Executive Summary
I. Introduction
We live in challenging times. Long-term technological and commercial trends,
often termed the Second Industrial Revolution, are fundamentally reshaping national
and international services for collection, transport, and delivery of all types
of postal products. These trends will compel a fundamental transformation in
our national approach toward the Postal Service as an institution and the delivery
services sector as a whole.
At stake is the future of what has been, since this nation’s founding,
the right of every American to send and receive mail. The Postal Service exists
as a governmental entity whose mission is universal service to all. That mission
is a direct reflection of the values on which this country was founded, and
it is those values of equality of opportunity that drive Postal Service management
today just as they drove the managers of the Post Office Department.
In this Transformation Plan, the Postal Service respectfully submits to Congress
and to the American people our views on the steps that must be taken now and
the long-term options that appear feasible. With the valuable assistance of
our stakeholders,1 we have prepared this report as a decisive response to the
challenges posed, a response that postal leadership embraces and commits to
execute fully and effectively.
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 percent of the world’s 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 fifteen American workers. The Postal
Service employs nearly 770,000 career employees, which makes it 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 future role of the Postal Service, however, is uncertain. For any organization
to remain viable and flourish, it must change. As technology, commerce, and
society evolve, so too must government and corporate business models. This is
no less true for the U.S. Postal Service than for any other enterprise.
The Postal Reorganization Act of 1970 (PRA) succeeded. It created an independent
governmental entity well designed to deliver postal services in a more businesslike
manner. The Act created a structure that enabled the Postal Service to function
effectively over the last 30 years. With effectiveness came dramatic growth
for the mailing industry, which contributed to economic growth and increased
satisfaction for postal customers.
The institutional model adopted in 1970 was not, however, designed to cope
with the fundamental changes that are today reshaping the delivery services
marketplace. These trends include the following:
Changing customer needs. With access to more information and more options than
ever before, customers have a broad range of choices for delivery of messages,
money, and merchandise—our three businesses. A single, basic, universal
service, the premise of the PRA, is no longer sufficient to meet increasingly
varied customer requirements.
Eroding mail volumes. Electronic alternatives to mail, particularly electronic
bill presentment and payment, pose a definite and substantial risk to First-Class
Mail® service within the next five to ten years.
Rising costs. Despite major gains in efficiency and productivity through automation
of letter mail, the costs of maintaining an ever-expanding postal network are
rising faster than revenue, especially costs outside the direct control of the
Postal Service, such as retirement and health benefit liabilities.
Fixed costs. Universal service requires a significant infrastructure to deliver
postal services.2 Almost one-half of current postal costs are spent on these
resources and that level does not increase or decrease when volume changes or
when productivity increases. This creates a challenge for cost containment.
Merging of public and private operators into global networks. Former national
foreign postal services, some privatized, have entered the US domestic market;
giant private firms that now dominate global parcel and express markets are
entering an increasing portion of the postal value chain.
Increasing security concerns. Rising security concerns will require expensive
and sophisticated countermeasures.
Consideration of these trends leaves no doubt that the time has come to address
fundamental long-term questions. We at the Postal Service do not presume to
have all of the answers. We do, however, in this report, offer our approach
to transforming the Postal Service into an enterprise suited to the 21st century.
In the near term, we have concluded that substantial improvements in the efficiency
of the Postal Service can be accomplished without major revisions to current
law, provided our customers, our employees, and policymakers fully recognize
and embrace the fundamental long-term transformation we are beginning. In this
report, we describe our specific plans and seek support from Congress where
incremental statutory changes are needed.
In the long term, we believe that fundamental restructuring of the legislative
and regulatory framework for postal services is required. The public debate
about postal modernization led by Congress over the last five years has illuminated
important issues, many of which raise implications that stretch beyond legislative
remedies presently contemplated. We need to address these larger issues and
reach a national decision on the future of the Postal Service.
Over the next two to three years, it is vital that significant progress be
made toward defining the long-term structure and role of the Postal Service.
In support of that process, this report outlines three alternative models for
the future role of the Postal Service. These range from a Government Agency,
offering subsidized residual services not provided by the private sector, to
a Privatized Corporation, a competitive company owned by private citizens. From
among the conceptual models identified, we offer our own preliminary conclusion
that a middle ground is the most appropriate: a Commercial Government Enterprise,
owned by the government but structured and operated in a much more businesslike
manner, with attributes appropriate to the unique role this institution plays
in the nation.
In developing this report, we gratefully acknowledge the assistance of the full
range of stakeholders in the postal industry. At the outset, therefore, we would
like to articulate a firm commitment to all of these stakeholders, and especially
to our customers. During this crucial transformation period, in order to maintain
our financial viability and fulfill our universal service mission, we commit
that we will:
- Foster growth by increasing the value of postal products and services to
our customers;
- Improve operational efficiency; and,
- Enhance the performance-based culture.
This report describes how we will honor these commitments while remaining faithful
to the vision that has inspired the post office for more than two centuries:
that the Postal Service should bind the nation together by providing all Americans
with vital communication and delivery service.
II. Meeting the Challenge
In order to address the challenges we face today and to prepare for transformation,
we must push business effectiveness and operational efficiency to the limits
permitted by current postal laws. With the support of customers, employees,
and policymakers, there is much we can do, and are doing now. Building upon
current efforts, we will implement the following specific strategies to support
our commitments:
Growth through Added Value to Customers
Flexibility and growth will be essential for the Postal Service to transform
successfully. To fulfill its universal service mission, the Postal Service must
offer affordable products and services that serve the entire spectrum of its
customer base, from large corporations to individual consumers. The Postal Service
must also find ways to use existing resources to generate new revenues to offset
anticipated losses from electronic diversion. Our products and services must
also be flexible enough to adapt to 21st century technological advances.
With these requirements in mind, we will implement a number of specific growth
strategies to increase value to our customers. We will:
Work with the Postal Rate Commission (PRC) to create more streamlined processes
for introducing targeted pricing initiatives, such as negotiated service agreements,
and more regular and predictable price changes, such as phased rates.
- Expand access to postal services by doing business when and where our customers
prefer.
- Move simple transactions to less expensive channels, improving customer
service and increasing retail contribution.
- Develop “intelligent mail” products that not only track and trace
from origin to delivery but also integrate information throughout the entire
cycle of multiple business transactions.
- Work with customers to make sure databases are updated frequently and accurately,
and explore the use of publicly available databases to improve the overall
accuracy of address information.
- Make it easier to use postal services by aligning mail preparation and prices
to customer needs and capabilities.
- Explore more innovative payment options for our customers through third
party credit.
- Enhance revenue opportunities by leveraging existing assets and infrastructure,
including postal-owned vehicles and facilities.
- Work with all package mailers to create a package offering that is simple,
easy-to-access, information-rich, and takes advantage of our vast retail and
delivery presence.
- Work with customers to add features that enhance the value of traditional
products.
- Continue to seek opportunities to leverage our brand and assets to create
new products and services with minimal investment.
- Strive to protect postal employees and customers from exposure to biohazardous
material and to safeguard the mail system from future attacks.
Operational Efficiency
Cost containment is the most important customer-focused strategy, especially
for large business mailers who rely most heavily on the postal infrastructure.
In any network business, however, it is difficult to control costs when volume
declines while the network itself continues to grow. This is the challenge faced
by the Postal Service: increasing costs may have to be spread across a declining
volume base.
In this difficult environment, we will achieve cost savings by implementing
a number of specific measures designed to improve operational efficiency over
the next five years. We will:
- Reduce operating cost by automating the flat mailstream and mail forwarding
operations.
- Continue improving annual productivity through techniques such as benchmarking,
standardization of best practices, and complement planning and scheduling.
- Explore new workshare and mail preparation opportunities to eliminate handlings
in the presort-to-delivery supply chain.
- Experiment with new methods of reducing the time letter carriers spend in
the office, for example, sorting flats into delivery sequence.
- Reduce transportation costs and improve transportation management by implementing
network planning, routing, and tracking programs.
- Redesign the postal logistics network so that the number and location of
processing centers, processing strategies for mail, and transportation modes
and routes are optimized to meet customer service requirements at minimal
total system costs.
- Revise purchasing regulations to allow for acquisition of goods and services
in a manner similar to that followed by businesses.
- Explore alternative purchasing strategies for automation equipment and information
technology to include leases and fees for services contracts.
- Optimize the retail network by lifting the self-imposed moratorium on post
office closures and working with the PRC to significantly streamline the process
for closing post offices.
- Pursue regulatory and legislative reform to provide the Postal Service the
latitude to adjust service levels and delivery frequency to standards commensurate
with the affordable universal service obligation.
Performance-Based Culture
Breakthrough productivity initiatives will be achievable only if we are able
to make significant progress in our third commitment: enhancing our performance-based
culture. For this, we must maintain an effective, diverse, and motivated workforce
whose members know what is expected of them and who are recognized for individual
and team accomplishments. The challenge to assure continuity of leadership has
never been more important than it is today. Approximately 55 percent of Postal
Service officers and senior executives and 36 percent of managers will become
eligible to retire over the next five years. To address these challenges, we
will:
- Enhance retention and recruitment strategies. Flexible and responsive retention
tools and recruiting practices are necessary to address the attrition challenge.
- Strengthen succession planning to identify, to develop, and to select current
and future leaders.
- Maximize the potential of available training and development programs in
order to have a pool of potential successors at all levels of the organization.
- Change the culture of the Postal Service by improving our management of
employee performance with data. This will be achieved by better defining expectations
and measuring performance against those expectations. Accountability will
be enhanced through greater use of performance-based pay to recognize individual
and team efforts.
- Build a highly effective and motivated workforce by reinforcing management
responsibility for a safe, secure, satisfying, and diverse workplace.
- Continue working with the labor unions to improve relationships, to reduce
grievance costs, and to jointly examine modifications to the impasse resolution
process we are recommending to Congress. The spirit of cooperation that resulted
from the anthrax crisis set a solid foundation for future relationships.
- Optimize the ability to reposition the workforce by implementing data-driven
assessment tools that will assist in determining skill needs and availability
by location.
- Move repetitive transactional work to a shared services environment and
explore outsourcing to reduce costs and increase efficiency.
- Improve the collective bargaining interest arbitration process to include
a period of mediation. This would enhance the opportunity for the parties
to reach mutual agreement on contractual issues.
- Reduce workers’ compensation costs by implementing programs and developing
employment opportunities for injured workers within and outside the Postal
Service and by working with the Department of Labor on new initiatives and
regulatory changes.
Enabling Functions
Enabling functions support attainment of the commitments described above. Focused
financial management will enable the Postal Service to reduce outstanding debt,
using it in the future for capital improvements where the value added by the
investment exceeds the cost of debt. Enhanced financial management will also
increase reporting transparency. Adopting business-driven purchasing and materials
management procedures will enhance supply chain management. Applying information
technology with universal connectivity will enable us to enhance security, add
valuable product features, and manage operations in real-time. A continuing
commitment to mail security will deny use of the mail to criminals while protecting
the public and the Postal Service against external attacks and workplace disruptions.
Regulatory and Legislative Reform
Successful transformation of the Postal Service also depends in part on adoption
of moderate regulatory and legislative reforms. These reforms will allow us
to test new opportunities, to prepare for long-term structural transformation,
and to prove our ability to deliver mail in a less constricted environment.
Only in this manner will stakeholders have an opportunity to evaluate the extent
to which such reforms add value. We will therefore seek expeditious implementation
of the following regulatory, legislative and administrative changes:
Prices and Financing. Within the framework of the current rate-making process,
the Postal Service will request several reforms to respond to customer pricing
needs and restore postal finances to a more sound footing. We will seek approval
for negotiated service agreements and other targeted pricing initiatives, reforms
in procedures for introducing experimental mail classifications, phased rates,
and inclusion of costs in the revenue requirement to finance the expansion of
the delivery network on a current basis. The Postal Service believes that some
of these reforms can be implemented administratively with the assistance of
the PRC. In the event that efforts to achieve these changes identify hurdles
that cannot be cleared within the scope of our existing statute, we will ask
Congress to enact legislation to remove those hurdles.
Facilities. The Postal Service will lift the self-imposed moratorium on post
office closings and consolidations. The ultimate goal is to better serve our
customers. A combination of rural delivery and alternative retail strategies
may provide the most convenient access for the customer. To optimize facility
networks, the Postal Service will also seek relief from legislative restrictions
on post office closings and consolidations. Currently applicable administrative
procedures should be streamlined or repealed, and appropriations riders referring
to post office closings and 1983 service levels should be discontinued.
Flexible, Business-Driven Purchasing Procedures. Consistent with the way businesses
purchase goods and services, the Postal Service will revise its purchasing regulations
to the extent allowed by present law.
Labor and Employment Reforms. The Postal Service will seek more effective mediation
procedures, including appointment of a neutral mediator by the Secretary of
Labor, to help resolve bargaining impasses. In addition, repeal of the statutory
salary cap is needed.
Our Commitment
In total, these near-term, customer-focused, operational, and performance-based
strategies will generate $5 billion in savings and cost avoidance through 2006,
of which $1 billion will be in post office operations. These savings will enable
us to achieve some debt repayment and to hold rates steady from mid-2002 until
calendar year 2004. If a rate increase is needed at that time, a moderate, negotiated
increase will be pursued.
III. Preparing for the Future
The ultimate goal of Postal Service transformation should be to promote an
efficient, reliable, and innovative delivery services sector that meets the
diverse economic and social needs of the nation and all its citizens. It is
becoming increasingly clear that the current structure of the Postal Service
may soon be unable to support the achievement of that goal. Therefore, it is
imperative to explore alternative business models to determine how best to structure
the organization for future success.
Alternative Models
Fundamental structural transformation of an institution as large as the Postal
Service will take many years to implement completely. Peering a decade or more
into the future, therefore, this Transformation Plan reviews the full range
of roles the Postal Service might be called upon to assume. While there are
a number of potential paradigms for addressing the nation’s postal policy
objectives, this Plan describes three conceptual alternatives to the current
model. Each would require structural legislative reform. The three alternatives
are:
- Government Agency. An entity focused on providing essential services not
adequately provided in the market and supported by government subsidies.
- Privatized Corporation. A business entity with private shareholders.
- Commercial Government Enterprise. A government-owned enterprise that would
operate more commercially in the market to provide postal and related services.
In the Government Agency model, the nation would abandon the businesslike experiment
begun by the PRA and retreat to a more standard government model. The Postal
Service would concentrate more on its role in providing essential universal
services and less on markets where customer requirements can be met by the private
sector. The Postal Service might offer a stripped-down menu of products and
services, eliminating a number of services currently offered and adjusting the
workforce to the modified offerings and attendant lost volume. Significant declines
in mail volume, especially First-class Mail, would likely accelerate this process,
shifting the center of gravity of the Postal Service toward delivery and retail
services. It appears certain that, as before the PRA, the Government Agency
created by this approach would be unable to fund public services entirely through
postal revenues. The government would need to directly underwrite this shortfall.
Over time, as revenues lag while the network continues to grow, the subsidy
burden on the taxpayer could be expected to intensify under this model, a trend
which would increase the pressure on traditional levels of service and access.
The second model, Privatized Corporation, would represent a complete conversion
of the Postal Service into a privately-owned company dedicated to maximizing
shareholder value. Postal Service managers would be subject to the supervision
of a Board of Directors representing private shareholders with their own money
at stake. There would be no expectation that the government would protect shareholders
from commercial failure. Employees would no longer be under any form of civil
service, and private sector labor and employment laws would apply. To address
universal service coverage by the delivery sector as a whole, new regulatory
safeguards may be needed. Other postal providers might be allowed to compete
for delivery of universal services under contract with the government.
The third option, commercialization, carries the businesslike transition initiated
by the PRA to the next level, but stops short of private ownership. Under this
model the Postal Service would be a Commercial Government Enterprise wholly
owned by the federal government. Postal Service managers would operate under
more businesslike conditions. The Postal Service would offer both traditional
and nontraditional products and implement market-based pricing, discounts and
incentives, and business-based financing. The universal service obligation might
be met under contract between the government and the Postal Service. A new labor
model would be probable.
Recommendations
The near-term regulatory and legislative reforms described earlier will help
to stabilize the postal system’s financial base until more permanent legislative
solutions are developed.
Long-term solutions have been the subject of ongoing debate and continuing disagreement
within the postal community. The ultimate decision regarding the appropriate
legislative framework is not the Postal Service’s to make. Our experience
with the current system, however, leads us to certain conclusions about the
changes that seem necessary. Therefore, we have included in this plan recommendations
for transformational reform, recognizing that these matters will need to be
debated further and resolved within the public policy arena.
In our view, of the three alternative models identified, the Commercial Government
Enterprise is the option that will best allow integration of the postal system
into the modern economy while preserving the ability of the Postal Service to
fulfill its mission of universal service. While a conceptual model leaves many
important details to be filled in, it appears that in principle, reorganization
of the Postal Service as a Commercial Government Enterprise should permit major
improvements in operational efficiency. Greater efficiency, in turn, should
enable a financially viable Postal Service to maintain necessary universal services
without direct government subsidies.
Transformation of the Postal Service into a Commercial Government Enterprise
will likely require an extraordinary level of commitment from postal stakeholders.
In the current political environment, postal reform legislation has faltered
due in large part to an absence of consensus among affected parties. Basic economics
will inexorably introduce tradeoffs between financial self-sufficiency and affordability,
on the one hand, and the costs of underwriting an ever-expanding universal service
network and other governmental obligations, on the other hand. We believe that
a modern, self-sufficient postal system can be structured to continue providing
universal service for all, at affordable prices. To do so, however, requires
new flexibility to adjust networks and services to modern conditions and to
minimize entrenched governmental rules and expectations that carry with them
costs and inefficiencies. If the postal community is not able to achieve this
break with the past, then it appears to us that the remaining options will be
still more unpalatable to most stakeholders. We have not found much support
for a Privatized Corporation that would reduce universal service, or a Government
Agency that would require renewed federal subsidies. More likely, a continued
stalemate would force the Postal Service to operate under its present, increasingly
outmoded business model until enough customers abandon the system to make financial
failure unavoidable.
A commercialized structure has been favored by liberalized national posts,
either as a final operating model or as a transition to a fully privatized entity.
Foreign policymakers have also generally concluded that restructuring the post
office as a government-owned, commercial enterprise offers the best chance of
achieving national policy goals in increasingly competitive markets.
The following are some of the changes that would be necessary to achieve a workable
Commercial Government Enterprise:
Net Income and Retained Earnings. Production of net income and accumulated
retained earnings are necessary to finance the expanding delivery network, decrease
outstanding debt, and fund investments in technology.
Markets. The Postal Service should be free to make use of its assets and explore
service offerings in related markets in order to help fund continuing universal
service responsibilities.
Purchasing. Under a more effective, modern business model, legislative restrictions
on the way the Postal Service acquires goods and services, including transportation,
should be removed so that it can operate in a more businesslike manner.
Regulation. The Postal Service should have broad flexibility to set prices
within overall parameters managed by the PRC and the Board of Governors, so
that it could offer more moderate and predictable rate changes and so that users
of monopoly services are not overcharged. Review of pricing and classification
should be conducted through a complaint process. Outside the scope of the monopoly,
pricing should be regulated under the antitrust and fair competition laws applicable
to other businesses.
The Postal Service’s universal service mission should continue, with the
goal of preserving access to mail services for Americans nationwide on an economically
sound basis. The standard for the number of delivery days and service levels
should be flexible to accommodate changing conditions. The Postal Service should
be able to make changes, subject to review for compliance, with broad criteria
under a complaint system.
Labor and Employment. In order to increase the accountability of the organization
with respect to overall performance, the Postal Service should negotiate with
its employees’ bargaining representatives about all employee benefits,
along with wages and other working conditions. In labor impasses, the parties
should be encouraged to resolve their differences themselves, through a compulsory
mediation process similar to essential-service bargaining under the Railway
Labor Act, which assures consideration of the public interest.
Consistent with other organizations in the mailing community, the Postal Service
should follow private sector employment laws including those governing workers’
compensation, equal employment opportunity, and alternatives to traditional
employee dispute resolution processes. The Postal Service and its employees
should not have costly, multiple avenues for complaints about workplace disputes.
IV. Conclusion
By any reasonable measure, transformation of the Post Office Department by
the Postal Reorganization Act into a more businesslike Postal Service has been
a success. After three decades of progress, however, pressing issues have been
uncovered by a changing economy. The organization’s structure and business
focus are not aligned with the challenges of today’s commercial environment.
The Postal Service does not have the flexibility essential for successful management
of a modern business. Postal laws create a tension between a public policy mission
and structure and the businesslike necessity to deliver what customers want
and will pay for in the marketplace. Until transformation is accomplished, the
ability of the Postal Service to finance a continually growing universal service
obligation without a government subsidy will be in serious doubt.
Today, all stakeholders face the need to reexamine the mission and structure
of the nation’s Postal Service. Alternative organizational models described
in our plan represent possible future pathways for reform. No model comes with
an assurance of success, and none accomplishes all possible goals. Each model
offers benefits and risks. The postal community spans a wide range of interests,
with a diversity of perspectives on these issues. Resolution of differences
has already proven difficult, but a consensus for change is necessary to equip
the national postal system to perform its mission for the country in the decades
ahead.
After careful consideration and consultation with stakeholders, the Postal
Service believes that transformation requires action both in the near term and
in the longer term. Both courses must be pursued concurrently. Near-term strategies
include those steps we are taking now to improve value to our customers, enhance
operational efficiency, and foster a more performance-driven culture. These
strategies require only modest legislative and regulatory changes. Legislative
reform for the longer term is needed to define a legal framework for the postal
system over the next 30 years that remains consistent with the shared vision
of the United States as a place where all citizens, in every part of the country,
can participate equally and easily in the life of
the nation.
Leadership Commitment
Successful transformation will require strong and committed leadership. Working
together, the leadership of the Postal Service will forge a fundamentally new
business model for the institution grounded in a business culture of performance
and accountability. We recognize our responsibility to take definitive action
and to offer our stakeholders a clear and compelling view of what we are doing
and where we are going. We accept and welcome the role of Congress, our customers,
our labor and management associations, and other stakeholders in this endeavor.
- This plan incorporates the comprehensive feedback received on the Outline
for Discussion: Concepts for Postal Transformation, September 30, 2001.
- Examples include more than 38 thousand post offices, stations, and branches,
240 thousand delivery routes to service over 137 million delivery addresses,
215 thousand vehicles, and significant annuitant retirement costs.
United States Postal Service Transformation Plan
April 2002 | i
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