Aug. 10 2006 12:33 PM

Glasses were more than half full at the recent National Press Club luncheon as Postmaster General Jack Potter delivered the most important address of his career to date.


Recognizing the future of the national mail-delivery network is uncertain and that new technologies and communication patterns are reshaping the mission of the U.S. Postal Service, Potter outlined a "Transformation Plan" of short- and long-term corrections aimed at reforming the Postal Service.


Since then, mailers and officials on Capitol Hill have been learning more about the details of the Transformation Plan and are trying to gauge whether PMG Potter has the political backing and institutional momentum to budge the $65-billion bureaucratic beast in the direction of real reforms whether long term or short term.


Short-term Reforms

Conceptually, PMG Potter's description of the challenges facing the Postal Service isn't much different from that of former PMG Marvin Runyon or Bill Henderson. People, products and prices.


What does appear to be different very different is that Potter is heeding the counsel of others, including Postal Rate Commission Chairman George Omas, mailers' representatives, Capitol Hill and general accounting office officials: 


The Postal Service can take on the challenges of people, products and prices within the current legislative framework. There are freedoms and flexibility built into current law that the Postal Service has never pursued or has underutilized.


Borrowing from some of the good work done by the Mailing Industry Task Force last year, Potter pledged the Postal Service will maintain financial viability by reducing costs, improving operational efficiency and "enhancing the performance-based culture" at the Postal Service. Specifically, Potter said the Postal Service would take the following steps:


  • Work with the Postal Rate Commission (PRC) to introduce targeted pricing initiatives such as negotiated service agreements and phased rates

  • Better align postal services, products, databases, retail operations, mail preparation, payment options and prices to match and meet customer needs and capabilities

  • Seek opportunities to create new products and services with minimal investment

  • Better utilize existing assets, infrastructure, vehicles and facilities

  • Continue to protect postal employees and customers from exposure to biohazardous material


    With a bold approach to cost containment and operational efficiencies, Potter intends to control costs even if volumes continue to decline. By proposing new discounts and working closer with mailers, most agree the Postal Service can slash transportation and mail-handling costs. Potter also called on the PRC to help him streamline the process for consolidating and closing postal facilities. ·


    But some believe that it was Potter's focus on the postal workforce that was most interesting. With 55% of the Postal Service's officers and 36% of managers eligible to retire in the next five years, Potter seems to recognize his enormous opportunity to alter the labor-management culture in the Postal Service. Changes in measuring performance and implementing data-driven assessment tools can improve labor productivity, reduce costs and increase efficiency all while improving the working environment for the men and women of the Postal Service. The soon-to-be ratified agreement between the National Association of Letter Carriers and the Postal Service incorporates a new Alternate Dispute Resolution (ADR) process into the document. The ADR process, already implemented nationally, streamlines the grievance and arbitration procedure to limit the number of unresolved issues at the local level and reduce the time in handling such disputes.


    For mailers, Potter's ability to adjust the competitive posture of the Postal Service is the most important strategy if he is to affect postal pricing and attain the following financial goals of the Postal Service:


    Negotiated Service Agreements

    Potter has indicated that the Postal Service may file for ratification of Negotiated Service Agreements (NSA) with the PRC as early as June or July. NSAs, special service and/or rate arrangements negotiated between the Postal Service and a mailer or group of mailers, could provide variable pricing that would encourage greater volume and reward mailers with discounts or premium services.


    Mailers want access to prices and services targeted to their specific business needs and strengths. Negotiated agreements could be designed to lower the overall costs of a mailpiece and still increase the contribution to the Postal Service. For some time, the PRC has challenged the Postal Service to bring NSAs before the PRC for quick and fair action. It now appears as though Potter is answering the challenge.


    Targeted Pricing Incentives

    Other industries routinely offer price incentives to attract and retain business. The Postal Service is looking to a selective use of incentives within the current classification structure to stimulate additional demand. This could include seasonal incentives, peak period pricing and some sort of volume pricing. These strategies could help the Postal Service retain and increase volume otherwise subject to competitive diversion.


    Experimental Classification

    By its own admission, the Postal Service recognizes it hasn't taken full advantage of the flexible rules for classification experiments. The Postal Service seeks to remove some of the lengthy litigation time associated with filing for an experiment and some rule changes to allow for a prompt decision by the PRC and the ability to fine-tune an experimental offering as data is obtained.


    Phased Rates

    Don't be surprised if the next rate case filed by the Postal Service offers some sort of phased rate schedule. While the rate-setting rules may need some revision to allow for a well-designed phased rate proposal, one can easily envision a proposal where the Postal Service might set the First Class stamp at one rate and allow other rates to increase annually for a period of time.


    Finance Delivery Network-Expansion on a Current Basis

    The Postal Service would also like to pursue a mechanism to include cost increases to provide for new facilities to serve the expanding delivery network. There are three additional "Reform Strategies," which encompass the retail network, supply-chain management practices and the reform of labor and employment provisions. But for mailers, the energetic approach of new pricing strategies may mean the difference between success and failure for the Postal Service.


    The Next Short-term Step

    The Postal Service, in conjunction with the PRC, has convened a "summit" of all interested stakeholders in hopes of modernizing the rate-setting process.


    The summit, open to the public, considered ways to make changes within the current legislative framework of the Postal Service. Discussions focused on potential changes that could not only satisfy the PRC's and the Postal Service's statutory obligations but also make the omnibus rate-making process more responsive to the needs of all affected interests, concentrating, in particular, on business and individual mailers.


    Discussion topics may include the following:

  • Strategies for shortening the rate case cycle

  • Legal barriers to phased rate increases

  • NSAs

  • Different ratemaking processes for different products

  • Ongoing audit and updates of the Postal Service's finances


    A summit is certainly welcomed-but the filing of NSAs, targeted incentive discounts and experimental classification projects before the PRC is what is desperately needed. The rate-case settlement has cleared the docket at the PRC for the summer-let's get cracking on breaking some new ground.


    Long-term Reforms

    In viewing the problem from a long-term perspective, Potter knows that any significant postal reform must come from elected officials. But he offered his assistance in shoring up the Postal Service's business model. "The Postal Reorganization Act of 1970 succeeded," he said. "However, the institutional model adopted in 1970 was not designed to cope with the fundamental changes that are today reshaping the delivery services marketplace."


    While Potter and the Postal Service's Governors must press ahead in pursuit of short-term strategies aimed at improving the Postal Service's productivity and profitability, Congress and the White House should continue to deliberate the long-term future business model of the national mail delivery network.


    Potter offered his thoughts as elected officials continue their debates. In particular, he reviewed three of the different conceptual models for a new Postal Service.


    Government Agency Potter described an entity focused on providing essential services that might rely upon government subsidies. This approach would abandon the 1970 Postal Reorganization Act and retreat to a standard government model.


    Privatized Corporation Congress would approve a businesslike entity with private shareholders. This would represent a complete conversion of the Postal Service into a privately owned company dedicated to maximizing shareholder value. The terms "universal service" and "preferred rates for nonprofit mailers" would likely face new definition.


    Commercial Governmental Enterprise Potter endorses a government-owned enterprise that would operate more commercially in the market than the Postal Service does today to provide postal and "related" services. The Postal Service would offer both traditional and non-traditional products and implement market-based pricing, discounts and incentives and business-based financing. A new labor model would be probable.


    Can the Postal Service Transform  to Meet the Challenges of the Future?

    Some postal critics suggest that many of these short-term cost controls and innovative approaches to pricing should have been in place long ago.


    Postmaster General Potter took office in June 2001. By September and October, he was forced to divert the bulk of his attention to pressing issues of national urgency that captured the front pages of the national news. With the presentation of this transformation report, we may now be witnessing a belated "coming out" party for Jack Potter. 


    He'll need help from the Hill, the Rate Commission and the White House. And he'll need support from the mailing community.  Because if his vision doesn't materialize soon, we'll all be back in another rate case proceeding before you can say, "January."


    Neal Denton is the executive director of the Alliance of Nonprofit Mailers. To learn more about the Alliance, visit To learn more about the U.S. Postal Service's Transformation Plan, visit

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