As a result, the nation must make a defining choice about the future of its Postal Service: It can prepare to pay—either on tax day or at the post office—for increasingly dated and costly mail service. Or, it can permit an ambitious modernization that embraces proven business strategies, private-sector partnerships and new technologies to rein in costs aggressively and improve service.

To continue the nation’s commitment to affordable universal postal service, President Bush last year formed the President’s Commission on the U.S. Postal Service “to ensure the efficient operation of the United States Postal Service while minimizing the financial exposure of the American taxpayers.” It is no small task considering the size and unique nature of the institution. The Postal Service is a $67-billion organization, the 11th largest U.S. enterprise by revenue, the second biggest employer in the nation, and the hub of a thriving domestic mailing industry. It also has a rare charter for a Federal institution—to operate like a business, financing its operations through “break-even” sales rather than Congressional appropriations.

The laws governing the Postal Service have not been substantially revised in more than 30 years. These rules were written well before the Internet offered a cheaper, faster form of correspondence and far in advance of the Information Revolution’s profound leaps in technology-driven opportunities to reduce costs. Now is the time to revisit these rules and modernize the Postal Service to not only preserve its future, but also to enhance its service to all Americans.

Universal Postal Service Is at Risk

First-Class Mail volumes appear to be on the brink of long-term decline as more Americans take advantage of cheaper electronic alternatives. The rates of growth for First-Class Mail and Standard Mail, that together generate more than 75% of all postal revenues, have been in long-term decline since the 1980s. Electronic diversion threatens to accelerate this trend significantly. Unless Postal Service expenses can be similarly reduced, it is questionable whether affordable universal mail service via a self-financing public institution is sustainable.

With its debt reaching destabilizing levels and its traditional revenue streams in retreat, the Postal Service’s transformational efforts and long-term outlook were placed on the U.S. General Accounting Office’s “high-risk list” in 2001. At the request of Congress, the Postal Service began developing its Transformation Plan to adapt to the future. Since the Plan’s release in April of 2002, the Postal Service has reduced its workforce by more than 40,000 career positions and will deliver $2.5 billion in annual cost savings by September 30, 2003. However, even with this substantial progress, it is quite possible that the Postal Service will experience significant (and rapidly ballooning) deficits within just a few years’ time, even if stamp prices continue to rise with inflation. This prospect points to the urgent need for a far more sweeping set of reforms.

Even if the Postal Service were not in financial jeopardy, however, the inefficiency of its operations and legacy network today causes billions of dollars in unnecessary costs that should be eliminated rather than passed on to ratepayers. Far more emphasis must be placed on restoring fiscal stability not by ratcheting up rates or scaling back service, but by aggressively rooting out inefficiencies throughout the Postal Service.

Unfortunately, a cumbersome regulatory and rate-setting model, the entrenched cost of an aging infrastructure, inflexible work arrangements, and other significant obstacles clutter the path to a fundamental overhaul of the Postal Service. As a result, the institution urgently requires broader flexibility to adjust to increasingly dynamic markets and to pursue new strategies to bring revenues and expenditures into balance without sacrificing quality of service and the ability to meet the nation’s evolving postal needs. In short, the Postal Service needs a new business model for the modern world and the changing postal needs of the nation.

The Postal Service Should Remain a Public Institution

The Commission believes that the Postal Service should remain an independent entity within the executive branch of the Federal government with a unique charter to operate as a self-sustaining commercial enterprise. Some have suggested that for the Postal Service to best act like a business, perhaps it should become a business. The Commission believes an abrupt privatization of the Postal Service is far too risky and would unnecessarily destabilize universal mail service.

The Postal Service delivers more than 200 billion pieces of mail per year across the vast geographic expanse of the United States. Privatization of a commercial entity the size of the Postal Service could seriously disrupt both mail service and the private postal marketplace. It is highly unlikely that the private sector, acting alone, could provide the universal mail services we have come to expect from the Postal Service. For the Postal Service itself, privatization would likely involve a decade or more of wrenching organizational changes that could undercut the stability and continuity that are the hallmark of public postal service. Thus, the Commission believes that the preferred strategy is a more evolutionary approach, under which the Postal Service is maintained as a public entity, but refocused and reorganized to enhance its efficiency and adaptability in the face of an uncertain, and ultimately more competitive, future.

Postal Monopoly Should be Clarified and Narrowed Over Time

Once the conclusion has been reached that the Postal Service should remain a public institution, an urgent need arises to modernize and clarify the mechanism that finances its operations—the postal monopoly.

A great deal of confusion exists today, even at the Postal Service, about the true extent of its scope. This confusion is understandable considering much of the nation’s postal monopoly law dates back to 17th century England and is virtually untranslatable in the modern environment.

The Commission recommends that an independent Postal Regulatory Board be established to provide broad public-policy oversight of the Postal Service. Among its tasks should be translating the monopoly’s musty definition into straightforward, modern language that reflects the postal monopoly as the nation relies on it today. Specifically, the Commission proposes that the boundary lines be clearly and narrowly drawn by weight and by price (to permit private express carriers to handle mail of less than 12 ounces, so long as they charge at least six times the price of a First-Class stamp).

While a postal monopoly remains essential to the reliable, affordable provision of universal postal service today, the Commission acknowledges that this may not always be the case. As such, it recommends authorizing the independent Postal Regulatory Board to periodically review the scope of the monopoly with an eye toward narrowing it over time, so long as a greater reliance on a thriving private postal marketplace can occur without sacrificing universal, affordable access to essential postal services.

The Postal Service Should Focus on its Core Value: Universal Mail Service

Delivering high-quality service in an era of stagnant mail volumes will require the Postal Service to recognize that as demand for its services contracts, so, too, should the institution. To do so without sacrificing essential services, however, will require the Postal Service to focus on its core value: the reliable, affordable delivery of the mail to every American home and business.

While the Postal Service in recent years has explored an array of new revenue streams far afield of what most Americans consider “postal services,” the Commission recommends that the Postal Service be restricted to products and services related to the delivery of letters, newspapers, magazines, advertising mail, and parcels. More broadly, the Commission recommends that the mission of the Postal Service be “to provide high-quality, essential postal services to all persons and communities by the most cost-effective and efficient means possible at affordable and, where appropriate, uniform rates.” This definition focuses the organization on universal service. It makes cost-effectiveness an explicit obligation. It asserts that affordable rates do not come at the expense of service, and it opens the door to greater involvement of the private sector in the delivery of the nation’s mail.

The Commission strongly endorses the basic features of universal mail service today— affordable rates, six-day delivery, and convenient community access to retail postal services. However, in such a rapidly changing mail environment, the Commission cautions against building rigidities into the system. Instead it proposes that a mechanism be put in place to permit some flexibility over the scope of the universal service obligation in the future. This can be achieved by authorizing the independent Postal Regulatory Board to periodically review the universal service obligation as the nation’s reliance on its mail system continues to evolve.

The Postal Service Should be Guided by Best Business Leaders, Practices

If the Postal Service were a private endeavor, it would rank eleventh on the Fortune 500 list of the largest corporations in the United States based on revenues. It is the second largest employer of Americans today. Through its vast national delivery network, it connects virtually every American home and business. Given its importance to the country and its businesslike mandate, the Postal Service should have the best corporate leadership available today and an unwavering commitment to best execution in every aspect of its operations.

Both the Postal Service and its customers would benefit greatly from the creation of a strong, independent, and experienced Board of Directors of a stature that truly reflects the size and significance of the Postal Service’s work. This Board would apply the best practices of the business world and would attract members with the talent and skills necessary to transform the Postal Service into a world-class service business. The Board’s overriding mission would be guiding the Postal Service to a standard of excellence that consistently rivals the private sector in both productivity and quality of service. The Board also would be responsible for holding management accountable for performance and for ensuring that Congress and the American people are fully informed of the institution’s fiscal health.

To ensure that the Board is most capable of fulfilling its duties, the Commission recommends a new structure and scope of responsibilities, modeled after the most successful corporate boards in America (detailed in Chapter 3). This would help ensure that the Board operates in the most efficient and productive manner possible, is safely distanced from undue political influence and has the depth and diversity of skills necessary to guide the Postal Service to a higher level of operations and a more stable long-term fiscal outlook.

The Postal Service Requires Broader, Constructive Oversight

The Commission proposes transforming the narrowly focused Postal Rate Commission (“PRC”) into an independent Postal Regulatory Board with broad authority to safeguard the public interest without micromanaging day-to-day postal operations.

Rather than a sole focus on rate-setting and mail classifications, the Postal Regulatory Board would be tasked with broad public-policy oversight, including: ensuring financial transparency; guarding against the cross-subsidization of competitive products; reviewing the scope of the postal monopoly; limiting the prices charged for non-competitive products; overseeing the scope of the universal service obligation; reviewing worksharing and other discounts; reviewing changes to service standards that may have a substantial and negative national impact; and ensuring the Postal Service meets its statutory obligation to compensate its employees at a level comparable to (but not exceeding) the private sector.

The Commission envisions a Postal Regulatory Board that is an independent establishment of the executive branch of the U.S. government and is composed of three individuals of significant stature, appointed by the President of the United States and confirmed by the Senate.

Once assembled, the Postal Regulatory Board should move quickly to improve the rate-setting process for both postal customers and managers. The current process is far too cumbersome and time-consuming, with rate changes taking as long as 18 months, an impossible situation for an institution charged with the responsibility of acting in a businesslike manner.

As an alternative to the current process, the Commission proposes the establishment of a rate-ceiling mechanism that would allow prices for non-competitive products to be adjusted upward within strict limits, subject to an after-the-fact review by the Postal Regulatory Board. Specifically, the Commission proposes setting the ceilings below inflation, thereby restricting revenue growth to motivate the Postal Service to pursue a far higher standard of efficiency.

A well-designed rate ceiling could produce a Postal Service much more aligned with the interests of ratepayers, who would prefer that the Postal Service aggressively tackle unnecessary costs before asking them to pay more for stamps. However, designing this mechanism is an intricate undertaking. Fortunately, recent legislation signed into law by President Bush strongly discourages the Postal Service from increasing rates before 2006, providing ample time for the Postal Regulatory Board to fine-tune a workable rate-ceiling mechanism.

The Nation Should Overhaul Its 1950s Era Postal Network

Few dispute the fact that the postal network as it exists today is far too sprawling and cumbersome for the nation’s needs. Fortunately, through the strategic deployment of new technologies, partnerships with the private sector and appropriate cost-reduction strategies, the Postal Service has significant opportunities to grow smaller and stronger— upholding and advancing the nation’s commitment to universal service without overburdening ratepayers. Achieving this vision will take flexibility on the part of all who have an interest in the Postal Service’s success — customers and employees, partners and politicians.

The Postal Service deserves praise for its recent efforts to create a sound analytical basis for redesigning the postal network. Accelerating these efforts, as the Commission recommends, involves permitting a whole-scale realignment with full public participation but also free from undue external intervention.

Toward that end, the Commission envisions an independent process, much like that governing military base closures in the 1990s, for consolidating and closing back-end processing and distribution facilities. Additionally, the Postal Service should carefully study and contemplate end-to-end standardization of the postal network to reduce the uneven nature of many postal processes and facilities that combine to create wide variances in productivity levels among facilities, adding up to billions of dollars in unnecessary costs.

The Commission has also examined the Postal Service’s network of 38,000 post offices. In the Commission’s view, “low-activity” post offices that continue to be necessary for the fulfillment of the Postal Service’s universal service obligation should not be closed, even if they operate at a substantial economic loss. In circumstances where universal service is protected, the Postal Service should have the flexibility to dispose of “low-activity” post offices with appropriate community involvement.

In addition, the Commission strongly recommends that the private sector become more involved in the delivery of the nation’s mail. Most Americans are unaware of the extent to which private companies already play key roles throughout the postal network— handling, for example, most long-haul air transport and performing certain processing, distribution, and shipping functions. The Postal Service is also a global pioneer in innovative worksharing partnerships with some of its most active customers. Where additional partnerships advance service and reduce costs, the Postal Service should embrace them and recognize their ultimate value to the customers it serves.

This report also identifies a number of additional areas where the adoption of innovative private-sector strategies could likely deliver significant additional savings, particularly in the areas of procurement reform and more active management of the Postal Service’s substantial real estate portfolio. In virtually every aspect of its operations today, the Postal Service has ample opportunities to adopt innovative approaches, learn from the successes of the business world, and deliver significant cost savings to the American people. As a public institution, the Postal Service is duty-bound to aggressively pursue them all.

Encouraging a Culture of Excellence in the Postal Workforce

Few of the reforms outlined in this report are possible without the support and contributions of the Postal Service’s most mission-critical asset: its workforce.

The Postal Service employs approximately 843,000 people, making it the second largest workforce in the U.S. Its jobs are highly coveted. As of July 2001, the Postal Service had a backlog of some 400,000 job applicants and virtually no turnover. Contributing to the Postal Service’s ability to recruit and retain employees is the special status within the Federal government of postal workers, who enjoy the right to collectively bargain. The Postal Service is also required by statute to compensate employees at a level comparable to the private sector. In addition, postal employees have among the most attractive benefits packages in the nation.

The Commission strongly supports the right of postal workers to collectively bargain and to be compensated at a level comparable to that of the private sector. For an institution tasked with operating like a business, both of these tools are essential to maintaining a world-class workforce capable of delivering the 21st century Postal Service envisioned by this report.

Critical to this effort, however, is the ability of management and labor to work constructively together to determine the right size of the postal workforce and to ensure appropriate flexibilities in its deployment. Both are significant issues. More than $3 out of every $4 in Postal Service revenues go to cover the costs of current and retired postal employees. Of the approximately $92 billion in debt and unfunded obligations the Postal Service is struggling with today, more than $48 billion is due to the costs of retiree health benefits alone.

Far more than individual benefits, the size of the workforce determines the costs of the workforce. Therefore, getting the right size workforce is the critical issue when it comes to controlling the costs of the workforce and upholding the Postal Service’s ability to compensate its employees in a manner competitive with the private sector. Fortunately, there is a significant attrition opportunity, with some 47% of current career employees eligible for regular retirement by 2010 that can help guide the rightsizing of the workforce in the least disruptive manner possible.

Beyond the size of the workforce, the ability to deploy workers in the most efficient manner possible and create a culture of excellence are essential. Achieving a more positive and productive climate will require a number of steps.

First, Postal Service management must repair its strained relationship with employees, manifested in the high number of grievances filed and appealed and the frequency of contract negotiations proceeding to protracted arbitration.

Second, management and employee unions must have a more constructive collective bargaining mechanism to work together to bring expenses and revenues into alignment (detailed in Chapter 6). This includes being able to negotiate wages and benefits. It also entails authorizing the Postal Regulatory Board to develop a fair and impartial mechanism for ensuring total compensation is comparable to the private sector, but does not exceed that generous standard.

Third, the Postal Service must build an incentive-based culture that encourages excellence by developing a pay-for-performance program that rewards all employees for contributing to the success of Postal Service reform.

Information Technology Can Deliver the Future of Mail Today

While many of the challenges before the Postal Service are technological in nature, these same technologies also present substantial opportunities to deliver the nation’s mail more efficiently and in a way that markedly increases its value.

By placing a unique barcode on every piece of mail and investing in technologies throughout the postal network that can put that information to use to enhance customer service and reduce costs, the Postal Service can begin building a truly digital network that links postal facilities, vehicles, partners and employees not only to each other, but also via the Internet to customers and to the mail itself.

By applying the sophistication of the electronic world to the physical mail, the Postal Service can develop a new postal proposition for the 21st century, known as Intelligent Mail, and make its advantages available to all customers. Intelligent Mail could allow the Postal Service to permit mail-tracking and other in-demand services via a robust website that ultimately becomes the equivalent of an always open, full service post office. Intelligent mail also can significantly improve mail security through enhanced traceability, and could lead to substantial savings through sophisticated, real-time logistics management. Adopting this system will lead to the development of “personalized” stamps that digitally embed basic information (such as the sender, the class of mail, and the destination) to enable a highly automated and efficient journey. This advance also could allow customers to design their own stamps, perhaps adding a family photo or small business logo.

While the technology needed to make this vision a reality will require significant investment, the Commission is confident that the resulting efficiency and revenue gains, as well as service improvements, will deliver the necessary returns to the Postal Service and its customers, if successfully executed.

The Postal Service Customer Experience Will Advance Significantly

The reforms included in this report aim not only to stabilize the Postal Service, but to revolutionize its customer service. While how the Postal Service conducts its business will change dramatically (and for the better), from the customer’s perspective, service will be significantly enhanced. From mail tracking to personalized stamps to more consistently cost-efficient and high-quality operations, the focus on customer service is apparent throughout this report.

While an independent survey performed for the Commission found that most Americans are generally happy with their postal service, complaints typically revolved around actually visiting a post office. To address the issue of inconvenient hours and waiting in line, the Commission recommends expanding and accelerating efforts already underway at the Postal Service to bring a wider array of services to customers in convenient locations throughout their community–from grocery stores, to pharmacies, to cash machines, and even into homes and businesses via a more robust and user friendly Postal Service website.

This revolution in retail access would allow postal customers to avoid the greatest inconvenience of a post office–having to make a special trip there. These alternative venues would feature expanded hours of service, including around the clock access at sophisticated self-service kiosks that can perform all the most popular functions of a post office. This enhanced customer convenience is also a plus for the Postal Service’s bottom line, since these more convenient customer points of access are generally more cost-effective than service delivered at the post office itself.

Conclusion

The Postal Service must be freed from unnecessary and outdated statutory constraints. In turn, by cutting costs and better managing its assets, by increasing organizational effectiveness and streamlining production and distribution facilities, by shaping more effective private sector partnerships, by offering greater financial transparency, and by rightsizing and rewarding the workforce for superior performance, the Postal Service can enhance the value of the mail in the modern context and deliver a capable, sophisticated and leading-edge 21st century national postal endeavor. Ensuring a bright future for universal postal service will require bold choices and broad national support. With it, the Postal Service can deliver the mail as never before and offer an example to other Federal institutions about reducing costs while enhancing their service to the nation.

Forward • Executive Summary

Chapter 1 • Chapter 2 • Chapter 3 • Chapter 4 • Chapter 6
Conclusion