Postal Future?
by Don Soifer
Issue 120 - November 19, 2008

Much has been written about the rise of electronic messaging, and its inherent threat to render letters and postcards as obsolete in the United States and Europe as oil lamps and carbon copies. But, with apologies to Mark Twain, truly one of America’s greatest letter writers, for the present at least, the news of the written letter’s demise has been greatly exaggerated.

American households sent and received some 15 billion pieces of written correspondence in 2006. According to a 2008 report published by Pitney Bowes, even amidst sharp surges in email usage, per capita postal mail overall has held steady over the past few years in both the United States and in Europe.

But as any mailbox-owning consumer knows, the composition of the mail has changed considerably in recent decades. U.S. households receive seven times as much mail as they send, while some 85 percent of what they receive is sent by businesses. As one of the Postal Service’s senior decisionmakers observed in Congressional testimony last year, “First-Class Mail, particularly single piece First-Class Mail, is no longer growing steadily. Standard Mail, which contributes significantly less than First-Class Mail to the Postal Service’s institutional costs, now comprises the majority of our volume.”

This is largely the result of a strategy by Postal Service executives to “grow the mail” through the use of volume discounts to corporate mailers including advertisers, financial institutions and nonprofit fundraisers. According to USPS management, the worksharing system holds benefits for not only the Service, but for mailers and the mailing industry, and the nation’s consumers. So while European nations gradually pursue liberalization of the postal sector, worksharing and new technology have become the major reform strategy of postal decisionmakers in the United States.

The advent of Intelligent Mail, for instance, is often described as perhaps the foremost innovation embracing both strategies. Introduced in 2006, the use of intelligent barcodes has advanced to where all mailers seeking automation discounts will be required to use them beginning in January 2009.

Meanwhile, the shifting composition of the mail, among other factors, dictates an evolving role for the Postal Service. As the agency’s officials have noted in public statements, two economic sectors which have endured the sharpest downturns in the United States over the past year, the housing and financial sectors, are, unfortunately, prime drivers of postal mail volume.

Throughout the changing postal landscape, Americans, when asked, have continued to express their preference for preserving the Postal Service, with its universal service obligation, in largely its present form. While political realities have made the closing or consolidation of local post offices a near impossibility, these preferences extend to daily mail delivery as well. A recent survey by the Pew Research Center indicates that 75 percent of American adults send or receive email, at least occasionally. But only 61 percent of households with annual incomes under $30,000 do, only 56 percent of African-Americans, and only 37 percent of adults over 65. Such consumers especially depend on the Postal Service, and on the timely and reliable delivery of its market-dominant products.

So, given this changing landscape, how best can the agency adapt to meet the needs of its customers and consumers in the future? And what role will technology play in supporting that role?

The Postal Service continues to invest in technology to expand automated mail processing to improve efficiency and service. The USPS’ initial letter automation efforts date back to roughly three decades ago, with efforts to sort mail to major destinations and post offices. In 1993, the Postal Service began using high speed automated equipment to sort letters in the precise order they are delivered. Currently, the Service utilizes over 7,000 machines sequencing nearly 120 billion letter pieces, annually generating savings of $5 billion. Enhancements to this technology continue with the recent addition of an automated forwarding system upgrade which can intercept and forward mail enroute for those pieces where the recipient has moved.

Its flat mail automation system began taking shape at the turn of the new millennium with the deployment of Advanced Flat Sorting Machines. Today, 534 of these machines are automatically sorting mail down to the carrier level throughout the country.

Perhaps even more impressive are recent efforts to use automation to also place flat-shaped pieces into the precise order that they are delivered. The first of 100 new Flats Sequencing Systems has just been deployed which can place mail in delivery sequence at a rate of 16,500 pieces per hour or about 6 pieces per second.

But to what extent will the Postal Service be permitted to make the necessary structural changes to achieve meaningful savings from avoiding labor costs -- in effect making the technology investments sound ones for its consumers? The Postal Accountability and Enhancement Act signed by President Bush in 2006, the first major Congressional action to reform the Postal Service in three decades, has dictated some fundamental changes in strategy. Among its major provisions include a formal distinction between market-dominant and competitive product offerings, and a hard rate cap for market-dominant products pegged to the rate of inflation.

Efforts to realize lower operating costs as the result of increased automation are complicated by additional factors. One is that 90 percent of the Service’s career employees are paid according to contracts that are negotiated through collective bargaining agreements between its management and four major unions. These agreements often make it prohibitively difficult for Postal management to realign or reduce its workforce beyond attrition or early retirement inducements. The system also seldom permits regional pay differences that compensate for varied costs of living. Further, postal management is required by federal law to consult with its unions whenever it is considering outsourcing or subcontracting new functions.

One union leader described the current state of affairs recently by proclaiming that we have entered “a new world where management continually seeks to reduce costs through the use of non-union, non-career, cheap labor.” But, in reality, realizing labor savings to offset investments in automating technology has become increasingly problematic for Postal Service executives. The leaders of the major postal labor unions have vowed to continue seeking Congressional intervention to proposed outsourcing plans, Complicating matters further, Members of Congress, representing both political parties, have intervened regularly when the Postal Service has attempted to consolidate or close facilities.

One option open to policymakers to break this impasse could be the adoption of a panel process such the Base Realignment and Closure Commission (BRAC). Over 4 rounds, the BRAC process resulted in nearly 100 base closings and over 50 major realignments, resulting in tens of billions of dollars in savings to taxpayers. This option was recommended by the 2003 Presidential Commission on the Postal Service, but was dropped from the 2006 legislation by lawmakers during negotiations.

Don Soifer is Executive Director of the U.S. Consumer Postal Council.