USPS: Protecting flanks and gaining new ground

Alliance Report — September 15, 2015

Sometimes running the United States Postal Service (USPS) seems to be similar to the challenges that were faced by Civil War generals.  At war with obsolescence and disruption, the USPS must protect certain flanks and attack new ground at the same time. Recently, the Postal Service has been protecting its mailbox monopoly and regulatory flanks while gaining new ground in the hyper-competitive shipping business.

Guarding the mailbox monopoly flank

United Parcel Service (UPS) executive Keith Kellison was invited by the USPS Office of Inspector General (OIG) to write a blog post on “Delivery & Collection Ideas worth Exploring.” His piece was titled “Rethinking Mailbox Access” and can be summarized by this excerpt:

“In the past, when most mail was letters, mailboxes were smaller, typically 8 x 11 inches. In fact, the design was so entwined with envelopes that in the 1930s Congress granted the U.S. Postal Service exclusive access to the ‘letter box.’

But, as letter mail volume has decreased and parcel volume increased, mailboxes have grown. Pass through any neighborhood and you’ll see bigger boxes to accommodate small parcels like eyeglasses, designer clothes, and even time-sensitive groceries.

Given this demand, and the fact that consumers own the mailboxes, doesn’t it make sense to no longer restrict mailbox deliveries? (Only the Postal Service can access your mailbox.) Customers would benefit from reduced delivery costs, additional flexibility, and the knowledge that their packages are safe.

Of course, qualifications may be required to ensure security and that mailboxes are not over-crowded. But the good news is that the U.S. wouldn’t be the first to lift the restrictions. For years, third parties in Europe have been allowed to deliver parcels to mailboxes, with no security issues. If it’s worked there for so long, why can’t it work here?”

The way the blog piece is written, it seems like a very reasonable idea. But the mailbox monopoly has been with us since the Great Depression when it was enacted as a way to enhance revenue, according to a 2008 report by the Postal Regulatory Commission (PRC):

“As mail volumes fell during the Great Depression, the resulting shortfall in revenues led the Postmaster General to request Congress to increase postage for First-Class Mail. Congress also considered other revenue enhancing mechanisms, including a restriction on access to residential mailboxes by anyone other than the Post Office Department.

The restriction on access to mailboxes appears to have first been introduced in 1907 in regulations adopted for rural free delivery service. The purpose was apparently to simplify and regularize the work of rural carriers, whose duties included the collection of money left in mailboxes and the application of postage to outgoing mail. In section 733 of the 1924 edition of the P.L. &R., rural carriers were ordered to remove mailable matter without postage from rural mailboxes.

In January 1934, as mail volumes and postal revenues continued to plummet, Postmaster General James Farley, who viewed the widespread use of private messengers by utility companies, municipalities, department stores, and other establishments as a threat to the Post Office Department’s financial position, ordered letter carriers to remove circulars, handbills, and similar material from mailboxes and to hold these items until postage was paid.

To confirm the legality of the Postmaster General’s actions, Congress enacted the legislation that became the mailbox monopoly. As enacted, the mailbox monopoly went much further than the RFD regulations by applying the mailbox monopoly nationwide and by punishing violators with criminal penalties.

The scope of the mailbox monopoly is also broader than the scope of the postal monopoly. Whereas, in general, the postal monopoly applies only to ‘letters and packets,’ the mailbox monopoly applies to ‘any mailable matter such as statements of accounts, circulars, sale bills, or other matter, on which no postage has been paid ….’”

It is a bit ironic that the mailbox monopoly was prompted by the loss of mail volume during the 1929-1939 Great Depression, and the exigent surcharge was justified by mail volume lost during the 2007-2009 Great Recession. The USPS is fighting just as hard to make the surcharge permanent as it did for the mailbox monopoly, and both are based firmly on the perceived need for more revenue.

The USPS response to the recent OIG blog post was swift and negative, arguing that it needs to retain its mailbox monopoly in order to deliver on its universal service obligation. Spokesman David Partenheimer began the USPS rebuttal as follows [emphasis added]:

“In his recent Office of Inspector General blog article, “Rethinking Mailbox Access,” UPS executive Keith Kellison proposes giving other delivery companies access to your mailbox. If delivery companies want to discuss stuffing your mailbox with their packages, then that discussion needs to start with why mailboxes are reserved for the Postal Service in the first place.

The fact is that exclusive mailbox access isn’t some kind of gratuitous privilege. Rather, it reflects commonsense ways of helping the Postal Service shoulder its enormous and unique responsibility: namely, delivering mail and packages to every home and business in America at affordable prices, and not just delivering packages to the most profitable addresses or with hefty surcharges.”

Holding, and maybe extending, the regulatory flank

Clearly Mr. Kellison touched a nerve with the USPS. But is his suggestion really that outrageous in a time when USPS officials have pushed hard for removal of price cap regulation, reduced oversight by an independent agency, and overruling the decisions by the PRC and the U.S. Court of Appeals that the exigent surcharge should be temporary? These are all examples of the USPS guarding its regulatory flank.

Another effort by the USPS striving to be treated similar to a less-regulated private sector business is being played out before the PRC now. This one has to do with whether and how mail preparation rules changes that increase mailer costs will be regulated as subject to the price cap. Both the PRC and the U.S. Court of Appeals previously ordered that some rules changes force mailers to pay more and must be treated as tantamount to postage increases. The current proceeding at the PRC is to establish a clear standard as to when a rule change amounts to a stealth price increase and must be counted toward the price cap. Not surprisingly, the USPS is going for its definition of a brass ring: “The most reasonable approach is to apply the price cap only to changes in posted rates, a path that the court left open to the Commission.”

The Alliance along with several other mailer associations, Postal Commerce (Postcom), Major Mailers Association, MPA – The Association of Magazine Media, and the National Postal Policy Council, filed comments and reply comments. We advocated that the PRC use its existing rules regarding de minimus rate increases (a threshold of 0.001 percent) for any USPS mailing standard that either increases postal revenue or customer costs.

We summarize our disagreement with USPS as follows:

“… There is widespread agreement among the commenting parties, including the Postal Service, that the Commission’s proposed standard should not be adopted. The question is what should be put in its place. The Postal Service essentially argues for eliminating any standard, instead confining the Commission to review of changes in posted rates (or, alternatively, changes to posted rates or size, weight, and minimum volume thresholds that define products in the Mail Classification Schedule (‘MCS’)). This approach vastly oversimplifies the relevant legal standards and ignores the obvious principle, recognized by the Commission, the DC Circuit, and the Supreme Court, which changes in regulations governing the use of rates can effectively causes changes in the rates mailers pay.”

Aggressively attacking the shipping business

While it is carefully protecting its monopoly flank and trying to weaken its regulatory oversight, the USPS is really focusing on growing its package delivery business. It certainly has become the most aggressive government agency in the shipping business. The Dead Tree Edition recently summarized the new focus of the USPS in the following article used by permission:

Saturday, September 12, 2015

10 Ways E-Commerce Is Reshaping the USPS

The E-commerce Revolution is reverberating throughout the U.S. Postal Service, but not in the destructive manner of other digital disruptions like email, online news, and electronic bill payment.

Largely, if not solely, because of online merchants, the agency’s “Shipping and Package” revenue is growing at a 10%-plus annual rate – no doubt a surprise to the digerati who for years have been predicting that the USPS would wither away into obsolescence.

One expert estimates Amazon now turns to the USPS to ship 40% of its U.S. sales, and that doesn’t even include packages that are handled by FedEx and UPS and then turned over to the Postal Service for final delivery.

The rapid growth and favorable prospects for such products as Priority Mail and Parcel Select are bringing about extensive changes to the agency’s operations, plans, and even how it thinks about itself.
Here are some of the ways the E-Commerce Revolution has already changed the U.S. Postal Service:

1) Endangered no more: “Postal worker” still appears near the top of nearly everyone’s list of occupations most likely to go the way of buggy-whip makers, but the lists are out of date. In response to declining mail volumes, the Postal Service endured year after year of downsizing, including 155,000 workers from 2007 to 2012. But the surge in e-commerce deliveries has derailed plans for further cuts, keeping employment levels steady the past three years.

2) Newbies: During the downsizing years, new hires were a rarity, but these days a retiring worker usually has to be replaced, typically by a non-career worker. The USPS’s hiring rate has tripled and its workhours devoted to training have doubled in the past four years. The agency has struggled to recruit new workers and bring them up to speed, acknowledging that the newbies are leading to more mis-delivered mail and on-the-job injuries.

3) Parcel-only routes: I haven’t seen any official statistics on the subject, but anecdotes indicate the USPS is delivering more parcels-only routes rather than the usual approach of having the same letter carrier deliver parcels, letters, and flat mail to the same addresses. One reason is that the agency’s aging fleet of LLV delivery vehicles is not designed for today’s heavy mix of parcels.

4) Renting vehicles: Another sign that the postal delivery fleet is overloaded: The Postal Service is in the process of lining up minivans and cargo vans that are “up to 2 tons capacity for delivery of packages and to fill in for vehicles out of service.” Exact numbers apparently have not been determined, but “during the holiday season one can anticipate that a single location may have a demand level of 50 to 100 vehicles.”

5) Mailboxes: The USPS recently revised its standards for new residential mailboxes, shifting to a larger size that can accommodate more packages. It’s also trying out new designs for cluster boxes that can handle package deliveries, including ones that are wifi enabled. (In the near future, maybe your mailbox will send you a text saying “You’ve got mail – and a package too!”)

6) Financial strength: The headlines still say the Postal Service is losing money. But take away the Congressional accounting gimmicks and the agency has gone from the verge of insolvency to better-than-breakeven status in recent quarters, with growth in the Parcel Select and Priority Mail products playing a major role.

7) New delivery vehicles: With its stronger cash flow, the Postal Service has been able to accelerate the much-needed replacement of its aging delivery fleet. The new vehicles will have more space devoted to the growing flood of packages from Amazon, eBay, and other online sellers.

8) Non-mail: In the past year or so, letter carriers have been delivering an increasing variety of items that bypassed the usual postal network – such as groceries, cut flowers, fresh seafood, and bottled water. The volumes are generally small and limited to a few test markets, but the trend is toward letter carriers delivering more items that don’t have a stamp, meter mark, or postage label.

9) Less focus on letters and flat mail: Mailers grumble that postal executives talk and think about nothing but packages these days, even though letters and other boring-ass traditional mail still bring in three-fourths of the USPS’s revenue. They say it’s no coincidence that First-Class Mail delivery has suffered – or that the most recent USPS annual report shows 14 photos of packages and only one that (barely) shows letters.

10) Sunday: Just five years ago, postal officials were clamoring to shut down all weekend deliveries, though they eventually amended the proposal so that Saturday delivery of parcels would continue. But now Postal Service LLVs are a common site on Sunday in scores of cities, as 7-days-a-week delivery for Amazon has swept across the country since a market test early last year. And postal officials are talking about providing Sunday service for other merchants as well.
Related articles:

© 2015 Dead Tree Edition

Bottom line: mailers feeling squeezed

The bottom line for mailers of letters and flats, who still pay over 80 percent of USPS revenue, is that they are feeling squeezed by the USPS areas of emphasis. The defense of the mailbox monopoly ensures that mailers continue to be captive customers for delivery of hard copy to the mailboxes of America’s households and businesses. The campaign to reduce pricing regulation of monopoly postal products seems like an effort to milk the mail cash cow while it still is robust. And the laser focus on competing for the growth area of package delivery shifts management attention, resources, and good service away from the USPS core customers.

It is a risky strategy as the USPS has no legal monopoly over package delivery (except access to the mailbox), it has established, strong competitors, and the prospects for disruptive, lower cost, better service alternatives are very real.

(c) 2015 Alliance of Nonprofit Mailers