We are proud of the Postal Services 225-year tradition of serving America, Postmaster General John E. Potter told the National Press Club on April 5, 2002 as he unveiled the long-awaited Transformation Plan. The plan outlines strategies the U.S. Postal Service can follow under current law, examines moderate legislative reform in key areas such as pricing flexibility and presents short- and long-term options to maintain universal service.
We have been a valuable asset to this great nation, Potter continued. And, we can and will be an asset for decades to come. But to do that, we need to go through a transformation perhaps one of the most important in our history, he said. Its a transformation that will help us secure the future of universal mail service at affordable rates and give us the tools to protect regular mail and ensure a sound national system well into the future.
Call for Action
Last spring, the Comptroller General of the United States, the head of the Government Accounting Office (GAO), testified before Congress and called for a transformation plan for the United States Postal Service. The Postal Service was placed on the GAOs high-risk list for two reasons: its long-term financial outlook and its transformational efforts. To [the GAO], the current model the Postal Service operates under to provide universal service to America doesnt look sustainable or viable in the long term, says Ralph Moden, vice president of Strategic Planning at the Postal Service. The GAO concluded that the Postal Service is at growing risk of not being able to continue providing universal postal service while remaining self sustaining.
In regard to transformation efforts, the GAO was concerned with how the Postal Service was going to move forward into the future given the contention that the current model is unsustainable. They specifically asked us to look at human capital, operations and financial implications, explains Moden. Senators Lieberman, Thompson, Akaka and Cochran wrote to Potter asking that we submit a transformation plan by the end of the year. The Postal Service was given a three-month extension due to the events of last fall but had a finalized plan ready at the end of March.
If transformation is not accomplished now, Potter argued, the universal mail service we now rely on could be in jeopardy. If we continue to operate like the post office that we grew up with, the only post offices our children will know will be the ones theyll see in museums. We are at a point in our history when its time for the next phase in postal evolution. And this time we need help.
Alternative Models
The Transformation Plan outlines three alternative business models: privatized corporation, government agency and commercial government enterprise. Potter said the Postal Service has not found much support for a privatized corporation that would reduce universal service. He said delivery standards and prices might be dictated by where a person lives or where a business is located. People speak of a digital divide. We dont need a delivery divide.
The second alternative a governmental agency would take the Postal Service back to the days of federal subsidies and tax-payer support. As a government agency, it would focus on providing essential services not adequately provided in the market.
The Postal Service believes the last model, called a Commercial Government Enterprise (CGE), would best allow integration of the postal system into the modern economy and at the same time would preserve the ability of the Postal Service to fulfill its mission of universal service. The CGE would create a government-owned entity, but one that enjoys some of the operational and financial flexibility found in the private sector. Under this new model, the Postal Service would set rates more predictably, be able to retain earnings, work under private sector labor laws and, depending on future legislation, could even pay taxes or dividends to the government. The proposed legislative changes the CGE model requires would be the most extensive since the Postal Reorganization Act of 1970, which enabled the Postal Service to function effectively until the end of the 20th century.
The CGE differs from the Postal Services current business model in several ways. The current model is a break-even model. The Postal Service is required to cover its costs through postage revenue and break even over time, states Moden.
The new model calls for the goal of generating reasonable returns and the ability to accumulate retained earnings, which means the Postal Service wont have to rely on debt to finance capital spending. It also enables the Postal Service to ride out any unexpected occurrences such as minor slumps in the economy or big fuel increases. Events like these really impact our ability to manage, says Moden, and we sometimes have to go back to the Postal Rate Commission (PRC) to ask for increases to sustain our operations as a result.
Another difference between the current model and the CGE is in the ability to offer new products. What the Postal Service is calling for specifically under the CGE is the ability to invest and partner in the private sector firms. According to Moden, this might include shared equity arrangements where the Postal Service might partner with another company to provide services not currently available. The Postal Service may also consider leveraging its existing assets, whether that be space in its retail units or access to its delivery network.
The Transformation Plan outlines steps that can be taken now to reduce the Postal Services costs by roughly $5 billion over the next five years. This will be achieved through measures such as productivity improvement, outsourcing, plant consolidations and lifting the moratorium on post office closings. This doesnt mean there will be wholesale closings, explained Potter. We will restart the process to close post offices that have been suspended.
Additional revenue-generating and cost-cutting opportunities will be sought by modernizing the rate process under the current regulatory framework, leveraging buying opportunities through aggressive purchasing and improving the dispute resolution process to reduce the $300 million a year currently spent on labor-management disagreements. In addition, the Postal Service will focus on developing new intelligent mail products to attract new business and better serve existing customers.
Mail volume is going down, while at the same time 1.7 million new addresses are added every year, noted Potter. Our revenue cannot cover the increase in costs, and it shows in our bottom line. We lost $1.68 billion in fiscal year 2001 and could lose as much again this fiscal year. But we have solutions to these challenges in this Transformation Plan.
The final version of the plan was submitted to Congress and the GAO on April 4, after an extensive comment period in which members of the mailing industry and the general public were invited to comment. Moden said the feedback from the plan has been pretty positive so far. On balance, most people are very pleased with the plans contents and its level of detail.
Congress will schedule hearings later this spring to review the plan. In the meantime, Potter has announced an agreement with the PRC to form a summit to begin to look at any changes that are possible within the framework of the existing legislation. We understand that theres still a long way to go before we get all that weve asked for, says Moden, but were really hoping that the plan will facilitate debate and discussion and that it will happen soon.
Today, a commercially and financially viable Postal Service remains vital to the American economy. The Postal Service delivers more than 200 billion pieces of mail each year (over 40% of the worlds mail). It collects nearly $66 billion in revenue annually and is the eleventh largest enterprise in the nation based on revenue. The Postal Service anchors a $900 billion domestic mailing industry that employs roughly one in 15 American workers. With nearly 770,000 career employees, the Postal Service is the second largest civilian employer in the nation. More than seven million Americans visit post offices each day. Additionally, more than 1.7 million new delivery points are added to the postal network each year. The essence of the whole Transformation Plan is, How do we continue to fund this universal service obligation? The Transformation Plan provides an answer to this question, ensuring that this vital national resource, the United States Postal Service, will continue to flourish for years to come.
