Bloomberg News

Postal Service Urged to Weigh Contracting Most Operations

March 14, 2013

U.S. Postal Service Urged to Weigh Contracting Most Operations

The U.S. Postal Service has a monopoly given by law on delivering mail to mail boxes at homes and businesses. Photographer: Andrew Harrer/Bloomberg

The U.S. Postal Service should consider keeping door-to-door delivery while privatizing the rest of its operations, a panel led by former Government Accountability Office head David Walker found.

The Postal Service, which lost $15.9 billion last year and exhausted its $15 billion borrowing limit, should consider expanding partnerships with the private sector, a report released today by a National Academy of Public Administration panel said. The post office already partners with companies including FedEx Corp. (FDX:US) and United Parcel Service Inc. (UPS:US)

“We do believe that this deserves serious consideration,” Walker said on a conference call with reporters.

The recommendations in today’s report may lay the groundwork for a new business model for the Postal Service, which plans to end Saturday mail delivery in August over objections from some members of Congress. The service, which has about 521,000 career employees, is also pushing lawmakers to relax a requirement to pay now for future retirees’ health-care costs.

The Walker-led panel analyzed a paper written last year by a former postmaster general, a former postal union leader and a former postal regulator. The first group’s work suggested divesting operations other than last-mile, door-to-door delivery by letter carriers. The Postal Service has a monopoly by law on delivering mail to boxes at homes and businesses.

Hybrid Partnership

The academy report recommended reviewing, with caution, the idea that the Postal Service should get out of mail sorting and transportation, leaving that to companies that can do the work more efficiently.

That would cut operating costs by more than half from $67.5 billion in the 2012 fiscal year to about $30 billion, the earlier report concluded.

While cutting costs is necessary, the idea won’t go anywhere, said Gene Del Polito, president of the Association for Postal Commerce.

“There’s no way in hell that Congress would allow this to happen,” Del Polito, whose group is based in Arlington, Virginia, said in an interview. “And there’s no one in the Postal Service that’s going to make it happen.”

Del Polito’s group, whose members include JPMorgan Chase & Co. and Conde Nast Inc., supports cutting postal costs.

Political Feasibility

Shrinking the Postal Service would require further study and would not solve all of the service’s “challenges,” the academy concluded. The panel cautioned that privatizing postal operations would “generate new challenges.”

“We agree that the current business model of the Postal Service is unsustainable,” David Partenheimer, a spokesman, said in an interview. “That is why the Postal Service updated its five-year business plan last year to include expanded legislative reform proposals and actions that the Postal Service can and continues to take under existing law to reduce costs and grow revenue.”

Walker’s group questioned the earlier report’s conclusion that a private partnership model “is tested, readily available and politically feasible,” saying Congress might object. Lawmakers have pushed the service to return to profitability while standing in the way of ending Saturday mail delivery and of closing post offices or mail processing plants that serve or employ their constituents.

The public administration academy is a nonpartisan organization chartered by Congress to assist federal, state, and local governments in improving their accountability. Walker now leads the Comeback America Initiative, an independent, nonprofit policy group that promotes fiscal responsibility.

BlackBerry Moment

In 2001, as head of what was then called the General Accounting Office, Walker added the Postal Service to the federal government’s list of “high-risk” agencies. That was at a time mail volume was rising and the service supported itself without borrowing money, neither of which has been true in recent years.

Walker, at a congressional hearing about the list, held up his BlackBerry mobile device to tell lawmakers a shift to electronic communications endangered the Postal Service’s business model. He recalls being met by “a bunch of blank stares because they didn’t know what a BlackBerry was.”

Studying Privatization

George Gould, one of the four authors of the first paper, describes increasing the private sector’s role in postal operations as an evolution rather than wholesale change. He cites early Postal Service use of airlines to ferry mail, of trains and the growing business that delivers packages to homes for FedEx and UPS.

“The Postal Service has been an essential part of contributing to private industry in its whole existence,” Gould, who helped write the law that created the Postal Service in 1971 after it had been a cabinet-level government agency since its creation. “There’s always been a marriage between the Postal Service and private industry.”

Gould in 2006 left the National Association of Letter Carriers, where he’d been the national legislative and political director after a 27-year career at the union representing workers who deliver mail in cities.

Privatizing mail sorting doesn’t necessarily mean the loss of union jobs, he said, noting UPS drivers and most sorting plant workers are unionized as are FedEx pilots.

Union Money

All but five of Congress’s 255 Democrats and independents received campaign donations from postal worker union groups in the past six years, according to data compiled by Bloomberg from the Federal Election Commission and the Center for Responsive Politics. Labor unions have opposed postal cost cutting plans including shuttering processing plants and ending Saturday mail delivery.

The Postal Service has said it would save about $2 billion a year by ending Saturday mail delivery except for packages. The Postal Regulatory Commission, the agency’s regulator, today said it expects a savings of $1.7 billion. Commission Chairman Ruth Goldway in 2011 challenged Postal Service estimates of annual savings of $3.1 billion, saying they were too optimistic.

The regulator affirmed its 2011 estimated $1.7 billion savings from making the cut in a letter to Senator Claire McCaskill, a Missouri Democrat, and Representative Gerald Connolly, a Virginia Democrat.

Labor unions have said cutting Saturday delivery would cannibalize the business. The union representing mail processing plant workers today criticized the idea to privatize non- delivery operations.

“Privatization is not the answer,” said Sally Davidow, a spokeswoman for the American Postal Workers Union. The union supports cutting postal costs by easing the retiree health benefit pre-funding mandate and by giving the service more flexibility to increase revenue.

The Parcel Shippers Association, whose board members work for companies including UPS and FedEx, said in comments submitted to Walker’s group that it “strongly supports” private companies replacing Postal Service operations for sorting and transporting mail.

Pitney Bowes

Pitney Bowes Inc. (PBI:US), which makes and rents postal machines, helped pay for the academy’s work. The company, based in Stamford, Connecticut, did $30 million worth of work for the Postal Service in the 2012 fiscal year, making it the 49th largest contractor, according to a list compiled annually by David Hendel, a lawyer at Husch Blackwell LLP in Washington.

“By concentrating on its strength in delivery, and charging only for that service, the Postal Service will encourage increased use of commercial providers to collect, transport and sort the mail, create a private sector market for mail use, and encourage development of new products and services that can help sustain universal delivery service well into the future,” Pitney Bowes said today in an e-mailed statement.

Davidow said Pitney Bowes “stands to benefit enormously from privatizing mail processing operations,”

The Postal Service spends about $13 billion per year contracting business to private sector companies, including about $7 billion for transportation services, according to the academy report. The report didn’t estimate the market size for postal sorting operations.

To contact the reporter on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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