On December 4, 2018, the US Treasury Department issued its much-anticipated report from the President’s Task Force on the United States Postal Service. The report, titled United States Postal Service: A Sustainable Path Forward, has since received a myriad of reviews, most of which are negative.
Many mailing industry association executives are viewing the report as a “disaster,” a “disappointment,” or “an opportunity lost.” The optimistic hope was that the Task Force would come up with a comprehensive strategy that included fresh ideas that could enhance or align with existing legislative proposals that would result in meaningful reform.
My initial reaction was that the report appeared to be a mixed bag of ideas that didn’t seem to have a connective thread other than the overarching viewpoint that the USPS is facing financial challenges as it tries to maintain a universal service obligation, however that is defined.
The report basically consists of three categories: recommendations worth exploring, those that would have huge ramifications for the mailing industry, and those that are (what I believe to be) non-starters. Please note this is not an all-inclusive list.
Recommendations Worth Pursuing
The Universal Service Obligation (USO) must be clearly defined.
What may surprise some readers is that the USO is not explicitly defined in statute and is interpreted similarly but loosely by stakeholders in the mailing industry. Most would agree that the USO is understood to be an obligation of the Postal Service to provide affordable, quality postal services throughout the United States, six days a week. The report points out that the USO is subject to interpretation. Imagine a public corporation without a clear mission statement!
The USPS suffers from a lack of institutional governance, both in authority and in practice, and there is an immediate need for the US Senate to confirm Governors.
It is good that the Task Force recognizes this need and will hopefully ignite Congress to act upon the two nominees put forward by the Administration in late 2018. Additionally, terms of both new Governors must be acted upon. Governor Duncan is serving the remainder of a seven-year term that expired Dec. 8, 2018. Although he is nominated to serve another seven-year term, he must still be confirmed by the full Senate. Duncan is technically in a “hold-over” year so there is no disruption in service if he is reconfirmed before December 2019. Governor Williams is serving the remainder of a seven-year term expiring December 8, 2019. He too, must be reconfirmed.
Despite the mail monopoly, the end-to-end mail value chain (origination, pickup/collection, processing, transportation, and delivery) is divisible and has many suppliers and competitors. To achieve more cost efficiencies, the USPS should expand third-party relationships.
The Task Force is advocating more public-private partnerships, such as worksharing. Many mailing service providers will support this recommendation and actively pursue opportunities.
Recommendations That Could Have Huge Ramifications
Distinguish between the types of mail and packages that represent an essential service and those that are non-essential.
When defining the USO, the Task Force believes the most important aspect is to distinguish between the types of mail and packages that represent an essential service and those that are non-essential. The idea here is to price non-essential services higher to fund the USO. Currently, the Postal Service categorizes products by type (market dominant or competitive) rather than purpose. This recommendation proposes that mail classes should be redefined by creating products that are defined by the type of sender and the purpose (e.g., correspondence, transaction mail) of the mail item.
Essential services products are not clearly defined except that they include all “personal correspondence (person-to-person mail), transaction mail (bills, financial statements, product recall notices), government mail (election and tax related mail), parcels containing pharmaceuticals, and parcels sent from consumer to consumer.” These products would have monopoly protection and fall under a price cap regime with mandated delivery standards.
Non-essential services would include Marketing Mail, advertising mail within First-Class, and packages that are commercial in nature (e-commerce B2C packages, B2B packages, etc.). If a First-Class transactional piece includes advertising (known as transpromo), it is unclear whether it would lose its essential services classification.
The report cites an Office of Inspector General (OIG) study of USPS price elasticity from more than five years ago to support a call for eliminating the price cap on Marketing Mail. Many believe that Marketing Mail would quickly exit the mailstream and leave essential services holding the bag. This could be a recipe for disaster.
The USPS mail business is not sustainable under the existing operating model. USPS should develop a new model for setting rates and controlling costs to achieve sustainability.
The Task Force recommends that the Postal Regulatory Commission (PRC) use the full extent of its authorities to establish a new system for regulating rates and classes for market dominant products for enabling rate increases that would increase the USPS’s net income.
The fear is that the PRC will take this as a “green light” to go forward with their original proposal in the 10-year rate review. For Market Dominant products, rates could be raised by as much as CPI plus an additional two to five percent annually for at least five years.
Recommendations That Are Non-starters
USPS employee rights should be more closely aligned with other federal employee rights by eliminating collective bargaining over compensation and USPS employee wages should be reformed in a manner consistent with proposed reforms pertaining to the broader federal workforce outlined in the President’s Management Agenda.
To no one’s surprise, the postal unions reacted with furor. American Postal Workers Union President Mark Dimondstein began his press release with the following remarks, “If the White House Task Force on the Postal Service’s report was assigned a ZIP Code, it would be 00000. This poorly conceived report makes many of its recommendations based on myth and misinformation that, instead of improving mail services, would deliver higher prices and less service for the public.” Since the Democrats now have control of the House, it is safe to assume this recommendation will go nowhere.
What Are the Next Steps?
There are no specific “next steps” required by the Administration or by statute. Hopefully, the Task Force recommendations will be viewed as a contribution to the conversation and will focus Congress on enacting reform legislation that will return the Postal Service to a viable and sustainable enterprise for the American public.
Anita Pursley is Senior Manager of Industry Affairs, BCC Software.
This article originally appeared in the January/February, 2019 issue of Mailing Systems Technology.