You Got It Wrong!

The following is a perspective by Time Inc. Vice President, Distribution & Postal Affairs, (and PostCom Board Chairman) Jim O'Brien to a commentary published in the PostCom Bulletin and on the PostalNews Blog. The views expressed by the author are consistent with the views of the Association he represents.

The commentary by Clint Burelson of the APWU (Postcom Bulletin: March 24) regarding the Postal Service’s network consolidation plans inaccurately states Time Warner’s positions and ignores a number of the basic facts surrounding the issue.

Mr. Burelson’s article fails to mention the fundamental facts regarding the declining volumes and rising costs that are driving change within the Postal Service. In the last five years, First Class mail revenues have decreased from 56.6% to 52% of the Postal Service’s revenues, as the diversion of First Class mail volume to electronic bill presentment and payment has begun to take its toll on the Postal Service’s largest revenue source. Last year, the Postal Service was required to service more than 2 million new delivery points, a figure equivalent to a city the size of Chicago. And like almost every other business in America, the Postal Service faces rising wage, retirement, and health care costs that cannot be sustained without concomitant rises in productivity.

If nothing else changes, these three factors are a recipe for disaster. Like any business in America faced with these same challenges, the Postal Service has elected to explore its options for reducing its cost base through automation and network consolidation. The perils to the Postal Service and its workers alike of putting off such measures until too late, of assuming that costs can grow indefinitely without bringing on an inevitable reckoning, are all too familiar to both management and labor. The American automobile industry provides the most recent example that neither an industry nor its workers ultimately benefit by refusing to align the longer-term costs of an enterprise with the market that is available to sustain it.
Time Warner is the Postal Service’s largest end-user customer, and the Postal Service is our largest vendor. We need each other to survive. Time Warner relies upon the efforts of all the Postal Service employees who transport, process, and deliver our magazines, bills, direct mail, renewal notices, and parcels to our customers. But neither the Postal Service nor any other business can survive indefinitely as the growth in its costs outpaces the growth in its market. We therefore support the Postal Service’s volume growth initiatives as well as its efforts to reduce its cost base. Increasing revenues by growing volumes and by driving unnecessary costs out of the system will benefit all Postal Service customers (not just the large ones), as well as every category of Postal Service employee.

The Postal Service has elected to pursue network realignment in the very transparent view of the Postal Rate Commission. These Commissioners are appointed by the President and will ensure that the Postal Service’s plans are reasonable as well as just to all of the stakeholders. At the end of the day, I’m confident that the Postal Service will implement a plan that makes sense to everyone involved.

As the president of the APWU local in Olympia, Washington, Mr. Burelson sees automation as a loss of jobs to his union. In addition, he sees network consolidation as a process that will cause some of his members to migrate into other crafts within the Postal Service and that will erode the revenue base of the APWU. There’s also the possibility that some people may need to relocate or extend their commute to retain their jobs. These are serious issues. They are not by any means easy to deal with. But they reflect the realities that the Postal Service must deal with in order to address the uncontrollable fundamental forces that are driving the mailing industry.

With regard to worksharing, the points that Mr. Burelson raises are not serious. They are simply repetitions of things that have been said before but are demonstrably not true: namely, that worksharing costs the Postal Service money and raises the rates of nonworksharing mailers. Every disinterested authority that has looked into the matter has reached the opposite conclusion. Worksharing is a revenue source for the Postal Service. When a worksharing discount is proposed, the Rate Commission evaluates the validity of the savings that the Postal Service will derive from the worksharing activity and determines the amount of savings that will “pass through” in the form of discounts. For the vast majority of worksharing savings, the Commission has passed through substantially less than the full amount, meaning that as a result of the discount the Postal Service earns an additional margin on that activity, helping to reduce its cost base.

In addition to worksharing, Time Warner supports cost-based rates. This means that if it costs the Postal Service $1.00 to deliver a product, it should charge $1.00 plus a reasonable contribution to overhead. Unfortunately, too many departures from this principle developed over the years and need to be corrected. For example, there are some mail sacks that cost the Postal Service $3.42 to process yet the total revenue paid by the mailer can be $1.50 (or less). The net result is that the Postal Service loses $1.92 on every one of these sacks that it processes. That’s bad business. To correct this problem, we’ve proposed that the Postal Service adopt a more cost-based rate structure so that mailers receive the proper price signals and begin to make their mail more efficient. There is no strategy to drive competitors out of business. The strategy is exactly the opposite. We want our competitors to eliminate inefficient practices and help drive costs from the system. The net result will be a healthy Postal Service that benefits all customers.

Mr. Burelson fails to see--or at least fails to admit that he sees--the forest for the trees. The survival of the Postal Service is too critical to the $900 billion postal industry and the American economy to allow it to fall victim to the parochial interests of the status quo. We all need to work very hard to ensure its survival.