Editors Note: On December 11, 2002, President George W. Bush authorized the establishment of a Presidential Commission on the future of the U.S. Postal Service. The Commissions mission is to study and report on how the Postal Service can survive and thrive in the 21st century. The following testimony provided by John Campanelli of Donnelley Logistics is a sample of what the Commission is hearing from the industry. For more information on the Commission, visit www.treas.gov/offices/domestic-finance/usps.


    The U.S. Postal Service is one of the cornerstones of our democracy because of its mission to bind our nation together through the [distribution of] personal, educational, literary and business correspondence of the people. This timeless goal is understood by most stakeholders to mean Universal Service at affordable rates.


    Since the USPS first drafted this mission, the distribution landscape has changed. An entire industry has evolved to serve the delivery needs of the people, leveraging the USPS unique ability to provide distribution for all, regardless of whether the merchandise to be delivered is a letter, a magazine or consumer goods.


    Because we believe in the mission of the USPS, we support changes that ensure its continued health and viability well into the 21st century. This is why we are submitting testimony to the Presidential Commission on Postal Reform on behalf of our customers from the mailing industry.


    Whats Good, What Works

    The USPS does a very effective job of delivering information and consumer goods to every household in the nation, six days a week. But preservation of these capabilities is in large part dependent upon the USPS retaining economy of scope and economy of scale.


    Economy of scope By maintaining all current postal services it supports today, the USPS is able to provide convenience, privacy and security.


    Economy of scale Protecting the USPS unrivaled last mile is essential to the USPS ability to continue to serve Americans.


    What Doesnt Work

    Despite the clear advantages that the USPS last mile capabilities provide, there are limitations in the current operating model, such as:


    Upstream processing According to the USPS, total upstream processing costs in FY 2001 exceeded $19 billion, nearly 30% of the Postal Services revenues for FY 2001. To reduce these costs, legislative action is required, which allows the USPS to collapse its infrastructure, eliminating many of the inefficient upstream processing facilities (i.e., the BMCs), and outsource the labor to private sector businesses.


    Rate-making inefficiencies The current rate-making process is costly, cumbersome, overly political and outmoded. The classic cost-of-service model has been discarded in all other government utilities. The rate-making process is unwieldy because of the exhaustive and highly political testimonial review process that is conducted prior to implementing a new rate case. This approach to rate making is poorly designed for producing meaningful results.


    Worksharing inequities Proper forecasting models have never been developed to assess the impact of worksharing initiatives on demand. As a result, worksharing initiatives do not work as well as they should. Moreover, due to complexities in the cost accounting system, worksharing discounts do not adequately reflect all of the variable costs the private sector actually helps the Postal Service avoid. These resulting disjointed price signals make it impossible for mailers to optimize mail preparation functions and logistics networks to take full advantage of the possible worksharing discounts.


    Inefficiencies in the system The USPS struggles with a number of other operational problems including: failure to achieve productivity increases; inability to optimize the upstream distribution; lack of support for optimizing the retail network; sporadic use of information technology and business data to pinpoint operating inefficiencies; and inconsistent/suboptimal use of USPS assets.


    The USPS must be granted the ability to amend its current structure and to incorporate many of the best practices and technologies used in the private sector. Unshackling the USPS from the Postal Reorganization Act of 1971 could result in restructuring in such areas as operations and network design, management incentives, rate making, service standards, regulatory oversight and financial transparency, to name a few.


    What the Mailing Industry Needs

    Operationally speaking, the mailing industry wants to see the same dynamic take hold of the USPS as we see in the private sector over time, quality improves while costs decrease. In the case of the USPS, we expect this dynamic to take the shape of better service levels at a lower cost.


    Improvements in service would take a number of forms; delivery should become faster, with a much more precise delivery window that could make using the USPS as predictable as using some of its private sector competitors.


    Better information systems are critical for many reasons: better data integrity enables service improvements; electronic filing results in a reduction of paperwork and eliminates errors; and information systems provide greater visibility to the entire postal stream, enabling the USPS to pinpoint service issues and institutionalize accountability.


    While the USPS is building up its technology infrastructure, it should streamline its upstream network. Facilities that are inefficient should be closed and the work consolidated or outsourced.


    In addition to operational change, there are a number of financial changes that will enable the USPS to serve its constituents while remaining financially strong. Regulatory changes should shift how the USPS views revenues, efficiencies and continuous improvement, and a mandate for financial transparency should hold the USPS to the same standards as its larger private sector counterparts.


    Rate increases should be annualized to allow mailers to plan for their impact. Caps should be set to tie rates to the Consumer Price Index. Whenever rate increases exceed pre-established business rules, the rate case will be subject to regulatory review.


    New lines of business would also be reviewed to guarantee they represent a natural extension of the core mission, that adequate market testing has been done to prove the new product viable and self-sustaining, and that appropriate public review has taken place to protect free trade and prevent the USPS from unfairly leveraging its monopoly status.


    Clearly, the task before the Presidential Commission is a complex one, with many areas to be examined and many opportunities for improvement readily at hand. We look forward with great anticipation to reviewing the Commissions findings on how the United States Postal System can be changed to better address the needs of the century ahead.


    As President of Donnelley Logistics since 1997, John Campanelli has helped transform the company into a leading provider of logistics services. For more information, visit www.donnelleylogistics.com or call 800-800-SHIP.