Postal - EMBRACING THE FUTURE

It is our honor to submit to you the final report of the President’s Commission on the United States Postal Service. Much has changed since the nation last revisited its mail system in 1970, most notably the rise of the Internet as a faster and more affordable communications alternative. We appreciate the opportunity to work with the Postal Service and the entire postal community to strengthen this vital institution at a pivotal moment in its history.

In appointing this Commission, you recognized that the Postal Service faces significant challenges to its fiscal health due largely to an outdated and inflexible business model amid a rapidly changing postal landscape.

Having explored in detail the many challenges and opportunities before the Postal Service, the Commission wholeheartedly shares your concerns. However, we are decidedly optimistic about the future of this unique and venerable American institution.

We believe that the Postal Service has an extraordinary opportunity to usher in an exciting new era of greater efficiency and rising value to the mailing public. As a result, while the sustainability of the Postal Service’s current business model is in serious doubt, with bold leadership today, the future of universal postal service can most certainly be secured.

Our recommendations aim to tailor the Postal Service to the modern mail needs of the country and focus the institution on "best execution" in all aspects of its operations. It is our hope that a revitalized 21st century Postal Service—one that makes best use of every resource it has and takes full advantage of private-sector partnerships and new technologies—can serve as a prime example of how to enhance the quality and cost effectiveness of operations throughout the Federal government.

Finally, Mr. President, we are not only proud of this report for the scope and ambition of its recommendations, but also for the process that produced it. Numerous public meetings were held across the country.

The Commission heard and read statements from hundreds of postal employees, customers, partners, and experts. At every turn, we encouraged and received an open and frank exchange of ideas and opinions. This report was substantially enriched for this broad participation. If the widespread public commitment to making this a constructive process is any indication, then the future of the Postal Service and the mail will indeed be bright.

Sincerely,

James A. Johnson Harry J. Pearce

Co-Chair Co-Chair

Attachment

Table of Contents

Foreword ......................................................................................................................... iii

Executive Summary ......................................................................................................... vii

Chapter 1: Adapting to a New World:

Universal Mail Service at Risk ......................................................................... 1

Chapter 2: Delivering the Mail:

The Constant Mission of an Evolving Institution ......................................... 15

Chapter 3: Building a World-Class Business:

Best Execution, Corporate Leadership at the Postal Service.......................... 35

Chapter 4: Protecting the Public Interest:

Enhanced Accountability and Public-Policy Oversight ................................. 53

Chapter 5: Pushing the Envelope:

Designing a Smaller, Stronger, New Postal Network ..................................... 75

Chapter 6: Aligning People with Progress:

Building a 21st Century Postal Service Workforce ....................................... 107

Chapter 7: Creating the Digital Postal Network:

Linking Customers, Carriers, and Correspondence to the Future of the Mail .................. 143

Conclusion .................................................................................................................... 159

Appendices

A - Executive Order ..................................................................................... 161

B - The Work of the Commission: Structure and Process .......................... 163

C - Commission Recommendations ............................................................ 171

D - Additional Statement............................................................................. 179

Acknowledgments .......................................................................................................... 181

Foreword

The Commission is honored to have been asked by President George W. Bush to gather the opinions of postal experts, customers, partners, competitors, and employees and craft a vision "to ensure the efficient operation of the United States Postal Service while minimizing the financial exposure of the American taxpayers." While the challenges before the Postal Service are substantial, so are the abundant opportunities that exist today to enhance both the value of the mail and the institution that delivers it. If the nation embraces an ambitious modernization, then the Commission is very confident that the Postal Service can continue its 225-year tradition of innovation and adaptation to remain a valued and relevant enterprise to the nation it exists to serve.

In making these recommendations, however, the Commission wishes to note that, particularly in today’s technology-driven world, the future has a way of surprising us all.

In 1968, the last Presidential Commission on the U.S. Postal Service made important strides in the delivery of the nation’s mail. While it urged greater use of technology to automate the largely manual processes of the Postal Service at the time, that Commission could not have foreseen the coming Internet revolution and its dramatic impact on traditional mail volumes, which so profoundly make the case for ambitious new reforms today.

Similar breakthroughs certainly could change the fundamentals underlying the assumptions made in this report. For this reason, the Commission did not set out to define a Postal Service for the new millennium. Rather, it set a more modest 15-20 year horizon.

Additionally, many of the recommendations included in this report aim to build more flexibility into the Postal Service, so key aspects of the institution—from the scope of the postal monopoly to the size of the postal network itself—are not set in stone, but rather are managed in a dynamic way that is more capable of succesfully [sic] adapting to change in a timely fashion.

The long-term fate of the Postal Service and hard copy correspondence in the Information Age is impossible to see clearly from today’s vantage point. Projecting future mail volumes is an inexact science at best, particularly in the modern context where technologies change rapidly. The Commission believes, however, that Internet use is likely to divert increasingly larger portions of the mail stream to the electronic format. The chart below illustrates the unprecedented near- and mid-term threat posed by technology to the Postal Service’s bottom line under one possible scenario:

Source: Mail volume and financial projections are based on the "Gradual Displacement Scenario," contained in "Two Scenarios for Future Mail Volumes, 2003-2017," Greg Schmid, Institute for the Future, May 2003 (prepared for the Commission). Assumptions reflected in the projections include the following: operating revenues are based on rates adjusted annually at CPI (2.5%); labor-related costs are increased annually by 3.5%; non-labor costs are increased annually by 2%; and operating expenses have been adjusted to reflect volume variances.

These projections reflect independent analysis performed for the Commission. They incorporate the projected savings anticipated by the Postal Service’s own reforms already underway. This forecast also assumes that postage rates will continue to adjust with inflation, as they have for the past 30 years. Even with these revenue positive factors, the 15-year outlook for the Postal Service remains grim and makes a powerful case for a far more ambitious overhaul of the nation’s postal system.

The specific numbers cited above are, of course, speculative. But the trends they foresee are sobering and credible: The traditional mail stream will likely continue to migrate to cheaper Internet-based alternatives. Largely as a result, the Postal Service will increasingly find it difficult to meet its "break-even" mandate (i.e. charging just enough for postage and other services to cover expenses). And, even if postage rates continue to adjust for inflation, the Postal Service, over the next 15 years, is likely to run substantial deficits. Equally discouraging, these obligations would pile on top of the Postal Service’s $92 billion in current debt and other unfunded obligations.

Without significant modernization, the Postal Service will have three choices: dramatically roll back service, seek a rate increase of unprecedented scale, or fall even further into debt, potentially requiring a significant taxpayer bailout. Clearly, the public interest is better served by a strategy that aims instead to root out the substantial inefficiencies and other unnecessary costs apparent throughout the institution today in order to produce a far more efficient and capable 21st century Postal Service.

Toward this end, it is the Commission’s emphatic view that an incremental approach to Postal Service reform will yield too little too late given the enterprise’s bleak fiscal outlook, the depth of current debt and unfunded obligations, the downward trend in First-Class Mail volumes and the limited potential of its legacy postal network that was built for a bygone era.

The American people deserve the most capable and efficient Postal Service that modern techniques and "best execution" strategies can make possible. With strong management and employee performance, sound partnerships and sophisticated technologies, the Commission is confident that the Postal Service can dramatically reduce its costs and stabilize its bottom line. The Commission also firmly believes that e-mail, despite its significant inroads, does not spell the end of the traditional mail system—at least on the horizon of our report. Thus, the biggest threat today is being too timid in the area of postal modernization and gambling with the future of affordable, universal mail service, in the process.

Already, important progress has been made by Congress and by the Postal Service itself. This report aims to accelerate and elevate the pace and direction of these changes. In doing so, it is the Commission’s hope that these recommendations can ensure a strong future for universal postal service and, perhaps by doing so, encourage other Federal agencies to refocus on their core value, rethink how they do business, and reshape public service in the process. return to table

Executive Summary

Universal postal service remains vital to the nation and its economy at the dawn of the 21st century. Unfortunately, the institution that delivers it is in significant jeopardy. Buffeted by the mounting costs of an inefficient delivery network and the popularity of electronic mail, the Postal Service has more than $90 billion in debts and unfunded obligations and an unstable financial outlook. Absent fundamental reforms, the risk of a significant taxpayer bailout or dramatic postage rate increases looms large.

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. return to table

viii

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 ratesetting 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 stronger —upholding andadvancing the nation’s commitment to universal service without overburdening ratepayers. Achieving this vision will takeflexibility 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.

Preparation

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 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.

Chapter 1: Adapting to a New World: Universal Mail Service at Risk

Introduction

For more than 225 years, the national post office has bound the country together and advanced commerce by enabling the exchange of goods, ideas and information. From the humble beginnings of 30 post offices spread across the American colonies, today’s Postal Service has roughly $67 billion in annual revenues,1 making it the 11th largest enterprise by revenue2 in the nation and the hub of a thriving domestic mailing industry.

Without question, the Postal Service has made an extraordinary contribution to the economic health and unity of the nation. But tough choices are required now in order to overcome significant challenges to the institution’s continued ability to ensure universal mail service at affordable rates. Like some private-sector delivery services, the Postal Service today is suffering from weak mail volumes and rising labor and infrastructure-related costs. In the third quarter of 2003, the Postal Service had a revenue shortfall of nearly half of a billion dollars.3 In addition to these pressures, significant debt loads, network inefficiencies and rigid statutes governing the institution’s management are preventing the Postal Service from adequately adapting to the fundamental market and technology changes underway, placing at risk its ability to deliver the nation’s mail at affordable rates.

While many of these trends are exacerbated by a weak economy and other cyclical factors, the most significant threat is not. To the contrary, it appears that the nation is at the beginning of a long-term decline in First-Class Mail volumes as more and more Americans take greater advantage of cheaper electronic communications alternatives. In this new environment, unless Postal Service operating expenses can be reduced correspondingly, it is questionable whether affordable universal mail service via a self-financing public institution is sustainable. postalreporter

Fortunately, the Commission and many others, including the Postal Service itself, have identified dozens of organizational and policy changes which can ensure continued high-quality and efficient delivery of the nation’s mail at affordable rates.

Taken together, they will produce nothing short of a fundamental transformation of the United States Postal Service.

Should the Postal Service be Privatized?

Given how dramatically the postal environment has changed in the past 30 years, some have suggested that perhaps the Postal Service can best act like a business, if it is permitted to become a business. While privatization has been a reform strategy adopted by some leading postal systems around the globe, the Commission believes that such a precipitous step for the Postal Service would unnecessarily jeopardize universal service at affordable prices. The Postal Service handles more than 200 billion pieces of mail per year. It delivers over 40% of the world’s mail, across the vast geographic expanse of the United States.1 The nation’s mail remains essential to the American people and economy. 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. All of these factors merit a "first-do-no-harm" approach.

In the judgment of the Commission, privatization of the Postal Service would today pose a substantial risk of doing great harm. Privatization of a commercial entity the size of the Postal Service could seriously disrupt the highly successful private delivery service markets. For the Postal Service itself, privatization could imply a decade or more of wrenching organizational changes. Most importantly, while the end result of privatization could be a dynamic and efficient private postal sector, the privatization process could undercut the stability and continuity that are the hallmark of a public service. Given the essential nature of universal postal service for the foreseeable future, the Commission believes that the least risky strategy is a more evolutionary approach. The Postal Service should be 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.

That certainly is the feedback the Commission has received from consumers in its survey of their perspectives on the Postal Service. More than two-thirds of respondents indicate they are generally satisfied with the service and value they receive from the Postal Service. A full 73% believe postal operations should either remain as is or be improved through only minor changes. They support the notion of a self-financing institution, but flatly oppose near-term privatization. Interestingly enough, the survey results suggest that a majority would rather pay more for postage than see the nation go into debt to maintain universal postal service.

These strong customer opinions support the Commission’s conclusion that the Postal Service needs to improve the way it does business, but not fundamentally alter its mission or structure in the near term.

Conclusion

From the aging and increasingly outmoded nature of the postal network to the rising diversion of correspondence to electronic alternatives, the Postal Service faces significant challenges today. However, these challenges present their own solutions, as well as significant new opportunities for the Postal Service. By modernizing an outmoded postal network and combating technology’s threats with its many opportunities, the Postal Service can ensure not only its own continued viability, but its relevance and value to the nation in the 21st century.

Coupled with the efforts already underway at the Postal Service, it is the Commission’s view that the reforms proposed in this report can address the financial and technological challenges at hand and produce a stronger and more capable Postal Service. However, one significant challenge remains: The willingness of all parties—from customers to Congress, postal workers to private-sector partners—to support a fundamental overhaul of a vital American institution.

Some changes will be easy to embrace. Customers, for example, will see their postal service enhanced. The public benefit of billions of dollars in annual efficiency savings is self-evident. The vast expansion of retail access to postal services will be a great convenience.

Private-sector companies also will see more opportunities to engage in partnerships with the Postal Service in the delivery of the nation’s mail.

Other changes, however, will require extraordinary commitment to the ultimate public benefits of Postal Service modernization. Members of Congress, for example, will be asked to permit the rationalization of a 1950s-era postal network, including the closure of surplus postal facilities in the communities they represent. Postal employees, too, will plainly see one ultimate outcome of an ambitious modernization: A Postal Service that over time requires far fewer postal workers to deliver the nation’s mail.

Rather than undermine the case for reform, it is the Commission’s hope that these legitimate concerns will help guide its successful and constructive execution. The Commission, for example, took great pains to ensure a key leadership role for Congress in the postal facilities realignment process and to suggest a process giving local communities the opportunity to help determine the disposition of "low-activity" post offices.

The Commission is equally aware of the central role that postal employees will play in the success or failure of this modernization effort. In recent years, the nation has been keenly reminded of the extraordinary service these men and women deliver to the nation every day. For this reason, this report focuses significant attention on ensuring Postal Service employees receive compensation comparable to the private sector, creating a more positive workplace climate, ensuring that the Postal Service workforce has the best tools with which to do its job, and establishing financial incentives for contributing to the efficiency, productivity, and service of the institution. Given the significant attrition opportunity on the horizon, the Commission also wishes to note that it is hopeful that the rightsizing of the Postal Service workforce can occur over time through a voluntary process.

Only with the leadership of Congress, the day-to-day commitment of postal employees, and the support of customers and partners can Postal Service modernization succeed.

As a result, the fate of the Postal Service will not ultimately be determined by external, insurmountable threats, but by the actions, support, and commitment of the American people, their representatives in Congress, and the men and women of the Postal Service.

Having devoted nearly eight months to studying the extent of the Postal Service’s fiscal dilemma and the trends shaping its future, the Commission urges speed and conviction in support of Postal Service modernization. Without question, an aggressive approach is needed to limit the mounting financial exposure of American taxpayers. But, more importantly, these reforms are essential to upholding the nation’s commitment to affordable and universal postal services.

Yes, the nation’s mailing habits are changing significantly. Many individuals and businesses depend on the nation’s mail system far less today. Others continue to rely on the Postal Service to handle their correspondence in just the same way they have for decades. What the long-term future of correspondence ultimately will be in the Information

Age is anyone’s guess. Far more certain, however, is the continued importance of affordable universal postal service today and for the foreseeable future. Its value remains unequivocal, and its continued provision endures as a defining commitment of this country to each of its citizens.

It has been this Commission’s honor to help shape the future of the mail and the vital American institution that for more than 225 years has ensured its delivery. We are indebted to the members of Congress, Postal Service leaders and employees, customers, partners, and numerous experts whose ideas and assistance have helped inform this report, and through it, we hope, a bright future for the Postal Service as it continues to serve our country. return to table

View the latest USPS final report-Final Report (High Resolution) Final Report (Low Resolution

View Summary of Recommendations