Greatest Opportunity in More than Three Decades to Fix Ills of Postal Service

Washington, D.C., February 20, 2003 – Direct Marketing Association (The DMA) President & CEO, H. Robert Wientzen, today testified before the President's Commission on the United States Postal Service (USPS). He told the commission that the ills afflicting the USPS come in two categories: short-term maladies and systemic, long-term diseases.

Wientzen pointed out that this Commission has the opportunity and must accept the challenge given to it by history to cure both. Otherwise, the nation's Postal Service will simply wither and die because it cannot compete in today's quickly changing communications and delivery marketplace.

Many of The DMA’s suggestions, dealing with labor issues, worksharing, pricing and monopoly functions of the USPS, require changes to existing law. "It is imperative, however, that we not wait for these changes before we set about repairing the seriously deteriorating Postal Service foundation, the cracks in which have become increasingly evident under the pressures of the past several years," said Wientzen.

"This commission has an historic opportunity," said Wientzen. "The last time a presidential commission proposed a remake of the Postal Service was during the Johnson Administration. Therefore, this Commission has the dual daunting tasks of curing the Postal Service's current ills while creating a framework for the future that is flexible enough to respond to the unforeseen challenges of perhaps another 30 years."

The DMA and its members, which sends between an estimated 80 to 90 percent of all of the USPS's Standard Mail volume and generate $634 billion in direct mail sales, are seriously concerned. The Postal Service is, in short, in a death spiral in which rising USPS costs trigger postal rate increases that, in turn, threaten revenue-bearing mail volume.

"The DMA would respectfully urge this Commission to do more than tinker with the current law," said Wientzen. "Marginal changes, we believe, will ensure a Postal Service with only a marginal chance at survival."

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There is much that can and should be done even under existing law. It is with this in mind that The DMA urged the Commission to act now to strongly endorse and support a continuation of the evolutionary process recommended by the Mailing Industry Task Force embodied in the Postal Service’s 2002 Transformation Plan.

The 32-year-old business and regulatory model, under which the U.S. Postal Service currently operates, provides neither the flexibility nor the incentives needed to ensure the viability of the nation's mail and parcel delivery network and, in turn, the growth potential for a very significant segment of the economy.

The Postal Service, Wientzen told members of the Commission, as we know it today inhabits the no-mans’ land of a quasi-government agency. It must bind the Nation together but must also provide universal service in a business-like fashion while financially "breaking even." At its foundation is a de jure monopoly that is being eroded by rapid and ubiquitous technological advances. Yet, the Postal Service is restricted in the mail services it may offer, the plant network it may establish and how it may charge for services.

The overall objective of reforming the Postal Service is clear. The underlying business and regulatory model of the Postal Service must be updated in a manner:

• That will ensure the continued availability of a system that provides users with a gateway to every home and business in our nation and beyond;
• That is required to encourage overall efficiency; and,
• That affords users an opportunity to achieve the lowest combined cost for the delivery of their mail.

"To these ends, The DMA believes that the forces of competition should be harnessed to the maximum extent possible," said Wientzen.

"The Postal Service is, in fact, competing every day with other communications media and other delivery systems," Wientzen said. In order to remain viable, in order to continue to fulfill its fundamental role in this nation’s economy and society, the USPS must maximize efficiency and minimize costs.

Additional highlights from Mr. Wientzen's comments on the following subjects include:

The DMA said the continued unbundling of all functions upstream from the ultimate delivery of the mail should be a paramount objective for the "new" Postal Service in order to optimize efficiency and constrain costs, as users seek to achieve the lowest combined costs for getting their products to the intended recipient.

The DMA believes the Postal Service’s 25-year experiment with worksharing in the transportation and processing of mail provides ample evidence of wide-ranging benefits to itself, all users of the system and the economy, generally. A paper prepared by staff of the Postal Rate Commission estimated the total savings from worksharing in 1999 alone was $15.3 billion.

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The DMA supports, in a modified form, the Mailbox Rule (i.e., the letter-box monopoly, which permits only pieces for which postage has been paid may be placed in a letter-box). The DMA believes that the Mailbox Rule strengthens the economies of the delivery function of the Postal Service, also known as "the last mile." However, it believes the Postal Service’s control of the mailbox should not be absolute. Rather, access to the mailbox should be allowed to licensees in order to ensure the most affordable and efficient "last mile" delivery function.

The DMA supports the notion of universal service in this context, i.e., meeting the changing needs of customers. Moreover, we believe it could prove counter-productive to lock into any new law a nationwide standard that would burden the system either with costs of services that exceed the customers’ needs or restrictions preventing the Postal Service from meeting even greater service needs. The key, as is the case of other of our recommendations, is a standard that permits the USPS to accommodate changing circumstances.

The DMA said that implicit in capturing the full benefit of unbundling is that the Service be vested with adequate authority to right-size its upstream infrastructure. The USPS cannot survive if there are constraints placed upon its ability to establish and constantly adjust an effective and economical processing, transportation and delivery network.

The DMA offered several suggestions for change regarding the perimeters of the current labor system, as follows:

• In addition to pay, the entire range of benefits should be subject to bargaining for all future employees;
• Arbitration awards should be only prospective in nature; and,
• The arbitrators should be required to give weight to the changing nature of the communications landscape, and the importance of achieving productivity gains as a means of ensuring the viability of the system.

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In the current pricing scheme, discounts purportedly reflecting avoided costs are the basis for establishing rates for workshared mail The DMA said. On the premise that all upstream functions are to be unbundled and open to free competition, a seemingly more rational approach would be the building up of rates based on the cost of the services or functions purchased by the mailer, with the cost of delivery being the basic block on which all rates would be built. This approach would focus any rate process on the essence of the Postal Service's universal service—the so-called "last mile."

In addition The DMA said, the USPS should be permitted to entertain customized service (rate) agreements that offer an economical benefit to the overall system as well as to the parties to any such agreement. These agreements are also known as "negotiated service agreements." Economic benefits could include:

• Increasing volume from the previous year, for example, thus providing a broader base for institutional costs at a time when mail volume may be shrinking; or

• Seasonal rate offerings designed to shift volumes from peak load periods, thus encouraging more efficient use of resources.

A full copy of Mr. Wientzen's comments can be found online at:

www.the-dma.org/postal/hrwpostalcomments20030220.shtml

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