. Successful businesses today all share a common philosophy – the need to maintain management focus on core products and core competencies in order to deliver superior customer value.

When Postal Service officials get up in the morning, we think they should be focused on “growing the mail.” They should be focusing on taking aggressive actions that drive increases in mail volume and USPS revenues. They must: increase the value of mail; improve service; reduce its costs; improve productivity of the Postal Service; enhance the customer experience; and enable the Postal Service to price its products attractively.

2. Structure and Operation

The second area I want to highlight is the structure and operation of the Postal Service. The Commission concluded that the Postal Service should remain a public entity, but become leaner and more flexible. We agree with both points.

We agree with the Commission that, for the foreseeable future, a publicly-operated and owned system continues to be required to meet the needs of the American public and American business. The USPS continues to provide a fundamental service to the American people – the ability for literally everyone to send mail from anywhere to anyone, any place in the country at affordable rates. The mail system touches literally every household and business across this nation. Postal “privatization” or “liberalization” should only be undertaken cautiously and very gradually.

I know that some of you here have argued that USPS privatization could be the answer to achieving higher operating efficiencies, greater market orientation, and increased agility to meet customer needs. But the potentially favorable impact of privatization needs to be weighed against the critical and immediate need that businesses and citizens have, to avail themselves of universal mail service at affordable prices. The Commission examined privatization, but concluded that it would be far too risky and would unnecessarily destabilize our universal postal service.

At the same time, we like the way the Commission addressed the issue of postal “liberalization” or the scope of the postal monopoly. The Commission endorsed the principle of gradually limiting the scope of the postal monopoly. We agree that it must be done carefully and should be directed to lowering prices and increasing services to benefit citizens, mailers and their enterprises.

We should keep in mind that the U.S. postal market in fact has been already partially “liberalized.” Reliance on private-sector participation in the mail stream has often been described as the “downstream access” model of liberalization.

We also agree with the Commission that there should be a leaner USPS. This can be accomplished by right-sizing the workforce and reducing the postal network. The Postal Service can and should close redundant and underutilized processing and distribution facilities. That’s what businesses have to do every day – and the productivity gains can be significant. We also like the Commission’s recommendations that the Postal Service carefully contemplate end-to-end standardization of the postal network to reap large productivity gains.

The Commission noted that more than 75 percent of Postal Service revenues go to cover the cost of current and retired postal employees. As the Commission explained, far more than individual benefits, the size of the workforce determines the costs of the workforce. Once again, we agree with the Commission that enhanced productivity will enable the Postal Service to continue reducing its workforce. There is a significant attrition opportunity. 47 percent of current career employees are eligible for regular retirement by 2010.

3. Increase Reliance on the Private Sector

The third area to highlight is the Commission’s recommendation to increase reliance on the private sector. Let’s remember that the American postal system has evolved in a climate of partnership and innovation between the public and private sectors. The United States has shown global leadership in utilizing the private sector to help the national post fulfill its functions. We agree with the Commission that these efforts must be continued and expanded.

The Commission has recommended maximizing the use of the private sector, where functions can be performed better and at lower costs. Again, we agree that total mail system costs can be reduced, system efficiency improved, and mail made more affordable, through the aggressive use of work-sharing, outsourcing, and partnerships in the private sector. The goal should be to reduce the total combined cost of mail preparation, processing and transportation for all parties. If the private sector can perform functions at lower costs, they should be encouraged to do so.

For example, work-sharing discounts reflect the costs avoided by the Postal Service as a result of the efforts of its customers. Examples include presorting, pre-bar coding, and the drop-shipping of mail. Such discounts promote economic efficiency by encouraging use of the lowest-cost provider. Estimates are that at least $15 billion in potential USPS costs have been shifted through discounts to private industry mailers and intermediaries. Without work-sharing, it is estimated that there would be more than another 187,000 postal employees.

4. Use Technology

The fourth area I am pleased to highlight is the Commission recommendation that USPS embrace technology to increase the value of mail, reduce costs, and improve security.

At the heart of this vision is “intelligent mail” – the use of data-rich, machine-readable information to uniquely mark each mail piece. It can be marked to identify the sender, the recipient, the postal product used, the payment received, a piece identification number and value added services.

Research and everyday experience confirms that paper messaging will remain part of American life for decades to come. As Jim Lucier put it five years ago, the paperless office will come about as soon as the paperless bathroom. The challenge is to enable mail to remain a viable communications medium in the 21st Century. One part of the solution is to increase the value of mail for large and small customers.

I-mail does that. It enables new and valuable services, beginning with track and trace.

I-mail increases the value of mail to the sender by allowing coordination with other services based on when a piece of mail is received. Knowing when the mail will arrive enables companies to time follow-up with e-mail or phone calls accordingly. For companies that receive a large number of payments through the mail, I-mail can provide crucial information on when customers have truly put the check in the mail, and can route those payments to a lockbox or other processing point for improved cash flow. Individuals could also redirect letters or packages in transit to where they might be.

I-mail reduces postal system costs. It provides the Postal Service with valuable information, to better manage its workload and its workforce, to achieve greater efficiency and reduce costs. It can help the USPS level production peaks and valleys that drive up processing and transportation costs. I-mail could enable dynamic rerouting of mail and provide data on which components of the system could be optimized.

Finally, I-mail improves security at the lowest additional cost. The traceability of “sender identified mail” deters terrorist attacks because those who seek to use the mail for such purposes do so anonymously in order to evade detection.

5. Pricing Stability and Flexibility

The fifth and last area I want to highlight is the pricing of postal products. The Postal Service should price its core mail products to maximize volume, smooth out mail flows, reduce costs, and increase revenue.

The Commission agreed with the mailing industry that price stability was a critical element of any reform program. This stability requires predictable rate increases. The Commission agreed that postal rates should not increase faster than the rate of inflation. Improved productivity should enable rate increases to be constrained even further than the rate of inflation. We also agree that giving the Postal Service flexibility to set these rates with an after-the-fact review by the Postal Regulatory Board is likely to yield to greater efficiency.

We support the Commission’s recommendation that, in addition to pricing stability, the Postal Service be allowed to offer pricing flexibility. The Postal Service should be allowed to negotiate prescribed rates by customer, in the form of Negotiated Service Agreements. Flexible pricing will allow greater management discretion to enter into arrangements favorable to both the Postal Service and its customers. Flexible pricing will enable the Postal Service to more effectively use its capacity, resulting in lowered total average prices and increased mail volume.

In addition, we would go farther than the Commission to say that the Postal Service also should implement dynamic pricing to quickly change prices by month, day, and even time of day, much like the airlines, phone companies or hotels. This freedom to price its products will allow the Postal Service to add value, maximize volume, smooth out mail flows, reduce costs and increase revenue.

Now is the Time for Reform

The Commission, building on the work of many in this room and on the Hill, has laid out a fairly clear blueprint for what needs to be done. The question is, can we get it done now?

In the five years since Cato’s last conference, a lot has happened. In many ways, the situation has gotten worse. In others, it has become better.

There are a litany of problems others cite:

• Rates of growth for first class mail and standard mail have been in decline since the 1980s.

• Electronic diversion threatens to accelerate this trend.

• Continued high costs and lack of productivity are causing a deteriorating financial situation.

• GAO put the Postal Service on its “High-Risk List” in 2001.

• The Postal Service increased postage rates three times in three years, with a total average increase of 14.5 percent.

However, at the same time, there have been positive developments:

• Postmaster General Potter and Deputy Postmaster General Nolan have not only faced up to the situation, but have begun to take serious actions.

• They worked with industry through the Mailing Industry Task Force to identify ways to grow mail and cut costs under existing authority – and then went ahead and implemented them!

• In April 2002, the Postal Service issued its Transformation Plan to adapt to the future in response to Congressional requests.

• The Postal Service developed and began implementing, on its own, a Network Integration and Alignment plan to close redundant and underutilized facilities.

• The Postal Service has reduced its workforce by more than 70,000 career positions since 1999 of which 50,000 occurred in the last two years.

• The Postal Service will deliver $5 billion in cost savings through 2006.

• The Postal Service proceeded with its first Negotiated Service Agreement with Cap One.

• The Postal Service obtained some breathing room as a result of legislation fixing its CSRS overpayment, and the PMG committed to no new rate increases until 2006 at the earliest.

• More of the public, and a greater number of the Members of Congress, have focused on the problems of the Postal Service.

All in all, I think there is a strong foundation for reform and, at the same time, we have an opportunity to move ahead in a thoughtful manner without a crisis looming over our heads. I would call upon Congress to do two things in the next nine months:

First, encourage the USPS to continue doing as much reform as it can under existing law. The Commission, appropriately commended PMG Potter and the USPS for undertaking many initiatives to increase the value of mail and improve the efficiency of postal operations. But the Commission said the Postal Service has to do more faster. We strongly urge the Postal Service to do so. And we trust that Congress will let them proceed.

Second, we need Congress to pass postal reform legislation. As I’ve noted, the Commission recommendations build on much of what has been proposed in recent House legislative proposals, for which we can thank Congressman McHugh. I also would note that Chairman Tom Davis has brought new energy and leadership to the House Government Reform Committee, and Chairman Susan Collins has brought new energy and leadership to the Senate Governmental Affairs Committee. This was demonstrated by their quick passage of legislation correcting the CSRS over-funding problem. They both demonstrated that they could work in a bipartisan manner with the Democrats on their Committees, as well as with each other.

The Senate held its first hearing on the Commission’s report on September 17th, and is looking to another hearing in early November where Postmaster General Potter and Comptroller General Walker will testify. The House plans to hold hearings as well.

We ask Congress to act very early next year so that the bills can move through Congress before legislative activity slows in the face of fall elections.

In this regard, I hope that the Administration – having created the Presidential Commission, which has done such good work – now follows through and demonstrates leadership, yet again, in helping to move actual legislation through the Congress.

We know what needs to be done.

The time to do it is now.

Thank you.