[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
THE THREE R'S OF THE POSTAL NETWORK PLAN: REALIGNMENT, RIGHT-SIZING,
AND RESPONSIVENESS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON FEDERAL WORKFORCE,
POSTAL SERVICE, AND THE DISTRICT
OF COLUMBIA
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
JULY 24, 2008
__________
Serial No. 110-146
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
U.S. GOVERNMENT PRINTING OFFICE
48-658 PDF WASHINGTON : 2009
----------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001
COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
HENRY A. WAXMAN, California, Chairman
EDOLPHUS TOWNS, New York TOM DAVIS, Virginia
PAUL E. KANJORSKI, Pennsylvania DAN BURTON, Indiana
CAROLYN B. MALONEY, New York CHRISTOPHER SHAYS, Connecticut
ELIJAH E. CUMMINGS, Maryland JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts TODD RUSSELL PLATTS, Pennsylvania
WM. LACY CLAY, Missouri CHRIS CANNON, Utah
DIANE E. WATSON, California JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts MICHAEL R. TURNER, Ohio
BRIAN HIGGINS, New York DARRELL E. ISSA, California
JOHN A. YARMUTH, Kentucky KENNY MARCHANT, Texas
BRUCE L. BRALEY, Iowa LYNN A. WESTMORELAND, Georgia
ELEANOR HOLMES NORTON, District of PATRICK T. McHENRY, North Carolina
Columbia VIRGINIA FOXX, North Carolina
BETTY McCOLLUM, Minnesota BRIAN P. BILBRAY, California
JIM COOPER, Tennessee BILL SALI, Idaho
CHRIS VAN HOLLEN, Maryland JIM JORDAN, Ohio
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
JACKIE SPEIER, California
Phil Barnett, Staff Director
Earley Green, Chief Clerk
Lawrence Halloran, Minority Staff Director
Subcommittee on Federal Workforce, Postal Service, and the District of
Columbia
DANNY K. DAVIS, Illinois
ELEANOR HOLMES NORTON, District of KENNY MARCHANT, Texas
Columbia JOHN M. McHUGH, New York
JOHN P. SARBANES, Maryland JOHN L. MICA, Florida
ELIJAH E. CUMMINGS, Maryland DARRELL E. ISSA, California
DENNIS J. KUCINICH, Ohio, Chairman JIM JORDAN, Ohio
WM. LACY CLAY, Missouri
STEPHEN F. LYNCH, Massachusetts
Tania Shand, Staff Director
C O N T E N T S
----------
Page
Hearing held on July 24, 2008.................................... 1
Statement of:
Donahoe, Patrick, Deputy Postmaster General, U.S. Postal
Service; and John Waller, director, Office of
Accountability and Compliance, Postal Regulatory Commission 42
Donahoe, Patrick......................................... 42
Waller, John............................................. 52
Herr, Phillip, Director, Physical Infrastructure Issues, U.S.
Government Accountability Office; and David Williams,
Inspector General, Office of Inspector General, U.S. Postal
Service.................................................... 8
Herr, Phillip............................................ 8
Williams, David.......................................... 31
Reid, Myke, legislative and political director, American
Postal Workers Union, AFL-CIO; and John Hegarty, president,
National Postal Mail Handlers Union........................ 105
Hegarty, John............................................ 112
Reid, Myke............................................... 105
Winn, Michael, director of postal operations, Association of
Postal Commerce, accompanied by Gian-Carlo Peressutti, vice
president for government relations at RR Donnelly; Robert
E. McLean, executive director, Mailers Council; Jerry
Cerasale, senior vice president, government affairs, Direct
Marketing Association, Inc.; and Anthony Conway, executive
director, Alliance of Non-Profit Mailers................... 70
Cerasale, Jerry.......................................... 93
Conway, Anthony.......................................... 99
McLean, Robert E......................................... 85
Winn, Michael............................................ 70
Letters, statements, etc., submitted for the record by:
Cerasale, Jerry, senior vice president, government affairs,
Direct Marketing Association, Inc., prepared statement of.. 94
Conway, Anthony, executive director, Alliance of Non-Profit
Mailers, prepared statement of............................. 100
Donahoe, Patrick, Deputy Postmaster General, U.S. Postal
Service, prepared statement of............................. 44
Hegarty, John, president, National Postal Mail Handlers
Union, prepared statement of............................... 114
Herr, Phillip, Director, Physical Infrastructure Issues, U.S.
Government Accountability Office, prepared statement of.... 10
Marchant, Hon. Kenny, a Representative in Congress from the
State of Texas, prepared statement of...................... 4
McLean, Robert E., executive director, Mailers Council,
prepared statement of...................................... 87
Reid, Myke, legislative and political director, American
Postal Workers Union, AFL-CIO, prepared statement of Mr.
Burrus..................................................... 108
Waller, John, director, Office of Accountability and
Compliance, Postal Regulatory Commission, prepared
statement of............................................... 54
Williams, David, Inspector General, Office of Inspector
General, U.S. Postal Service, prepared statement of........ 33
Winn, Michael, director of postal operations, Association of
Postal Commerce, prepared statement of..................... 76
THE THREE R'S OF THE POSTAL NETWORK PLAN: REALIGNMENT, RIGHT-SIZING,
AND RESPONSIVENESS
----------
THURSDAY, JULY 24, 2008
House of Representatives,
Subcommittee on Federal Workforce, Postal Service,
and the District of Columbia,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 3:55 p.m., in
room 2154, Rayburn House Office Building, Hon. Danny K. Davis
(chairman of the subcommittee) presiding.
Present: Representatives Davis, Kucinich, and Marchant.
Staff present: Lori Hayman, counsel; Marcus A. Williams,
clerk/press secretary; Alex Cooper, minority professional staff
member; and Janice Spector, minority senior professional staff
member.
Mr. Davis. I have just been informed that the ranking
member is on his way, so given the fact that we have been
waiting and waiting and waiting, we are going to go ahead and
proceed.
The subcommittee will now come to order.
Welcome, Ranking Member Marchant, members of the
subcommittee, hearing witnesses, and all of those in
attendance, to the Subcommittee on the Federal Workforce,
Postal Service, and the District of Columbia's oversight
hearing, ``The Three R's of the Postal Network Plan:
Realignment, Right-Sizing and Responsiveness.''
The Chair, ranking member and subcommittee members will
each have 5 minutes to make opening statements. And all Members
will have 3 days to submit statements for the record. Hearing
no objection, such is the order.
Let me, first of all, thank all of you for your patience
and indulgence. Of course, we always take the position that
democracy requires a great deal of time, effort and
involvement. That is sort of the price that we pay for the
opportunity to participate, be engaged, be involved and have a
democratic form of government.
Today's hearing will examine the network's plans and
potential impact on the public, the postal work force, the
mailing industry and the future economic health of the Postal
Service.
The Postal Service accepts and processes over 200 billion
pieces of mail annually and delivers to nearly 148 million
addresses 6 days per week. In order to provide this universal
service throughout the United States and its territories, the
Postal Service utilizes a vast network of more than 400 mail
processing plants and 37,000 post offices.
Much of this complex network was developed in the 1970's
and 1980's when our Nation was experiencing significant
increases in mail volume. Today, however, we face declining
mail volume, a new price cap restriction on rate increases, and
the mailing industry conducting more of the mail processing
operation.
These structured changes require the Postal Service to
revise its distribution network to meet these changing
conditions, while at the same time addressing its operational
needs. All this must be done in a way that maintains and
improves service.
The Postal Accountability and Enhancement Act of 2006
required the Postal Service, in consultation with the Postal
Regulatory Commission, to submit a plan for meeting modern
service standards. As required, the Postal Service submitted
this Network Plan to Congress last month, in which they laid
out a long-term vision for rationalizing the infrastructure and
work force and how they intend to implement this vision.
The Postal Service has identified excess capacity in its
retail systems and mail processing and distribution facilities
as an area of potential savings. The Service plans to reduce
excess capacity, increase efficiency and reduce expenses by
consolidating operations and facilities.
For this effort to be successful, the Postal Service must
do a better job of realigning its processing and transportation
networks, improve the data used in its computerized and
statistical modeling, and minimize service disruptions. Failure
to prevent and predict service problems will result in poor
mail delivery, which in turn will anger the public and trigger
political considerations.
We all want a Postal Service that continues to be a world
leader in the mail industry and one that provides universal
access and high-quality service at affordable prices.
Therefore, I think it is critical that we in Congress consider
implementing the changes in the Network Plan as quickly as
possible. After all, Congress made it clear in the Postal Act
that the Postal Service has continued authority to change its
network.
I look forward to hearing your views on the Network Plan.
And I want to thank all of the witnesses for your testimony.
Before we begin, I will just indicate, should our ranking
member have opening comments to make once he arrives, we will
suspend with the witnesses and give him the opportunity to do
so, and we will return.
With that in mind, let me welcome panel one.
Mr. Phillip Herr, who is the Director of Physical
Infrastructure Issues at the Government Accountability Office.
Mr. Herr currently focuses on programs at the U.S. Postal
Service and the Department of Transportation.
Thank you very much, Mr. Herr.
Mr. David Williams was sworn in as the second independent
inspector general for the U.S. Postal Service on August 30,
2003. Mr. Williams is responsible for a staff of more than
1,100 employees that conducts independent audits and
investigations of a work force of about 700,000 career
employees and nearly 37,000 retail facilities.
Gentlemen, thank you so much.
Of course, you know that it is our tradition that witnesses
be sworn in before this committee. Will you raise your right
hands?
[Witnesses sworn.]
Mr. Davis. The record will show that the witnesses answered
in the affirmative.
Gentlemen, before you start, let me welcome our ranking
member, Mr. Marchant. We have been all doing a lot of different
things today and trying to get ready to leave sometime before
the end of tomorrow and also hoping we are going to be in a
position to recess at the end of the next week.
Let me just ask Mr. Marchant if you have some opening
comments.
Mr. Marchant. In the interest of time, Mr. Chairman, I am
going to submit my statement for the record. Thank you.
[The prepared statement of Hon. Kenny Marchant follows:]
[GRAPHIC] [TIFF OMITTED] T8658.001
[GRAPHIC] [TIFF OMITTED] T8658.002
[GRAPHIC] [TIFF OMITTED] T8658.003
[GRAPHIC] [TIFF OMITTED] T8658.004
Mr. Davis. Well, thank you very much. Then we will begin
with our witnesses.
Mr. Herr, we will start with you.
STATEMENTS OF PHILLIP HERR, DIRECTOR, PHYSICAL INFRASTRUCTURE
ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; AND DAVID
WILLIAMS, INSPECTOR GENERAL, OFFICE OF INSPECTOR GENERAL, U.S.
POSTAL SERVICE
STATEMENT OF PHILLIP HERR
Mr. Herr. Thank you, Chairman Davis, for your invitation to
appear today at this hearing on the Postal Service's June 2008
Network Plan.
There is broad agreement on the Service's need to realign
its processing network going back to the 2003 President's
Commission and the Postal Reform Act. GAO has also issued
several reports on the importance of realigning the Postal
Service's processing network. As we previously discussed,
several trends have created excess network capacity and impeded
potential efficiency gains.
As most of you know, mail volume is declining, especially
first-class mail. Further, much of the commercial mail now
bypasses the Postal Service's mail processing and
transportation to qualify for discounts. Likewise, the
Service's processing facilities may not be optimally located,
due to population shifts. Finally, these trends, along with the
projected financial deficit, lead to the conclusion that the
Postal Service needs to effectively realign its network.
My remarks focus on the Postal Service's actions to address
prior GAO recommendations in three areas: first, strengthening
network realignment planning and accountability; second,
improving delivery performance information; and, third,
improving community indication with stakeholders.
Turning first to network realignment planning and
accountability, the Postal Service has taken steps to address
GAO's prior recommendations. One key step is developing the
Network Plan, being discussed today, that lays out an overall
vision, goals and major strategies.
Our view of the plan found that it generally addresses
topics required by the Postal Reform Act and included in our
recommendations. However, the Network Plan contains limited
specific information on performance targets or the resulting
costs and savings related to realignment. Additionally, the
plan provides little contextual information about its future
network configuration and how its realignment goals will be
met.
Two upcoming reports due at the end of the year offer
opportunities for the Postal Service to provide additional
information on realignment costs and savings. The Postal
Service's annual reports to Congress and the PRC are
opportunities to make its goals and results more transparent
and provide additional information about the effectiveness of
its realignment efforts.
With regard to my second objective, improving delivery
performance information, the Postal Service has partially
responded to GAO's prior recommendations and legislative
requirements. The Service has established performance standards
and committed to developing targets against these standards by
fiscal year 2009. The Service has also submitted a proposal to
the PRC for measuring service performance, but full
implementation is not yet complete.
Delivery service performance is a critical area that may be
affected by realignment initiatives. Mail delivery standards
are essential to allow the Postal Service and mailers to
effectively plan their activities. Delivery performance
information is also critical to understanding how well the
Service is providing prompt and reliable mail delivery.
Turning to my third and last objective, improved
communication with stakeholders, the Postal Service has taken
steps to address our recommendations to improve communication
as it consolidates its area mail processing operations.
It modified its communication plan to improve public
notification, engagement and transparency. Notably, the Postal
Service has moved to keep public meeting to an earlier point,
and plans to post related information on its Web site 1 week
before the public meeting. To increase transparency, the
Service has clarified its processes for addressing public
comments and plans to make additional information available on
its Web site as well.
Going forward, the Service will have the opportunity to
assess the effectiveness of these changes to its communication
plan.
Mr. Chairman, in conclusion, GAO has previously discussed
the difficulties the Postal Service has faced when it tries to
close facilities and how delays may affect its ability to
achieve further cost reductions and improve efficiency. Part of
the problems stem from the Postal Service's limited
communication with the public about these activities.
Since 2005, we believe the Service has made progress toward
improving the communications process linked to area mail
processing realignment. Going forwarded with needed realignment
efforts, it will be crucial for the Postal Service to establish
and maintain open and ongoing dialog with its various
stakeholders, as well as congressional oversight committees and
Members of Congress.
Mr. Chairman, this concludes my statement. I am happy to
answer questions.
[The prepared statement of Mr. Herr follows:]
[GRAPHIC] [TIFF OMITTED] T8658.005
[GRAPHIC] [TIFF OMITTED] T8658.006
[GRAPHIC] [TIFF OMITTED] T8658.007
[GRAPHIC] [TIFF OMITTED] T8658.008
[GRAPHIC] [TIFF OMITTED] T8658.009
[GRAPHIC] [TIFF OMITTED] T8658.010
[GRAPHIC] [TIFF OMITTED] T8658.011
[GRAPHIC] [TIFF OMITTED] T8658.012
[GRAPHIC] [TIFF OMITTED] T8658.013
[GRAPHIC] [TIFF OMITTED] T8658.014
[GRAPHIC] [TIFF OMITTED] T8658.015
[GRAPHIC] [TIFF OMITTED] T8658.016
[GRAPHIC] [TIFF OMITTED] T8658.017
[GRAPHIC] [TIFF OMITTED] T8658.018
[GRAPHIC] [TIFF OMITTED] T8658.019
[GRAPHIC] [TIFF OMITTED] T8658.020
[GRAPHIC] [TIFF OMITTED] T8658.021
[GRAPHIC] [TIFF OMITTED] T8658.022
[GRAPHIC] [TIFF OMITTED] T8658.023
[GRAPHIC] [TIFF OMITTED] T8658.024
[GRAPHIC] [TIFF OMITTED] T8658.025
Mr. Davis. Thank you very much, Mr. Herr.
We will proceed to Mr. Williams.
STATEMENT OF DAVID WILLIAMS
Mr. Williams. Thank you, Mr. Chairman and Mr. Merchant. I
appreciate the opportunity to discuss the Postal Service's
network realignment plans.
The Postal Act of 2006 mandated that the Postal Service
continue streamlining its network to eliminate costs and
required a facilities plan for rationalizing it. Planning and
implementing changes to one of the world's largest networks has
been challenging.
Planning strategies for such large-scale projects can vary
from long-range, detailed plans with elaborately sequenced
steps to short-range, incremental approaches. The Postal
Service has chosen the incremental approach, which uses an
order-of-battle-type strategy that incorporates flexibility and
anticipates frequent change throughout the process.
The Postal Service has used several strategies in its
network realignment, and each has had its challenges. For
example, the Postal Service had success with local facility
consolidations. In the last 5 years, they have closed
approximately 50 airport mail centers and remote encoding
centers and consolidated mail at 12 processing and distribution
centers, and they have outsourced 13 airport mail centers.
While some of these changes involve communications with
external stakeholders, many involve smaller facilities and
internal operations that had no impact on communities. Still,
concerns from stakeholders did delay larger proposed changes,
such as those at Mansfield, OH, and Pasadena, CA.
Our audits have assisted with the network realignment
initiative. Our work has shown that the Postal Service could
improve the accuracy of data used to support these initiatives,
improve communications with stakeholders, and enhance guidance
for measuring results. The Postal Service has now improved its
processes and guidance.
Looking to the future, the recently issued Network Plan
describes the Postal Service's vision for rationalizing its
infrastructure and work force. It focuses on a number of major
areas, including the need to continuously improve Service
performance measurement, software initiatives to improve the
consistency of mail flow and machine efficiency, plans for
network downsizing, and work force rationalization and support
for employees, and plans to expand customer access to products
and services.
The Network Plan is more of a strategy document than a
tactical plan. Consequently, implementation plans that detail
the locations and times and final network integration and cost
savings are going to be critical.
Some important steps have already been successfully
undertaken, while, for others, risks remain to be addressed.
For example, management established a rigorous and
comprehensive process of monitoring mail flows and machine
utilization across the entire network. The process, which
includes weekly calls to local managers to discuss performance,
has contributed to the increased productivity and record
service scores.
The Postal Service is considering improving efficiency and
service in the bulk mail center network through outsourcing,
and issued a draft request for proposal on July 1st. Risks that
must be addressed in this approach include reporting
requirements of misconduct by the contractors, work stoppages,
and conflicts of interest from contracting with parent or
subsidiary companies of mailers.
Some Postal Service network realignment plans depend on a
specific sequence of events. For example, the BMC outsourcing
initiative may provide the space needed for future Flats
Sequencing System equipment deployments. However, if the BMC
facilities are not vacated timely, plans for this equipment
placement may be negatively impacted.
The Postal Act of 2006 was designed to force dramatic cost
reforms and streamlining actions. If the reforms undertaken are
not timely and substantial, there will be serious and rapid
financial and operational consequences for the Nation's mail
system. Imbalances may be created, resulting in a protracted,
anemic staffing of an oversized network, mail processing
efficiency gains and cost savings may be deferred, and mailers
and other stakeholders may be confused by stops and starts in
the process. Finally, the Postal Service may have to borrow
substantial funds if they cannot generate sufficient savings.
Postal Service management, the Postal Regulatory
Commission, Congress and stakeholders must work together during
this period of substantial and rapid change to ensure that
network realignment has the energy needed to propel it forward
in spite of resistance and other obstacles. We continue to
support the Postal Service's efforts and keep Congress fully
and currently informed.
I am pleased to answer any questions that you have.
[The prepared statement of Mr. Williams follows:]
[GRAPHIC] [TIFF OMITTED] T8658.026
[GRAPHIC] [TIFF OMITTED] T8658.027
[GRAPHIC] [TIFF OMITTED] T8658.028
[GRAPHIC] [TIFF OMITTED] T8658.029
[GRAPHIC] [TIFF OMITTED] T8658.030
Mr. Davis. Thank you very much, Mr. Williams.
Let me thank both of you gentleman.
Why don't I just begin? And I will start with you, Mr.
Herr. You made a number of recommendations in 2007 for the
Postal Service to improve planning, accountability and
communications. Would you say that your expectations were met
in those areas?
Mr. Herr. I think generally the answer is yes. One of the
areas I highlighted in my testimony today is that we think
there could be further specificity with regard to targets and
goals going forward. But we also identified the opportunity in
the report to Congress due at the end of the year as a place
where that could happen.
But in the area of communication, the communication manual
that was released this spring, we saw some substantial changes
there in terms of transparency, putting some meetings at a
better time so people can have public input. So we see some
good movement there.
Mr. Davis. You talked about the need to realign the
networks. How urgent do you see that, or how critical do you
see that function?
Mr. Herr. I think, in concurring with my colleague, the IG,
I think it is a matter of urgency.
One of the things I mentioned in my opening statement, mail
volume has declined, and, as such, revenues from that mail has
declined as well. We all are very much aware of the
unprecedented rise in gas prices this year, and with an
organization with a fleet of 200,000 vehicles, there is a
number of challenges there in terms of those operating
expenses.
The other thing we are seeing is the pace of technological
change. As the Postal Service begins to roll out new equipment,
their processing facilities are able to do a better job of
processing mail, flats, equipment of that type. So there are
also efficiencies possible there.
Mr. Davis. If you were to give additional recommendations
to the Postal Service relative to what you think it needs to do
in order to be as much in compliance with the recommendations
that have already been made, what would you suggest that they
do?
Mr. Herr. Rather than suggesting going back to doing
another version of the plan, we think there is a good
opportunity coming in December in the report to the Congress
and also the report to the PRC to lay out additional progress
that has been made with regard to the Network Plan, what some
of the goals are for the coming year, what may have been
accomplished in this intervening period. That seems like a good
opportunity, and that is also what was required in the Postal
Reform Act.
Mr. Davis. Thank you very much.
Mr. Williams, let me ask you, your office has done
significant audit work concerning network realignment and
initiatives, and you have done a good job of detailing the cost
savings or potential savings associated with consolidations.
What do you feel are the most significant challenges facing
the Service as it attempts to consolidate, in some instances,
or make greater use of facilities and, at the same time, be
able to meet levels of efficiency and customer satisfaction?
Mr. Williams. Probably the things I worry about most going
forward, and there is a lot to feel good about, but the things
that concern me the most are, well, first of all, on a general
level, there has been a dismal record in Government for
successfully executing this kind of very large-scale planning.
Before this, I was at the IRS, and I saw their modernization
effort stall and collapse under its own weight. So I worry
about that in general.
As I said in my testimony, they have selected a kind of
incremental approach, which is sort of area by area, and they
certainly have expertise in that. The vulnerability there is
that the broad architecture, the highways that mail moves on,
will somehow be diverted because the plan has been
fractionalized. I don't think that will happen, and it doesn't
look like it, but it is worth a very close watch. And I know
that kind of watch is being made, and I will do the best I can.
We did see some failures in the area of early detection of
service degradation and decline. We certainly felt bad about
Chicago and how that went. During this kind of a massive
initiative, we needed to detect very early service declines,
and we need to mitigate those as quickly as we can, more
quickly than we have in the past.
Another area would be savings. This is all about trying to
pull costs down. We need to watch those very closely, and we
need to pull those out the moment the savings has occurred. It
is a sort of force in Government that those savings are
reinvested if they are not watched closely by the local
managers. That is an area. Actually, you have Pat Donahoe
coming up later. That is an area where the Postal Service has
been very effective and very good, and Pat is much of the
reason.
Probably the greatest worry is working with the
stakeholders. There is a little chance that something that is
going to save this much money is going to make everybody happy
and we are going to have a broad agreement that everyone has
won, coming out of this. Stakeholders can either hold the
Postal Service's feet to the fire, or they can tie the Postal
Service's hands. My fear is that if they try to do both, we
won't have much beyond just a burn victim. We are not going to
save anything.
And those are the concerns, those are the things I am
watching as closely as I can, and I know my colleague is.
Mr. Davis. Well, let me ask you, to make sure I understood.
Did I understand you to indicate that there might be the need
for the Postal Service to look for or find a way to generate
additional resources?
Mr. Williams. No, I did not mean to say that. I think we
probably, because of all the points that you raised in your
opening statement, we probably have a surplus of resources,
given the conditions today. We are more concerned about debt,
on the one side, and saving costs. And, on the other side, this
new reorganization is all about marketing and focusing on
customer needs and expanding the base.
Mr. Davis. Did I hear you mention borrowing in any kind of
way?
Mr. Williams. Yes. I think that has been a concern. We
recently were able to remove the borrowing, and then we
immediately headed back into it, borrowing from the Treasury,
of course.
I think that there is probably going to be borrowing this
year, and if conditions don't improve, there will be borrowing
in the future. And as I said the last time I was before you, we
have that rain-or-shine debt of $5 billion a year, and it is
likely to require borrowing as well.
Mr. Davis. And I guess the reason I raised that is because
when I think of borrowing, I also think of paying back. If
somebody says, give me whatever, and I say OK. But if they say,
let me borrow whatever, I expect at some point a payback.
So if there is some borrowing, how do we get to the point,
or do we get to the point through these efficiencies and
consolidations, that would put us in a position to repay the
Treasury?
Mr. Williams. Recently, the Postal Service was able to
completely pay back the Treasury. And I think that the plan is
a good one, and that could certainly prevent us from going into
debt and allow the repayment again.
Also, I am very hopeful of the new reorganization that was
just made. We brought in some top-flight professionals that are
very good at marketing and sales and studying customer segments
that are out there building on the base.
Those are the two tools we have. We have this one, and then
we have the new initiative to expand marketing and sales.
Mr. Davis. Thank you very much.
Mr. Marchant.
Mr. Marchant. Thank you, Mr. Chairman.
The intent of the Postal Accountability and Enhancement Act
was to ensure the post office functioned more efficiently.
Which one of the conceptual plans has posed the most real-world
application problems? Which one of the concepts has been the
most difficult to implement in the field?
I would like an answer from both of you.
Mr. Williams. In my mind, the ones that have collapsed
under their own weight have been the same ones that the other
departments of Government have attempted and failed. We see the
FBI, the FAA, and the IRS. Usually the ones that are very long-
term and very elaborately sequenced are impossible to turn. It
is like trying to turn a battleship in a river. It is very,
very difficult. Where it becomes more hopeful is where you have
a general idea of where you are headed and the near-term
planning is very specific.
I also mentioned savings. I have seen a lot of savings lost
because, after the reform, no one goes in to take those savings
and send them to the bottom line. That happens to be a strength
of the Postal Service. Since my arrival, that is one thing I
feel they excel at.
Mr. Herr. Mr. Marchant, one of the things I observed is
that GAO has done some prior work on organizational
transformation. One of the things that we emphasized in this
statement today is the importance of setting some of these
targets and goals. They can help provide a sense of momentum.
They can provide a sense of progress. They can help
stakeholders know that something is being accomplished.
I think that is important, when you are looking at
something this large. If you think it is going to last forever
or it is going to last for 4 or 5 years, one would like to have
some sense of where they are after a year or two or where they
hope to be.
So we think those annual reports to Congress would be a
place to provide some of that transparency and clarity for
folks in your position.
Mr. Marchant. The Postal Service's plan to reduce work
force by attrition, is that working?
Mr. Williams. Just before my arrival, there was a very
successful effort to downsize. That has continued. I think the
current numbers are 785,000.
The career number is 684,000, which is the one that is very
difficult and very stable to suddenly reduce, has reduced
greatly since my arrival. That has been a very successful part
of what has gone on. As a matter of fact, it has been so
successful, that trailing behind it has been the network
downsizing, and it has left some of our plants understaffed.
And I think this staff has suffered as a result of a slow start
in the build-down.
As you know, there has been stakeholder resistance to some
of the initiatives, and that has left some of the employees
working very hard, very, very long hours, and in a very intense
environment.
Mr. Herr. My understanding is, I think, in the last 8
years, through attrition, they have gone down about 100,000
employees. So that would suggest that they have made some very
significant efforts in that regard.
Mr. Marchant. Thank you, Mr. Chairman.
Mr. Davis. Well, thank you very much, gentleman. I don't
have any additional questions. We appreciate your patience, and
thank you very much. You are excused.
We will transition to our second panel. While we are
setting up for them, I will just go ahead and introduce them.
Our second panel will consist of Mr. Patrick Donahoe. Mr.
Donahoe was named Deputy Postmaster General and chief operating
officer in April 2005. Mr. Donahoe is the second-highest-
ranking postal executive and the 19th Deputy Postmaster
General. He is a 33-year Postal System veteran.
And we welcome you, Mr. Donahoe.
We also have Dr. John Waller, who has been director of the
Office of Rates Analysis and Planning of the Postal Regulatory
Commission since February 2005. His primary responsibilities
are directing the technical advisory staff of the Commission
and supporting the commissioners in all proceedings and the
development of reports.
Gentlemen, if you would stand and raise your right hands
and be sworn in.
[Witnesses sworn.]
Mr. Davis. The record will show that the witnesses answered
in the affirmative.
Gentlemen, thank you so very much.
We will begin with you, Mr. Donahoe.
STATEMENTS OF PATRICK DONAHOE, DEPUTY POSTMASTER GENERAL, U.S.
POSTAL SERVICE; AND JOHN WALLER, DIRECTOR, OFFICE OF
ACCOUNTABILITY AND COMPLIANCE, POSTAL REGULATORY COMMISSION
STATEMENT OF PATRICK DONAHOE
Mr. Donahoe. Good afternoon, Chairman Davis, Ranking Member
Marchant and members of the subcommittee. I am Patrick Donahoe,
Deputy Postmaster General and chief operating officer for the
U.S. Postal Service. It my pleasure to be here today to discuss
the Postal Service's Network Plan.
The Postal Service manages one of the world's most complex
distribution and transportation networks. Today's mail
processing network consists of more than 400 processing plants
and features 37,000 post offices. We handle 200 billion pieces
of mail annually and deliver to nearly 148 million addresses on
a daily basis.
Congress recognized that we need flexibility in order to
continue developing an effective and efficient network.
Moreover, current economic conditions highlighting the
importance of the Postal Service utilizing such flexibility,
such as a weak economy, continues to put a strain on our
finances.
Through the first two quarters of this fiscal year 2008,
total mail volume has declined 3.4 billion pieces compared to
last year, resulting in a loss of over $700 million. This trend
is worsening. Under such conditions, flexibility to manage the
network is even more vital in meeting the challenges facing the
U.S. Postal Service.
The Postal Accountability and Enhancement Act of 2006 has
changed the way the Postal Service is regulated. However, it
does not change our basic mission, which is to bind the Nation
together through the correspondence of the people and provide
prompt, reliable and efficient mail service.
The postal law of 2006 charts a new course for us as we
continue to fulfill this commitment in relation to service
standards for our market-dominant products. The first objective
was to establish a set of modern service standards for the
market-dominant products. In December 2007, the Postal Service
published our new standards.
The second objective was to provide a system of objective
performance measurements for each market-dominant product.
Measurement systems for many products, such as single-piece
first-class mail, have been in existence for a long time. We
are now in the process of implementing expanded systems and/or
introducing new measurement systems.
The third objective required by the law was to establish
goals and submit a plan to Congress for meeting our modern
service standards. Since February 2008, I, along with other
senior postal officials, have met monthly with Chairman Dan
Blair, the PRC Commissioners and the PRC staff to discuss
postal network rationalization. As you know, the Postal Service
submitted its Network Plan to Congress on June 19, 2008. The
Postal Service is grateful to the commissioners and to their
staff for their valuable insights.
The Network Plan establishes continuous improvements as the
overarching performance goal, and it describes timetables to
establish baselines for 2009 fiscal year performance targets
for various market-dominant products. We embrace this enhanced
transparency and accountability, and look forward to sharing
our performance targets, successes and targets with Members of
Congress and all of our postal stakeholders.
The key element to the Postal Service moving forward on the
service standards was to ensure that the voice of the customer
was heard. Numerous meetings with commercial groups, large and
small, have been held, and some of these work groups continue
today. Incorporating concerns of our customers was critical.
I would now like to highlight three elements of the network
rationalization which all support our bottom line of either
meeting or exceeding our existing service standards and
maintaining efficiency. They are: the continued consolidation
of our postal airport centers; a review of the mail processing
network to identify facilities where outgoing or incoming
operations could be consolidated; and the transportation of our
postal bulk mail network.
On July 1, 2008, we issued a draft request for proposal for
the BMC network. We are now in the process of receiving
comments from various vendors able to provide the type of
network reach and capacity necessary. We expect to consolidate
mail processing operations at some locations, but we are always
reluctant to implement network changes that could result in
diminished service. Accordingly, the Postal Service will
implement changes that promote efficiency but that also
aggressively minimize any diminution of service.
Our dedicated employees do a great job on a daily basis,
providing excellent service at the best prices in the world. We
are sensitive to the impact that network rationalization could
have on our employees, and we have held numerous consultations
with our unions. We are proud of the fact that we have relied
on employee attrition to reduce well over 100,000 people over
the last 7 years. By using attrition, we have minimized adverse
impact on our employees.
We are also pleased to announce that we have requested
authority from the OPM to offer certain crafts voluntary early
retirement options. This action helps our bottom line in these
times of tight finances and, just as importantly, benefits our
employees by giving them the option to retire early without
facing undue financial penalties.
The Postal Service Accountability Enhancement Act
acknowledged the need for the Postal Service to streamline its
distribution network. To achieve this vision, the Postal
Service will need the support of this subcommittee and of the
Congress.
We ask you to understand that the consolidations or
closures are a part of a strategy designed to serve the overall
needs of the Postal System and our customers nationwide. We
will also to continue to work very closely with our employee
unions and our associations.
The Network Plan that we have submitted to Congress is not
the last word on these programs. In accordance with the new law
and in keeping with our goal of continuous improvement, the
Postal Service will submit annual progress reports to Congress.
I will now be pleased to discuss the elements of the plan
in more detail or answer any other questions you might have.
Thank you.
[The prepared statement of Mr. Donahoe follows:]
[GRAPHIC] [TIFF OMITTED] T8658.031
[GRAPHIC] [TIFF OMITTED] T8658.032
[GRAPHIC] [TIFF OMITTED] T8658.033
[GRAPHIC] [TIFF OMITTED] T8658.034
[GRAPHIC] [TIFF OMITTED] T8658.035
[GRAPHIC] [TIFF OMITTED] T8658.036
[GRAPHIC] [TIFF OMITTED] T8658.037
[GRAPHIC] [TIFF OMITTED] T8658.038
Mr. Davis. Thank you very much, Mr. Donahoe.
We will go to you, Mr. Waller.
STATEMENT OF JOHN WALLER
Mr. Waller. Good afternoon, Chairman Davis and Ranking
Member Marchant. Thank you for the opportunity to testify.
The Postal Accountability and Enhancement Act requires that
the Postal Service consult with the Commission in the
development of a modern system of delivery performance
standards, the establishment of a system that measures
achievement of those standards, the adoption of performance
goals, and the realignment of the postal network to meet those
goals.
This consultive process started in 2007 with monthly
meetings of the commissioners and a Postal Service team headed
by the Deputy Postmaster General. The Service has provided
presentations to the Commission on the key elements of the
Network Plan that has been submitted to the Congress.
Through this consultation process, the Commission has had
the opportunity to provide independent review and feedback on
many of the Service's proposals. Conversely, the process has
also allowed the Postal Service to understand the Commission's
requirements as a regulator.
On June 9th, the Service presented to the Commission for
comment its final draft of the Network Plan. On June 16th, the
Commission submitted its comments in a letter to the Deputy
Postmaster General. At the request of the Commission, the
letter was submitted to Congress, along with a final version of
the Network Plan.
As background, the PAEA requires the Postal Service's June
plan to establish performance goals, describe network changes
necessary to meet those goals, describe how the new performance
goals change previous submissions to Congress, and describe the
Postal Service's long-term vision for its infrastructure and
work force. Additionally, the Postal Service plan is to include
detailed information on the cost savings, impacts, timeframes
and processes for rationalizing its facilities network.
In its letter to the Postal Service, the Commission noted
that the draft of the Network Plan lacked specific performance
goals for individual postal products and the vision of how
those activities described in the plan would contribute
specifically to meeting those goals. During the consultive
meetings with the Service, the Commission made known its view
that the goals expressed as specific percentages of on-time
delivery should be part of the June plan. Corporate goals
already exist for first-class single-piece mail, such as 95
percent on-time delivery for such mail, subject to overnight
delivery standards. The Commission has consistently urged the
Service to expand such explicit goal statements to all classes
of mail and include them in the Network Plan submitted to
Congress.
The draft plan given to the Commission 10 days before
delivery to Congress stated that such specific goals would not
appear until early 2009, and these would be targets to be
improved annually. The Commission is pleased to see, however,
that the final version of the plan presented to you adopts a
more aggressive schedule, and the Commission now expects to see
proposed percentage goals for all services before the end of
the fiscal year. Such changes exemplify the progress and
results that can be achieved via the consultive process that is
now a major attribute of the new regulatory environment, as
envisioned by the PAEA.
The plan presented to Congress does describe many of the
processes by which the postal network will change: for example,
the improved guidelines for area mail processing consolidations
that several of the witnesses have identified. These guidelines
address many of the concerns raised in the past by the
Commission and discussed in my testimony before this
subcommittee last year. These process descriptions are useful
statements of how the Service will implement realignment.
Once performance goals are established, the Commission
expects more details on the Service's vision for its network,
what the new facility configuration and transportation links
will involve, and a quantification of the cost and performance
benefit.
The Commission will carefully review the impact that
network changes have on delivery service, using data from the
Service's proposed hybrid measurement system currently under
Commission review. Of course, this presumes broad adoption of
the intelligent mail barcode in 2009.
In addition, network realignments that can have significant
nationwide impact on delivery performance must be subject to
review by the Commission through a request for an advisory
opinion, as required by the both the new and former postal
laws. Service impacts will also be included in the annual
reports of the Commission.
The Commission takes very seriously the consultation role
tasked to it by Congress. It does understand that the Postal
Service faced a tight deadline for the development of the
performance goal and Network Plan this June. Thus, the
Commission looks forward to continuing the consultation with
the Service on both these issues as additional specificity
develops.
Thank you. And I welcome the opportunity to answer any
questions members of the subcommittee may have.
[The prepared statement of Mr. Waller follows:]
[GRAPHIC] [TIFF OMITTED] T8658.039
[GRAPHIC] [TIFF OMITTED] T8658.040
[GRAPHIC] [TIFF OMITTED] T8658.041
[GRAPHIC] [TIFF OMITTED] T8658.042
[GRAPHIC] [TIFF OMITTED] T8658.043
[GRAPHIC] [TIFF OMITTED] T8658.044
[GRAPHIC] [TIFF OMITTED] T8658.045
Mr. Davis. Thank you very much, gentlemen. We appreciate,
again, your being here.
Mr. Donahoe, let me begin with you. Recently I talked with
panel one about the urgency of realignment. How urgent would
you say that the need for realignment is with the networks? And
if that alignment is not taking place perhaps as envisioned or
scheduled, what would be the cost to the Postal Service? And
what safeguards do you have in place, as you make the
realignments, to give assurance that it is going to work?
Mr. Donahoe. Thank you, Mr. Chairman. Let me address that
in a number of ways.
First of all, our major concern today in the very short
term, as I outlined in my statement, is our finances. We have
lost $700 million to plan this year. Things do not look any
better in quarter three, which we are just finishing up. There
is a chance we could lose over $1.5 billion this year.
The problem with that, of course, is, the way the law is
structured, our prices need to remain at or below the rate of
inflation. So making up that difference, short of cutting
costs, is left to the other side of the ledger, the balance
sheet, to increase revenues.
Now, we have some great people in the organization doing a
wonderful job, but in these tight economic times, you can see
what has happened with FedEx, UPS, other people in that whole
area, be it package delivery or advertising. So the upside on
revenue generation probably isn't going to be here for the next
couple of years. That presses us to move on with this network
realignment plan.
As you know, we recently put out a request for proposal on
our BMC network, and that is one of the three areas we are
looking at. We think there are large benefits there to be able
to move, hear what the industry says from a standpoint of being
able to give us some idea of the savings through a competitive
process and allow us to start transforming the network.
The other thing that we plan to do with the BMC network, is
not just walking away from that network and walking away from
the employees. What we were planning to do with the BMC, as we
move the work that is being done out of there presently and
into an outsource network, we are going to move quickly to use
those BMCs for our second phase of the flat sequencing. That
allows us to be more efficient in delivering mail and also
gives us that opportunity to keep the cost lines down on that
side of the ledger.
Every month that we wait on these opportunities to work on
our network, that delays us and puts us in great peril going
forward.
Mr. Davis. You talked about your early retirement program.
Who are the employees who are eligible for it? And how
effective would you suggest that it has been?
Mr. Donahoe. We have used the VERA retirement approach a
couple of times already. We used it in 2005, and we are going
to use it this year in 2008.
The employees that will be offered that VERA would be our
clerks, our mail handlers, our city carriers, our rural
carriers, supervisors, postmasters, and a number of other
people within the organization, including headquarters and our
area offices.
Now, we will restrict it at this point: We are not going to
offer that to our, what we call, ETs, electronic technicians.
They are the top-notch maintenance people we have in the
organization. The reason we are not is that they are very hard
to recruit and train, so it would be irresponsible on our part
to let somebody with that kind of training walk out the door.
The idea behind that is to give people the option to take
that early retirement. We think it is a wonderful benefit. So
if a person is close to retirement, they might lose a couple
percent but they can move on with life, either to take up a new
career or stay at home and take care of family members.
Mr. Davis. I know that any time a consolidation occurs,
there has to be a great deal of hue and cry from any number of
sources. What are the collective bargaining issues that come
into play with the work force representatives in a
consolidation?
Mr. Donahoe. First of all, we have an outstanding
collective bargaining process. It is probably the best you
could see from a standpoint of any industry. Our unions work
very well with us. I am very proud to say that if you look at
some of the things we have been able to accomplish as a team
over the last few years, it has really gone a long way to help
the Postal Service stay strong in a time when we could already
be under great stress.
If you go back to, say, 2000-2001, Mr. Chairman, our
revenue and our volume at that point pretty much leveled out.
Our ability to work with the unions to continue to increase
productivity, to be able to shed a number of employees, has
given us the opportunity to keep our head above that financial
water.
Now, looking forward, like I say, we have some excellent
processes in place. We have sat down and talked with the unions
about some of the plans with the BMCs. The BMC is not a done
deal at this point, one way or another. Concurrent with the
request for proposal to look at the network, at the same time
we have what is called Article 32, which is part of the
collective bargaining process where we still continue to talk
with the unions, listen to their concerns and listen to their
recommendations. We value that. We think it has been a good
thing for the Postal Service, it has been a great thing for the
employees.
You know, as we look around this United States, there are a
lot of people who have lost jobs, and lost jobs because of
responsibility that was not taken up with the leadership in
management and the leadership in the union. We think we have
great leaders. Everybody understands the importance of a strong
Postal Service, because it is not just helping employees, it is
also keeping the entire industry strong.
Mr. Davis. Your mail processing staff has actually been
significantly reduced since 2000 without consolidation. Can
that trend continue and not necessarily get into as much
consolidation as might be necessitated otherwise? I mean, why
do we have to consolidate if we are able to reduce the work
force through attrition?
Mr. Donahoe. The attrition has worked great, and what that
has allowed us to do, to a large extent, is take out operations
and improve productivity across the country. We have done some
consolidations, as you heard Dave Williams mention a little bit
earlier.
As we look forward, the major problem that we face is a
slow-declining first-class mail volume. It has been running at
about 3 to 4 percent. This year it is about 5 percent. Single-
piece mail volume pays a lot of bills in the Postal Service.
So, as that declines, a couple things happen. First of all,
it hits the revenue line. The second thing, it leaves
substantial capacity in the rest of our system. So when you
start to look around, you see facilities that are somewhat
close that you can do these consolidations and not affect
service negatively. In fact, in many cases, it improves service
because you might have better reach to two and three areas. So
we are looking at those types of consolidations.
The technology that is out there today, within our mail
processing plants, has allowed us to make some consolidations
around airport mail facilities and, at the same time, improve
service. So, looking out at a network that we have, the
overhead to run these buildings, heat, light--everybody knows
what is happening with costs that way, too--taking a look
across the entire cost structure, it is very responsible on our
part to continue to take a look at everything, looking at those
consolidations, to help bottom-line finances in the
organization.
Mr. Davis. What has been the stakeholder's response with
some of these--especially coming from elected officials in the
areas where the consolidations have taken place?
Mr. Donahoe. Well, as the GAO mentioned earlier, in the
past we had a process that we have definitely improved and that
is that communication process. And we've worked through the
communication process with the local stakeholders, and that is
political and employees and customers. We have seen some
success. We have had some situations, as you know--and there
are some bills right now that are pretty much holding us up
from doing some consolidations that we know would be the right
thing to do. It would not have a detrimental effect on our
employees nor would it hurt our customers.
So what we're looking for, as we said earlier, the law was
passed, we think it is a great law. It gives us flexibility to
manage our systems, and our networks. It also keeps postage
rates affordable, which of course keeps a strong industry. But
what we're asking for is that you let us have that flexibility
to act on what we know is the right thing to do.
Mr. Davis. Thank you very much. And let me go to Mr.
Marchant. I will be back to you, Dr. Waller.
Mr. Marchant. Thank you, Mr. Chairman. I have a large bulk
mail facility in my district. So I think I will ask some
questions about the bulk mail, the Network Plan as it discusses
the network and the concept of consolidation and outsourcing of
the bulk mail. That is the question I'll ask both of you to
respond to.
Mr. Donahoe. Sure. In the Fort Worth--Dallas/Fort Worth
area, we've got a number of facilities. We have a facility--a
plant----
Mr. Marchant. This is the one out by the airport?
Mr. Donahoe. In that network we have a large facility in
Fort Worth, two in Dallas and of course one out at the airport.
What has happened, Congressman, over the years is this. If you
go back 25, 30 years ago when we opened the bulk mail
facilities, at the time they were great facilities that really
met the needs of the Postal Service because the way the mail
flowed, mailer behavior, you had substantial volume in your
mail that started in facilities, say, like Dallas and was
transported across the country and our network say to San
Francisco for delivery. Over the course of these last 25 to 30
years, there has been a substantial change in mailer behavior.
Mailers today--and you'll hear from some of the mailers coming
up later on--drop a substantially larger portion of mail at
destinations. So rather than have mail go from Dallas to San
Francisco, let's say 100 percent, today standard mail or
advertising mail, over 80 percent of it is dropped at the
destination.
So what that has done over the years is left us with a big
network with great big buildings and a lot of equipment but
nothing in them. Our plan is to look at who can provide what is
left of that network end to end in a network, transport the
mail between Point A and Point B, give it back to us for our
employees to work and deliver and at the same time take
advantage of these facilities, great facilities, great
locations, to go in, clean them out, take out all the
antiquated equipment and put state-of-the-art flat sequencing
equipment in there which will improve service and at the same
time reduce our costs.
Mr. Marchant. We do have some industry people that are
coming up later. But, you know, the first time I heard about
it, was from the people that are doing the mailing in my area.
And I guess in my instance, there is a lot of it dropped
directly in Dallas, like you said, and in San Francisco. So
what you are saying is that those facilities will be used, they
will just be retooled and made more efficient for another kind
of service?
Mr. Donahoe. Yes, sir. That's our plan. The way mail is
entered into our system today, mailers have the choice of
either dropping it at origin, it goes through our network, or
they can drop it at a destination facility, say, like the
Dallas main post office or even deeper in like a newspaper. A
newspaper chooses a lot of times to deliver mail right to the
local post office where the letter carriers are that morning so
that they can make sure that they have the latest news getting
in the letter carrier's hand and we get that delivered that
same day. They get the best rates, the postage rates to do that
and that allows them too within their own network to stay with
the latest news getting out there for delivery on that same
day.
Mr. Marchant. Tell me what time definite surface network
means.
Mr. Donahoe. Time definite surface networks would say that
if you were taking mail from Dallas to San Francisco, it should
take you 3 days or 4 days, whatever the service standard is.
Now, the way we built the service standards is right off of the
time definite surface network. First-class mail, standard mail,
periodical mail, first-class advertisement and newspapers
travel on a lot of similar networks. They have different
service standards. We fly mail--if you were taking mail from
Dallas to San Francisco, we'd fly that mail if it was first
class. If it is standard or periodical, we run that across a
network. Our network today, the way it is set up, we run our
trucks at substantially less capacity and in a lot of the cases
we move mail across the country and consolidated points in
order to be more efficient. We're not as timely as we would
like to be. We know that there are providers in the network out
there that have systems that move mail around the country much
quicker. We're looking to take advantage of a system like that
to cut costs and improve service at the same time.
Mr. Marchant. So these 18-wheelers that have--I think there
is a major contractor north of Dallas, Ritchie, that has----
Mr. Donahoe. Al Ritchie.
Mr. Marchant. I pass by his facility every Sunday afternoon
when I drive up to the ranch. And he goes from Dallas--I mean,
on the back of each trailer has Point A to Point B. This mail
comes from the bulk mail center to another bulk mail center?
Mr. Donahoe. Yes, sir. Or to another processing facility.
Nationally, we have about 17,000 of these highway contract
drivers that haul mail between plants. We call them processing
plants or bulk mail centers. And even a handful of them deliver
mail at mailboxes across generally the more rural areas.
Mr. Marchant. Yeah, Mr. Chairman, I'll stop with that
question. But these guys are--have to be hurting right now.
Mr. Donahoe. I tell you, gasoline is expensive.
Mr. Marchant. So at some point, and I'm sure that somebody
will answer that question, at some point this has to have a
high impact on the cost to get that mail from Point A to Point
B.
Mr. Donahoe. Yes.
Mr. Marchant. Thank you.
Mr. Davis. Thank you very much, Mr. Marchant. And maybe the
Postal Service will help us figure out how to get gas prices
down.
Mr. Donahoe. We're trying to buy a couple of hydrogen cell
vehicles. We'll give those a try.
Mr. Davis. But, Mr. Kucinich, thank you for joining us. Do
you have some questions?
Mr. Kucinich. Yes, Mr. Chairman. Thank you for holding this
hearing. As always, you're the person who the people can count
on to protect the Postal Service as an ongoing service to the
people of this country. So I appreciate it.
For Mr. Donahoe, welcome and thank you for being here. And
as well as Mr. Waller, thank you.
The U.S. Postal Service is one of the most heavily utilized
and underappreciated branches of the Federal Government as a
service. And as a major supporter of the U.S. Postal Service, I
understand the difficult financial constraints under which
you're currently operating. The Postal Service Network Plan
uses all the right buzzwords like right sizing, optimization
and euphemisms for closing facilities and laying off workers in
order to make the case for closing various facilities in the
Nation, including airport facilities and processing facilities.
But you're going to have to forgive me if I'm skeptical of any
nationwide plans for facility closings. There are questions
about the accuracy of the information that drives these
closings. In the past, the amount that was supposed to be saved
by a closing was not achieved. Predictions of the effects on
service have also been erroneous.
I have already made clear to you and to the Postal Service
in letters that I oppose the privatization of U.S. postal
services, not just in Cleveland, but around the country. It is
my concern about the long-term financial well-being of the U.S.
Postal Service that drives my concern about privatization. And
with me, it is not just about the Postal Service, it is any
public services, whether they are mail delivery, water or
electricity. It has been my experience they really don't yield
the gains that are hoped for.
For example, concluding, Mr. Chairman, we had an A-76 on
DFAS, Defense Finance Administration, and it has turned out to
be a fiasco over a period of years. Service goes down, price of
operating goes up.
So I want to start with questions about the Cleveland
facility that might be partially closed. On July 8, 2008, I
wrote to the Postmaster General, John Potter, with my concerns
about the proposed shutdown of the Cleveland Airport Mail
Center [AMC]. Yesterday I received a response that made a
distinction between the AMC operations and AMC retail facility.
The letter says retail services will continue to be provided at
this facility for the foreseeable future. That is a quote. And
retail is a concern. And for my constituents and me, this is in
my district. The AMC is the only place a mail customer can go
if they need to get a date stamp on a letter or package if it
is later than usual business hours. I can tell you having been
to this facility hundreds of times over a period of a many
years, because I live nearby, there are always lines here.
So will the Cleveland AMC under the current planning retain
its late hours and what services will definitely remain at the
facility? That's the first question I have. And the second
question--you can probably address these at once. I want to
know how this is playing out nationwide.
Of the 54 AMCs the U.S. Postal Service has already shut
down, how many facilities have retained retail services like
late hours that were unique to the facilities and would you be
willing to furnish that information to the committee?
Mr. Donahoe. Sure. Let me answer that in a couple of
different ways. First of all, Congressman, we have never laid
anyone off. I take that very personally.
Mr. Kucinich. I know there is a ban.
Mr. Donahoe. There is a contractual agreement, but it
doesn't cover everyone. But nonetheless, as leader of the
organization, it is my responsibility to make sure we make the
right decisions so that when somebody comes to work for the
Postal Service, we never have to tap them on the shoulder like
somebody from General Motors, Ford or U.S. Steel and say you
don't have a job here anymore. So we take that very seriously.
In terms of Cleveland, at the airport mail facility, we
have no plans of shutting that down. As a matter of fact, we
own the building. What we would like to do is take that airport
mail facility retail unit, keep that going and outlease the
space in there to make some money to put against some of the
operating costs that we have in the organization.
At our airport mail facilities, we have great employees
working there. What has happened with those to a large extent
is they become obsolete with the way we transport mail. I was a
manager at an airport mail facility many years ago in
Pittsburgh, PA. The way we transport mail today is on the
ground predominantly and what we fly goes to either FedEx, UPS
or one of seven airlines. It used to be 55 airlines. And the
work done at the airport mail center was to sort through the
mail for 55 airlines. We no longer have to do that any more. So
we're able to move the mail back up into our facility in
Cleveland, assign it to the air carriers from there and the
service has gone nowhere but up.
So we're going to keep that facility open from a retail
perspective. We're looking to outlease the rest of it because
we do own that building.
Mr. Kucinich. You're saying the retail facility. You made
that clear. But there are two functions here: One is kind of a
general operation as a mail center. Now is that going to be
maintained? I just want to make sure I understand that clearly?
At the Cleveland Hopkins Airport, that AMC is that going to be
retained as a mail center or a retail center and do you make a
distinction in that or is any of its status going to be
changed?
Mr. Donahoe. The retail facility will remain. The mail
processing that we can move back into the Cleveland's main
processing plant, we are going to do that.
Mr. Kucinich. You're going to move the mail processing back
to where?
Mr. Donahoe. Cleveland, OH and to the main post office down
not too far from Jacobs Field.
Mr. Kucinich. See, one of the things, Mr. Chairman, that
I'm concerned about and to my friend, Mr. Marchant, here is,
you have these facilities by these airports that are really
convenient to the public and in Cleveland, right down the
street, less than 100 yards, just a few minutes walk, if a
minute walk, from the post office is a FedEx. So if the people
are used to coming out there, you know, late at night to get
things processed, there might be more of a tendency to want to
go to choose FedEx. And I don't want to lose customers here. I
want to make sure that the money that is being invested here
and that Congress makes sure that, you know, we want to see
this post office fortified, we don't want to lose any business.
And I'd like, Mr. Chairman, I would really appreciate it if
this subcommittee, could work together--I'm chairman of
Domestic Policy, and I'd look forward to working with you to
see if this change in the status of mail centers, which are at
airports, are in any way aimed at facilitating a kind of
privatization. You know, this is something that I think this
committee ought to look at. You know, this is what our
responsibility is. Mr. Donahoe, you have your responsibility.
I'm very concerned that this could be a way to try to
facilitate privatization which would result in greater costs
for a service for our constituents, and frankly I don't think
there are many areas where you can beat the U.S. Postal
Service.
So I'm a fan of yours, but at the same time, I don't want
to see any change in that Hopkins airport facility. I'm not
interested in running the post office, but I am interested in
saving that facility. So we'll have further discussion on this,
but I appreciate your cooperation with this subcommittee
because we'll be talking some more.
Mr. Chairman.
Mr. Davis. Thank you. Yes. We'll work with you without a
doubt.
Mr. Kucinich. That would be kind.
Mr. Donahoe. Could I clarify? Maybe I'm not explaining the
retail facility. The retail facility, that is the post office.
That will not close. In fact, if that is the one you're
talking, I'm thinking we probably should keep it opened later
to compete with FedEx. That will not close. All we're doing in
the rest of the building is moving some equipment that we can
get better utilization that delivers and sorts mail for the
entire Cleveland area back up to the Cleveland facility.
Mr. Kucinich. Mr. Chairman, I thank the gentleman. Mr.
Chairman, thank you for your indulgence here. I would look
forward to perhaps looking at what it is you're talking about
moving. I don't live too far away, so maybe we can work out
something with your staff.
Mr. Donahoe. I'd come up and visit you myself.
Mr. Kucinich. Let's do it. Let's chat. I thank the
gentleman.
Mr. Chairman, thank you so much.
Mr. Davis. Thank you very much, Mr. Kucinich. And Dr.
Waller, let me get back for a minute. Are you satisfied that
the Postal Service has made sufficient progress to address the
recommendations that the PRC has made?
Mr. Waller. Of the ones that we made last year and then the
end case that we had specific ones on? I think we are much like
the GAO, we're very pleased at what has happened with the AMP
guidelines, which were a series of improvements there, both in
their public interactions and the getting of information out to
the community. We also are hopeful that the descriptions that
are in the handbook of the changes and actually the worksheets
where the devil is in the detail of actually calculating the
expected savings because you do as much as you can to get an
accurate picture of how the change will be after the
consolidation. But when we looked at the AMPs from the previous
set, the ones that a lot of them are still pending, they were
all over the place. There was a lot of inconsistency. Now, the
new worksheets are there to do it, but we are going to have to
see actually how when new AMPs are done, that they'll actually
reflect real productivities, because you can't just make
assumptions about how machines are going to operate because
they vary so much between facilities. Now, that aspect is one
that we are very pleased with.
Mr. Davis. OK. The Postal Service recently submitted a
proposal for measuring and reporting on delivery service
performance. What is your general assessment of this proposal
at this time? And when do you expect to complete the
regulations related to the Postal Service's annual compliance
report to the PRC?
Mr. Waller. A very good question. The first on the
measurement plan. I'm a big fan of data, the more data the
better and the fact that we can get a lot of this through
machine reads and then complement it with external measurements
like the XFC thing for the final mile of delivery, I think
holds great promise. I think we would have liked to have seen
more progress there moving quicker, but we recognize that it is
a big task and that the future does hold a lot of hope. The
Commission there has to make an actual decision if this is OK
to use this internal or hybrid type system instead of an
external measurement system to get accurate measurements of
what the performance service is on delivery.
The Commission put the plan out for public comment because
that's the way we operate when we have to make some decision
and have gotten back a lot of interesting criticisms, but also
general endorsement of it. I think the industry is in favor of
it. But there is a lot of tweaking they want to do. I must say
that through this consultation process, that measurement system
has evolved a lot from when we first started talking about it.
It has gotten much more granular in reporting and giving
greater transparency. So that has been very good, I think, part
of the consultative process, probably where most effect has
been had.
Mailers would like a few more things in it. We're looking
at that and we hope to make a decision on that in a month or so
as the Commission really considers it. And we'll issue an order
to make a formal assessment of what the performance measurement
system is.
Now, to your second question. When do we get out those data
rules? I want to say soon, very soon and certainly I think
before the end of the fiscal year when they have to start
processing the data to put out the reports for next year. Now,
again there is where we've had the, I think, value of a
consultative process that is a two-way street, where we've been
able to work with the technical staff over there and refine
what can be done very quickly in this coming year, what is a
longer term thing.
So I hope to say this year and that the chairman wants them
out very much, too. But we don't want to put something out that
is just going to cause extra expense and somebody starts
yelling, ``hey, too much data'' because it does cost money. So
that is why we are carefully crafting them.
Mr. Davis. Thank you very much. And let me just ask you one
last question, Mr. Donahoe. If mail volume continued to decline
at the current rates, if these rates should accelerate, how do
you see that affecting the Network Plan?
Mr. Donahoe. One of the things that we are very concerned
about is this decline in volume, Mr. Chairman. This year we
knew it would probably be a bad year from an economic
standpoint and the fact that the Postal Service today has a lot
more exposure to the economy because 10, 15 years ago with a
large percentage of our mail first class, people paying bills,
the economy went up and down, it didn't affect us that much.
With over 50 percent of our mail being advertising mail today,
that is definitely a concern. One of the changes we made
recently, our Postmaster General has made some operational
changes within the organization to focus on the growth side. We
know that the law has given us opportunities to compete in the
package business. We plan in competing in the package business.
We also know that there are a lot of small businesses, home
businesses that are out there that are growing today even in a
slow economy that don't use the mail. So we're going to focus
on the revenue generation side. We're not ready to throw the
towel in yet and say we can't improve that side.
With the continued financial pressures, you know, we're
asking just to let us please work through, be flexible. Let's
work with the union, let us work without any additional
constraints so we can figure out as a team what we need to do
to continue to watch the cost side of this organization. You
know, we've got an excellent working relationship in this room
with the Commission, with the unions, with our employees, and
with the mailers. We're asking for the flexibility to continue
that and we'll be successful in the long run.
Thank you.
Mr. Davis. Thank you very much. Mr. Marchant, do you have
any other questions? Well, gentlemen, thank you very much. We
appreciate your testimony. And you're excused.
We will transition to our next panel, which will be Panel
III. And while we're doing so, we'll move ahead with the
introductions. Panel III will consist of Mr. Michael Winn, who
has served as the Director of Postal Operations for RR
Donnelly, who is a member of the Association for Postal
Commerce. Mr. Winn has been a member of the graphic arts
industry for over 30 years and has been very active in many
other print and industry associations. Mr. Winn, thank you very
much for being here.
Mr. Robert E. McLean has been the executive director of the
Mailers Council since 1996. He furnishes management service for
the nonprofit advocacy organizations, serves as its public
spokesman and represents the Council on Capital Hill. Thank you
very much, Mr. Mclean.
And Mr. Jerry Cerasale has been the senior vice president
of Government Affairs at the Direct Marketing Association since
1995. He is in charge of the DMA's contact with Congress, all
Federal agencies and State and local governments. Thank you
very much, Mr. Cerasale.
And rounding out the group, Mr. Anthony Conway. Mr. Conway
was named the executive director of the Alliance of Non-Profit
Mailers in July 2007. In leaving the Alliance, he represents
nonprofit mailer interests before Congress, the Postal
Regulatory Commission and the Postal Service.
Gentlemen, as you know, it is our tradition that witnesses
be sworn in. So if you'd stand and raise your right hands.
[Witnesses sworn.]
Mr. Davis. Thank you very much. And we'll begin with Mr.
Winn. And let me just say, Mr. Winn, that we're always proud to
say to people that one of the corporate headquarters that
exists in the congressional district that I represent in the
great downtown area of Chicago is RR Donnelly and Sons, and
we're delighted that you're here. You may proceed.
STATEMENTS OF MICHAEL WINN, DIRECTOR OF POSTAL OPERATIONS,
ASSOCIATION OF POSTAL COMMERCE ACCOMPANIED BY GIAN-CARLO
PERESSUTTI, VICE PRESIDENT FOR GOVERNMENT RELATIONS AT RR
DONNELLY; ROBERT E. McLEAN, EXECUTIVE DIRECTOR, MAILERS
COUNCIL; JERRY CERASALE, SENIOR VICE PRESIDENT, GOVERNMENT
AFFAIRS, DIRECT MARKETING ASSOCIATION, INC.; AND ANTHONY
CONWAY, EXECUTIVE DIRECTOR, ALLIANCE OF NON-PROFIT MAILERS
STATEMENT OF MICHAEL WINN
Mr. Winn. Thank you, Mr. Chairman. Chairman Davis, members
of the subcommittee, my name is Michael Winn, and I----
Mr. Davis. You may need to pull it a little closer or hit
the button.
Mr. Winn. There. That is it. Got it.
I'm here before you today in my capacity as a member of the
Board of Directors of the Association for Postal Commerce and
as director of Postal Operations for RR Donnelly. I am
accompanied today by Gian-Carlo Peressutti, who has recently
assumed the position of vice president for Government Relations
at RR Donnelly.
Neither the Association for Postal Commerce, PostCom nor RR
Donnelly are strangers to this committee. However, for the
record, I'd briefly like to summarize who we are and why we
appreciate the opportunity to testify at this oversight hearing
concerning the three Rs of the Postal Network Plan,
realignment, right sizing and responsiveness.
PostCom is the leading trade association in the United
States devoted exclusively to the interests of commercial
businesses and nonprofit organizations who depend upon the U.S.
Postal Service to communicate with the public. Our membership,
comprised of more than 300 companies and not-for-profit
organizations, has a particular interest in mailers, in matters
affecting standard mail subclasses. But our membership uses all
classes of mail, and PostCom represents their interests in
virtually all matters affecting the Postal Service.
As a result, PostCom has been actively involved in the
development and enhancement of the Postal Accountability
Enhancement Act of 2006 And in the work both of the Postal
Service and the Postal Regulatory Commission implementing that
statute. The Network Plan is a key element of the postal
statute and vital to the economic viability not only of the
Postal Service, but also of PostCom's members.
RR Donnelly, headquartered in Chicago, is one of the
leading integrated print and logistic solution providers to
companies and government organizations throughout the United
States and abroad. Our network of consolidation facilities is
designed to aggregate mail and to deliver it to points in the
Postal Service's network, providing our customers with the
greatest efficiency and lowest cost.
We, and I speak for all of the PostCom membership, endorse
the goals and objectives of the Network Plan that the Postal
Service has submitted to this committee pursuant to section 302
of the Postal Accountability and Enhancement Act.
There is a compelling need for the rationalization,
integration and coordination of the Postal Service's processing
and distribution facilities. That need was recognized in the
2003 report of the President's Commission on the Postal Service
which lays the foundation for the postal statute. Indeed, many
of the goals and purposes embodied in the Network Plan were
anticipated by the Postal Service transformation plan which was
submitted to Congress in April 2002 and updated last year.
The Postal Service began its 2002 report to Congress with
this sentence: We live in challenging times. And that is doubly
true today. Overall mail volume is at best stagnant or
declining for a number of reasons, including the volatility of
the American economy. The unprecedented increase in the cost of
diesel fuel particularly affects the Postal Service and
companies like RR Donnelly that support and serve the Postal
Service's commercial and nonprofit customers. This is because
the Postal Service network as it exists today and in the future
is critically dependent on work sharing. A key component of
work sharing, as the plan itself recognizes, involves the
destination entry of mail as deep into the postal system as is
economically feasible. However, given the combined costs of
diesel fuel and postage, we are rapidly approaching the point
at which the incentives in the form of discounts that the
Postal Service provides for drop entry and other forms of work
sharing are no longer adequate to the task.
We are at or very perilously close to the point at which
catalog companies, magazine publishers and other mailers are
seeking alternate, usually electronic means of communicating
with their customers or they are electing to forego the
discounts provided for work sharing in order to shift mail
preparation and transportation costs back to the Postal
Service. The Postal Service can ill afford either outcome.
Indeed, we do live in challenging times. The goals of the
Network Plan looking toward realignment and right sizing of the
Postal Service facilities are not only merely important, they
are indispensable to the preservation of universal service.
In its report, the Postal Service has laid out its
performance goals in terms of continuous improvement in both
service and in efficiency. It has described the purposes of the
three integrated elements of its network rationalization plans.
They are elimination of redundant airport mail centers,
realignment of the mail processing network as a whole, and the
transformation of the bulk mail network.
In our view, these objectives are fundamentally sound. At
the same time, the establishment of these goals serves to
underscore the central importance of the role of the mailing
industry. Mailers and mail service providers must play a
significant role in the development of the specific measures
that are needed to successfully achieve these objectives.
For example, in explaining the rationale for transformation
of the bulk mail centers the plan points out quite correctly
that the increase in destination entry of periodical standard
mail and packages over the past several decades has resulted in
underutilization of the existing BMC network. That will remain
true only so long as the price incentives are made adequate to
induce mailer behavior in ways that serve both the mailer and
the Postal Service.
The overriding objective of the Postal Service
Accountability and Enhancement Act is, of course, to maintain a
commercially and financially viable Postal Service which is
capable of providing universal service throughout the country.
That objective can only be achieved if the plan yields the
lowest combined cost to the Postal Service and the industry.
The Postal Service states in its plan that it values the
ongoing cooperation of the mailing community in implementing
the service performance standards it has developed, but the
need for the mailing community involvement in rationalization
and alignment goes far beyond service. If the only outcome or
the principal result of the plan is to shift more costs from
the Postal Service to the private sector, the plan will quite
frankly fail.
Put another way, we believe that when the postal statute
speaks of affordable rates based on efficient network
operations, that means the entire production and delivery
train, including the work sharing, address hygiene and
undertakings of the private sector.
Efficiency and cost shifting are not the same thing. Now
that the goals and objectives of the modernization plan have
been defined, the need for the mailing community involvement
with the Postal Service in the refinement of the steps outlined
in the plan and in its implementation is more critical than
ever. Realignment and right sizing cannot be accomplished
overnight, especially in a system as large and complex as that
operated by the U.S. Postal Service. Still there are
incremental changes that can be made as the Postal Service
advances its goals of continuous improvement service, both in
terms of quality and cost.
The report, for example, specifically notes that the Postal
Service is committed to establishing full year 2009 service
standard targets, although the measurement systems necessary to
produce the baselines are still in development. While we are
pleased to see the Postal Service move forward with service
performance measurement, this is an example of the need for the
Postal Service to understand and to respond to the needs of its
customers.
As PostCom has pointed out to both the Postal Service and
to the Regulatory Commission, the availability to the industry
of realtime, reliable service performance data is imperative to
the industry's ability to make the most efficient possible use
of the system and to thereby achieve the lowest combined cost
of service. With performance service data available to mailers
and service providers on a realtime bases, the industry will be
able to react to specific problems and maintain efficiency
throughout the value chain and therefore achieve the lowest
combined cost.
The Postal Service is to be commended with respect to its
commitment to--concerning service performance standards and the
measurement of actual performance under those standards. But it
also must recognize that this data must be available to
industry in a timely and meaningful fashion. PostCom looks
forward to working with the Postal Service as it proceeds to
operationwise its service standards and service performance
measurements. But there is more that can be done by the Postal
Service and industry, working together toward the common goal
of maintaining and enhancing the value of mail as a
communication system.
In its opening address at this year's National Postal
Forum, Postmaster General Potter specifically pointed out that
the Postal Service cannot be timid in the implementation of
change. It must also learn to share risk with the industries
that it serves if it is to remain commercially and financially
viable. These steps cannot be taken by the Postal Service alone
in a silo or in a series of unconnected silos. The view,
concerns and interests of industry must be factored into the
plan at each step during the process of implementation, and it
is equally critical that industry interests be included in the
development and refinement of the broad and general objectives
that the Postal Service has laid out in the plan that it has
submitted to Congress.
The devil is in the details in how the objectives and
principles set forth in the 2008 plan and its precursors are
refined and put into actual practice. It is in this respect
that, in our view, the Postal Service's performance to date
needs to be improved at the strategic level. The development
and implementation of the intelligent mail bar code is an
example of this issue of inadequate responsiveness to the
industry needs and input.
The IMB is generally recognized by industry to be of value
to both industry and the Postal Service. It is the long-term
basis for service performance measurement, increased
operational efficiency and right sizing within the postal
system. However, until recently, the Postal Service's service
communications concerning this major objective have been at
best confusing and incomplete and at worst entirely in conflict
with the needs and capacity of industry. The result is an
enormous cost to the industry, costs that could have been
better devoted to the actual production, printing and
preparation of mail.
I am happy to report that in recent weeks the senior
management of the Postal Service has come to recognize that
there is a need for a high level coordination of all the
elements that go into IMB. This includes the creation of
mechanisms through which industry can express its views and
concerns regarding consistent, reliable and meaningful
information about the IMB plan, its pricing and its
requirements. There are, however, other aspects of the plan
where the Postal Service's responsiveness to the needs and
interests of the industry must be improved. This is especially
true at the tactical level.
We in the industry understand the incremental changes in
operations and the use of facilities will result in changes of
the routing of mail. This may occur with more frequency as the
Postal Service moves to a network redesign and redeployment.
However, too often mailers and the logistics companies that
they employ do not learn of operational changes in a particular
region or at a particular facility until a truck carrying the
mail actually arrives at the facility only to be told by local
officials that routing has been changed. This occurs when
processing equipment has been moved and a truck has to be
routed to the newly designated acceptance site. Whether or not
these unannounced changes in operations produce savings to the
Postal Service, it misses the point. The added cost to
industry, especially in times of high fuel costs, defeat the
goal of the lowest combined cost and therefore the objectives
which underlie the Postal Accountability Act.
Accordingly, as to the tactical and strategic matters in
the Postal--the Postal Service's communication of information
and responsiveness to input from the industry can be and must
be improved.
In conclusion, PostCom and RR Donnelly believe that the
basic objectives and purposes in the Network Plan which the
Postal Service has submitted to Congress are sound. There are
aspects of the plan that need to be worked through, developed
more fully and perhaps modified. That task must not be left to
the Postal Service. That task must be left to the Postal
Service working closely with the associations that represent
the industry and with companies like RR Donnelly that are in
the trenches every day. Only through direct interaction between
the Postal Service and the mailing community, which speaks in
this context for your constituents, can realignment and right
sizing take place in a rational and orderly fashion. The mutual
effort is to produce results that are responsive to and serve
the needs and best interests of all the Postal Service's
stakeholders. The Network Plan advanced by the Postal Service
lays the foundation for the realization of these goals.
We thank the subcommittee for this opportunity to present
our views on this critically important Postal Service
initiative. Thank you, Mr. Chairman.
[The prepared statement of Mr. Winn follows:]
[GRAPHIC] [TIFF OMITTED] T8658.046
[GRAPHIC] [TIFF OMITTED] T8658.047
[GRAPHIC] [TIFF OMITTED] T8658.048
[GRAPHIC] [TIFF OMITTED] T8658.049
[GRAPHIC] [TIFF OMITTED] T8658.050
[GRAPHIC] [TIFF OMITTED] T8658.051
[GRAPHIC] [TIFF OMITTED] T8658.052
[GRAPHIC] [TIFF OMITTED] T8658.053
[GRAPHIC] [TIFF OMITTED] T8658.054
Mr. Davis. Thank you very much. And we'll go to Mr. McLean.
STATEMENT OF ROBERT E. McLEAN
Mr. McLean. Good afternoon, Mr. Chairman, Mr. Marchant. My
name is Bob McLean, and for the past 12 years I have been the
Mailers Council's executive director. The Mailers Council is
the largest group of mailers and mailing associations in the
country. Collectively, the Council accounts for approximately
70 percent of the Nation's mail volume. We welcome this
opportunity to testify on the Postal Service's operational
network and the need to realign it.
This reduction is a difficult but necessary response to the
unprecedented changes in mail volume the Postal Service is
experiencing and will continue to experience for years to come.
Reducing the network size is essential if the Postal Service is
to provide affordable, reliable and universal Postal Service to
your constituents.
As we testified 1 year ago this month, the Postal Service
is working diligently to implement the many changes required by
the reform bill signed into law in December 2006. Working with
the support of and direction of the Postal Regulatory
Commission, the Postal Service has made tremendous progress in
such important areas as modernizing the ratemaking system and
developing new delivery standards.
Despite these successes, however, the Postal Service faces
many unprecedented changes in how the Nation communicates and
conducts commerce. Collectively, these changes are largely
irreversible and include no worthy statistics. Overall mail
volume is declining. Revenue from first-class mail, the most
profitable class delivered, continues to decline as does first-
class mail volume. Revenue from standard mail continues to
increase but at a much slower pace than in the past decade.
Higher fuel costs are adding millions in unprecedented costs
every day, a problem that is likely to increase for the
foreseeable future. Higher inflation will also mean
significantly higher cost of living allowances for postal
employees. That along with higher health insurance costs will
add millions in costs in fiscal year 2009.
Because of these challenges, it will become increasingly
important for the Postal Service to operate as efficiently as
possible. Starting now, to avoid significant annual postage
increases that will only accelerate the decline in total mail
volume or if such increases are precluded by the PAEA's price
cap provisions to avoid serious service declines that will have
the same effect.
In its efforts to improve delivery performance and in
response to ongoing and future changes in mail volume and
composition, the Postal Service must be allowed to reduce the
size of its operations network, much of which was designed 40
or more years ago when there was more mail that was processed
quite differently and less competition from delivery and
communication alternatives. More specifically, the Postal
Service must move now to realign and reduce its delivery
network which will lead eventually to the closing and
consolidating of some mail processing facilities, especially in
cities where there are multiple plants.
There are several reasons why we encourage you to allow the
Postal Service to move forward with realignment. First, the
Postal Service has more capacity for processing mail than it
needs because technology has allowed more mail to be processed
faster, with fewer employees and in less time than was in the
case years before. Also, the Postal Service has used the utmost
care regarding its employees during the transition toward
automation. It has reduced its work force, as you heard earlier
today, by more than 100,000 employees without layoffs, which I
think is a remarkable achievement.
Second, mail volume is expected to continue to decline, but
mail delivery points will increase. The Postal Service adds
from 1.2 to 1.8 million new delivery points every year. That
means they have to add more facilities for letter carriers,
hire more carriers and buy more vehicles that have more
expensive fuels in it. All of this will add billions to the
cost of processing the mail.
Third, unless the Postal Service is allowed to control its
cost, the Postal Service will be unable to live within the
price gap imposed by the reform law. This inability will in
turn lead to either a relaxation of the cap followed by
extraordinary rate increases or major service reductions.
Either way, more customers will be driven from the mail,
further reducing mail volume and leading to even higher prices.
And we're back to the much discussed death spiral that, Mr.
Chairman, we discussed often in 2006 before passage of the
postal reform bill.
We recognize that any decision to close a postal facility
is a difficult one. It affects the lives of many individuals,
including employees in your districts. However, the right
sizing of the postal network as the mail stream changes is
essential to keeping postage affordable for all of your
constituents. Higher postage affects everyone and could
eventually hasten the demise of the Postal Service, which the
Mailers Council seeks to avoid. We depend on a reliable postal
system that is affordable. Higher postage and a bloated network
will in the long run be devastating to more than just postal
employees. And unless Congress allows the Postal Service to
consolidate these facilities, we could be talking about a lot
of employee layoffs. This is a dire prediction, but one that we
can state without equivocation because the Postal Service's
potential financial losses are so large and so unavoidable
given the current overhead.
Congress has given the Postal Service a mandate to deliver
excellent service to every person in every State without
government financial support, which it has done for the past
several decades. We want this situation to continue.
Let's avoid layoffs, let's avoid having the Postal Service
become a burden on the taxpayer and allow the postal managers
to manage the agency. Give the Postal Service the opportunity
to respond without encumbrances to these profound changes that
it faces now and will face in the coming years. Please let
postal management reduce the size of the postal operational
network because it is essential to improving the efficiency of
the Postal Service.
Congress has demanded that the Post Office operate more
like a successful business than in the past. It should not
simultaneously prevent it from doing so.
Mr. Chairman, thank you again. I would welcome your
questions.
[The prepared statement of Mr. McLean follows:]
[GRAPHIC] [TIFF OMITTED] T8658.055
[GRAPHIC] [TIFF OMITTED] T8658.056
[GRAPHIC] [TIFF OMITTED] T8658.057
[GRAPHIC] [TIFF OMITTED] T8658.058
[GRAPHIC] [TIFF OMITTED] T8658.059
[GRAPHIC] [TIFF OMITTED] T8658.060
Mr. Davis. Thank you very much, and we'll go to Mr.
Cerasale.
STATEMENT OF JERRY CERASALE
Mr. Cerasale. Chairman Davis, Ranking Member Marchant,
thank you very much for giving us the opportunity to be here.
I'm Jerry Cerasale, senior VP for the Direct Marketing
Association, which is an association of 4,000 companies
reaching--using all channels of marketing, all channels of
communication to try and reach citizens in this country and
throughout the world. The.
Postal Accountability and Enhancement Act maintains the
focus of the old Postal Reorganization Act that the Postal
Service run as a business. And just as any legislation we have
seen, it has compromise in it. There are CPI limited rates. At
the same time, the Postal Service is given the opportunity and
the flexibility to run itself as a business. Both the Postal
Service and its customer, the mailers, face a changing
marketplace right at the moment. And to survive, the Postal
Service must constantly adjust to meet that marketplace. Just
as my members are constantly adjusting how they try to reach
customers and potential customers, changing their advertising
dollar mix between the many channels that are available to them
and the number of channels are only going to grow as time goes
on.
Change itself, however, can be very difficult for both the
Postal Service, for the mailers and their employees, for postal
employees and for your constituents and the constituents of
your colleagues, as we change facilities, change processing, as
things move across geopolitical lines. But we have to allow the
Postal Service to adjust. We cannot simply oppose change for
change's sake.
And we applaud the Postal Service for establishing a
framework to implement changes in network and a design that can
be used as we go forward into the future.
In the same light, however, change for change sake is not
what we are seeking. It is here where the PRC, the GAO, the IG
and, most importantly, this Congress has to hold the Postal
Service accountable for any change that it implements. Is that
change working financially? Has it improved productivity? Has
it improved service? Has it destroyed employee morale?
Oversight is what we need; oversight very often is what we
need.
DMA simply asks, allow the Postal Service to adjust its
network within the framework it has provided you, but hold it
accountable that those adjustments are working. And if they are
not, have them adjusted again and make that adjustment swiftly.
DMA and I'm sure all Postal Service customers stand ready to
assist you, the Postal Service, the PRC, the GAO and the IG in
getting that done.
Thank you and I am ready for any questions.
[The prepared statement of Mr. Cerasale follows:]
[GRAPHIC] [TIFF OMITTED] T8658.061
[GRAPHIC] [TIFF OMITTED] T8658.062
[GRAPHIC] [TIFF OMITTED] T8658.063
[GRAPHIC] [TIFF OMITTED] T8658.064
[GRAPHIC] [TIFF OMITTED] T8658.065
Mr. Davis. Thank you very much, Mr. Cerasale. And we'll go
to Mr. Conway.
STATEMENT OF ANTHONY CONWAY
Mr. Conway. Mr. Chairman, Congressman Marchant, my name is
Anthony Conway. I'm the executive director of the Alliance of
Non-Profit Mailers, a coalition of over 300 nonprofit
organizations and commercial service providers that have an
interest in nonprofit mailing interests. Thank you for inviting
me to testify here today.
The U.S. Postal Service provides a vital service that is
critical to the American economy and society. It provides
universal service to all through a network of postal facilities
and mail delivery routes that has grown as America has grown.
The Postal Service's monopoly product, first-class mail, has
provided much of the funding for this infrastructure growth.
Year after year, first-class mail volume would increase and
provide more revenue needed to help pay for the Nation's
growing postal system.
Unfortunately, first-class mail stopped growing about 5
years ago and growth appears unlikely to resume. That means the
Postal Service must find other services of revenue growth and
at the same time must pursue unprecedented cost control
measures to keep costs and revenue in balance.
The days of business as usual are over. The Postal
Service's mail processing delivery network provides a
tremendous opportunity for streamlining and cost saving.
Designed largely since the Postal Reorganization Act of 1970,
the network has remained fairly constant while mail flows have
radically changed. The result is a network in need of major
overhaul to reduce excess capacity and enhance operational
efficiencies. Rationalizing the Postal Service network is no
easy chore, but it must go forward. Without the financial and
operational benefits a redesigned network offers, the Postal
Service will be hard pressed to meet the business challenges it
faces.
We agree that an open dialog should occur among
stakeholders to ensure that all voices are heard as a needed
network realignment plan is designed and implemented. At the
same time, however, it is crucial that process not become an
obstacle to progress and that stakeholder input not be used to
create paralysis by analysis.
Thank you for your attention and time, and I'll be pleased
to answer your questions.
[The prepared statement of Mr. Conway follows:]
[GRAPHIC] [TIFF OMITTED] T8658.066
[GRAPHIC] [TIFF OMITTED] T8658.067
Mr. Davis. Thank you very much, gentlemen. And let me just
ask one question. The Postal Service officials have stated that
they want to help mailers reduce their costs, that they do not
want to simply pass their costs on to mailers when undertaking
the realignment efforts.
Do you have any suggestions as to how the Postal Service
and the mailers can better interact to accomplish this mutual
goal? Anybody.
Mr. Cerasale. Well, the first thing that has to happen is
dialog and communication, which I think we have heard before
with GAO and the IG discussing that and Deputy Postmaster Mr.
Donahoe said the same. We need to have input. I also think,
however, that the Postal Service and mailers have to both be
willing, and the onus is on both of us, willing to accept
change, to change our process, and there may be some difficulty
and even some costs in initially starting that change. But the
answer is going to be simple. If the Postal Service doesn't cut
costs or if they only cut costs by throwing more costs onto the
mailers, my members are going to look to other channels. And so
this cooperation has to happen constantly, immediately and
change has to start.
I like the idea that the Postal Service is going step by
step in this change process because that gives you an
opportunity to adjust and potentially adjust rapidly without
having established a huge amount of investment by both the
mailers and the Postal Service in it. But it only comes through
discussions.
Now, we clearly have MTAC and I think that we have to
strengthen MTAC. I think we need more input from the Postal
Service into MTAC to listen to what mailers are saying and to
make changes, and I think that's where I would start.
Mr. Davis. Anyone else?
Mr. McLean. I think that clearly the biggest opportunity
right now is for the consolidation of facilities. The Postal
Service has more capacity than it needs and that situation is
going to continue. It will continue to have more capacity than
it needs. So consolidating facilities allows the Postal Service
to reduce its costs in the largest most substantial way
possible. As Jerry mentioned, however, this is not going to be
a painless process. It can be less painful when the Postal
Service talks with its mailers about which facilities it will
close because if closing of one facility means that mailers
have to truck mail another 60 miles, that creates a problem,
not just savings in terms of consolidating the facilities, but
we believe that is the single biggest opportunity they should
address immediately.
Mr. Winn. The Postal Service was a monopoly. The rules of a
monopoly are very simple. The monopoly sets the rules and you
conform. Under the Postal Accountability Enhancement Act we're
changing that. We're changing that to be a model that is to be
run like a business. To run a business you have to understand
your customer's business. So the Postal Service must take into
consideration total combined costs and understand the business
of the mailers and the mail service providers.
This is an integrated system all the way from creative to
actual delivery to a customer. Compliments to the Postal
Service on this one. They have been reaching out and actually
have been coming to our plants and trying to learn how our
business runs and our customers' business runs. Mr. Bill
Galligan, senior vice president of operations, has actually
come to our plants and has been a student of our business, and
it has helped a great deal. That's how they are going to do it.
Mr. Conway. Yes, sir. We are concerned about the prospect
of costs being passed along to mailers, nonprofit mailers,
particularly since the establishment of a CPI price cap which
limits the Postal Service's ability to raise prices. To protect
against that, another provision that was established in the
Postal Accountability and Enhancement Act I think will help
guard against that, and that is the creation of a postal
regulatory body that has beefed up ability to observe and to
take input and to get into that kind of thing, to help protect
mailers against that prospect.
But ultimately, I agree with Jerry Cerasale. Ultimately, it
is the benefit to the Postal Service and to all of us if there
is greater dialog, greater transparency, greater openness
because there is going to have to be some compromise probably
on both sides. And I think an even greater openness will help
enhance that and make it happen in a positive way.
Mr. Davis. Thank you very much.
Mr. Marchant.
Mr. Marchant. Thank you, Mr. Chairman. This is for Mr.
Winn. You discussed the intelligent mail bar code as one area
which the industry and Postal Service collaborated with very
good results. Can you tell me a little bit about that?
Mr. Winn. Yes, I can. The intelligent mail bar code, as I
said in my testimony, is the foundation of the entire concept
of service measurement and reporting and tracking of the mail.
It is something that we of industry see as great value and I
know the Postal Service sees as great value to their compliance
with the new statute. The intelligent mail bar code has been
worked on for 4 years, mostly starting with the technical
folks, just trying to be able to reproduce it and develop
specifications. Now we're moving into areas of content of the
bar code and procedures and service levels and all of that. We
have recognized, both the Postal Service and industry, that
this is a major, major undertaking. When I talk of technology,
sometimes I talk about evolutionary technology and sometimes I
talk about revolutionary technologies. This is a revolutionary
technology. It will fundamentally change the way we do
business.
We have had our challenges, both on the industry side and
the Postal Service side. We are working through them. There
have been periods where communications were not all that well
organized, nor understandable. The senior management team has
recognized that and has reaffirmed their commitment to industry
to listen to our needs, and understand our capabilities as we
go forward.
So we have had some challenges, but there is a new day in
town. There are definitely mountains to be climbed with this
one and we're going to have to do it together. RPTS COCHRAN
DCMN HOFSTAD [5:50 p.m.]
Mr. Marchant. Mr. McLean, is there a regular apparatus set
up where, instead of when a problem develops, the industry
contacts the Postal Service and then you try to work it out, is
there another structure that is in place where, on a regular
basis, you talk about proactive cooperation and try to identify
areas that are not problems yet or that you can be working on?
Mr. McLean. There are actually a number of ways that the
Postal Service works with its customers. Let's start at the
district level where you live.
There are a number of businesses in your district that
belong to PCCs, Postal Customer Councils, business owners and
mailers that meet with postal officials on a regular basis;
oftentimes it is as frequently as monthly. In Washington, there
is MTAC, the Mailers Technical Advisory Committee, that deals
with very technical, very detailed operational issues. And then
there are the Mailers Council and our member organizations that
meet with postal officials frequently; typically, meetings are
issue-based. We have an excellent rapport with Postmaster
General Potter, who meets with us at anytime we need to, as
well as with his senior officials, whether they are
policymakers or operational managers, on postal issues.
I would tell you also the level of communication, not just
the frequency, is much better than it was 10-15 years ago with
mailers. I think there are much better lines of communications
with us. The Postal Service understands it faces difficult
times and that it needs to talk with its mailers on issues.
The Intelligent Mail Project is a good example of that. It
has been an up-and-down process over the last 4 years, but I
think that the Postal Service is to be commended, not only for
adopting a technology that is very progressive, but also
working with its customers when it realized there were problems
with the project and delaying it by several months to ensure
that it would be taking off in the right direction and it would
be a successful program.
Mr. Marchant. Postal officials have stated that they want
to help mailers reduce their costs and do not want to simply
pass their cost to the mailers. Do you have suggestions as to
how the Postal Service and mailers can better accomplish this,
Mr. Cerasale?
Mr. Cerasale. The first thing is efficiencies. I think that
is one of the things the network realignment is looking to try,
to make the Postal Service more efficient within its own
operations. If they improve efficiency and improve
productivity, that is a win-win for the Postal Service and for
the mailers in holding down costs and going forward.
However, another suggestion is--and it has started, as Mr.
McLean has said--if the Postal Service talks with its customers
on how they are looking at trying to create a realignment or to
adjust costs or adjust processing, and then we work together to
get a new system, a processing system, with our input into it,
then you have something where the mailers have the ability to
enter into this new system without picking up a significant
amount of costs.
You can't have it where you have zero costs going to the
mailer. You can still get the plus, of when you look at total
costs, if the Postal Service can do something efficiently and
it shifts some costs over to the mailer, but the overall cost,
the savings to the Postal Service is far greater than the cost
shifted to the mailers, then in fact we do have a lower-cost
system. And the rates would hopefully then reflect that, so
that the cost to the mailer, a little bit more before it goes
into the Postal Service but less once it is in the Postal
Service, comes out to a plus for them.
So I think as we look at this, we can't think no change and
no increase in cost to the mailers. We have to look at the
overall costs in the long run. We are looking at postage and
what is happening to what I have to do to prepare the mail.
Mr. Marchant. Thank you very much, Mr. Chairman.
Mr. Davis. Gentlemen, thank you very much. We appreciate
your testimony and your replies to our questions. And you are
dismissed.
We will move to our last panel, and while we are
transitioning, I will introduce them.
Our witnesses for panel four are Mr. Myke Reid. Mr. Reid is
the legislative and political director for the American Postal
Workers Union, the largest postal union in the world, with over
300,000 members. Mr. Reid works as a lobbyist for APWU, as well
as a member of the union's political action committee.
We have also Mr. John Hegarty. Mr. Hegarty was sworn into
office as the National Postal Mail Handlers Union national
president on July 1, 2002, and was re-elected to that position
in 2004. For the 10 years prior to becoming national president,
Mr. Hegarty served as president of Local 301 in New England.
And, gentlemen, we thank you very much.
If you would stand and be sworn in.
[Witnesses sworn.]
Mr. Davis. The record will show that the witnesses answered
in the affirmative.
Gentlemen, we are delighted you are here with us, and we
thank you for your patience.
Of course, you have done this any number of times, so you
know the process. We would hope that you would summarize your
testimony in 5 minutes, and we will then have some questions.
We will begin with you, Mr. Reid.
STATEMENTS OF MYKE REID, LEGISLATIVE AND POLITICAL DIRECTOR,
AMERICAN POSTAL WORKERS UNION, AFL-CIO; AND JOHN HEGARTY,
PRESIDENT, NATIONAL POSTAL MAIL HANDLERS UNION
STATEMENT OF MYKE REID
Mr. Reid. Thank you, Mr. Chairman.
Good evening, Mr. Chairman and Mr. Marchant. My name is
Myke Reid. I am the legislative director for the American
Postal Workers Union.
I apologize. President Burrus notified me while I was in
the room waiting for the hearing to begin and waiting for his
arrival that he couldn't be here. So I appreciate the
indulgence of the Chair and the ranking member giving me this
opportunity to testify on behalf of APW members.
Network realignment is a subject of critical importance to
the American people, who are entitled to reasonably priced
access to postal services, and to postal workers, whose lives
are affected when postal facilities are consolidated or closed.
Unfortunately, the USPS plan for realignment is based upon
a faulty premise. The stated objective of the USPS network plan
is to promote efficiency by eliminating redundancy. But the
fallacy of this plan is that it artificially limits the
definition of the postal network.
By design, the plan considers only the 400-plus USPS mail
processing facilities to be the network, while in reality the
network consists of both public and private facilities that
prepare mail for delivery by USPS employees. Facilities owned
and operated by Pitney Bowes and RR Donnelley, as well as many
other private entities, perform many of the same functions as
those performed at USPS facilities.
The most significant distinction between the two systems is
that the postal processing system must accept single pieces of
mail, while the private system processes only commercial
mailings. These two systems are inseparable, and any effort to
redesign the location of processing activities must include a
review of the entire mail processing network.
In a fundamental way, the USPS financed the creation of the
private network and continues to subsidize it to this day. The
research and development costs of the technology used to
modernize processing have been borne almost entirely by the
Postal Service, in amounts totaling billions of dollars. But
once the technology has been proven to be effective, it has
been adopted by the private system.
The work-share discounts that are applied to the private
system represent a transfer of funds from the Postal Service to
a private processor. Each dollar in work-share discounts that
is granted to private processors represents a direct loss in
postal revenue.
To make matters worse, an increase in the share of volume
in the private system has an adverse effect on the postal
network. The cost of processing mail in the Postal Service
increases as mail is diverted to the private system. Equipment
is not used to capacity, and, as a result, the USPS per-piece
cost increases.
By encouraging the growth of the private-sector network,
the Postal Service is creating redundancy, rather than
eliminating it. Any effort to review the network and improve
efficiency must examine both the public and private systems.
The Postal Service's plan for network realignment has
passed through many stages. Each of the previous proposals
lacked transparency, and the current plan continues that
unfortunate tradition.
One glaring example is that the USPS fails to consider
later delivery times or earlier pick-up times as degradations
in service. But to businesses or individuals who depend on
timely mail delivery, time of delivery and time of pickup can
be of substantial consequence.
As further evidence of the lack of transparency, I ask
members of the subcommittee a simple question: After reading
the plan, do you have a clear idea of which facilities will be
consolidated and what criteria will be used to make the
decisions?
In recent years, the APW has developed its own plan to
address previous attempts at network realignment. And whenever
we alerted citizens that their postal facilities were
threatened with closure or their postal services would be
degraded, they and their elected representatives have responded
vigorously.
The Postal Service has expressed frustration at the efforts
of elected officials to protect the postal services of their
constituents. But that advocacy by legislators is as it should
be. Members of Congress and State and local leaders are elected
to serve their constituents by advocating their interests.
Pretending that the postal network consists solely of USPS
facilities does not make it true. The fact is that public and
private, for-profit networks comprise the postal processing
system. Any review of the network must consider the combined
system. The logistics of the network demand that it be
coordinated into a national network, which only the USPS, a
public service, is willing and able to provide.
Mr. Chairman, I thank you for the opportunity and your
indulgence. I would be happy to answer any questions and even
happier if you would refer them to President Burrus for an
answer at some later time. [Laughter.]
Thank you, Mr. Chairman.
[The prepared statement of Mr. Burrus follows:]
[GRAPHIC] [TIFF OMITTED] T8658.068
[GRAPHIC] [TIFF OMITTED] T8658.069
[GRAPHIC] [TIFF OMITTED] T8658.070
[GRAPHIC] [TIFF OMITTED] T8658.071
Mr. Davis. Thank you very much, Mr. Reid. And perhaps we
will do both.
Mr. Hegarty.
STATEMENT OF JOHN HEGARTY
Mr. Hegarty. Good afternoon. And thank you, Chairman Davis
and Ranking Member Marchant, for inviting me to testify.
My name is John Hegarty. I am the national president of the
National Postal Mail Handlers Union, which serves as the
exclusive bargaining representative for nearly 60,000 mail
handlers employed by the U.S. Postal Service.
I will summarize my testimony. I ask that the entire
statement be submitted for the record.
I would like to talk about the Postal Service's most recent
ill-advised foray into subcontracting, which involves the
recently issued draft request for proposals to outsource work
from the bulk mail centers. For many years, the Mail Handlers
Union has tried to work with the Postal Service toward a
better, more efficient and more economic operation. However, we
have several problems with this latest draft RFP.
The premise of the subcontracting proposal, according to
the Postal Service, is that they will be moving the machines
used by the Flats Sequencing System [FSS], into the bulk mail
centers. This decision about the FSS is based primarily on
space available, not on the current workload. As a consequence,
the Postal Service has a choice: what to do with the work that
is being displaced, which is primarily the sorting of parcels,
trays and tubs now performed at the bulk mail centers. The work
can be shifted to other available nearby facilities based on
capacity, or the work can be outsourced. And the draft RFP
suggests that the Postal Service is leaning toward outsourcing.
In other words, the FSS is being used as an excuse to outsource
current mail processing.
It makes absolutely no sense to this union to give away
mail volume to the private sector, when the nearby postal
plants are suffering from a major loss of mail volume
themselves. If the FSS is going to cause work to be moved out
of the bulk mail centers, it would make perfect business sense
to relocate that work to nearby plants. There simply is no need
to outsource this work.
On a related issue, the Postal Service is talking about
realigning its plants through closings and consolidations based
on the assumption that the current loss of mail volume
nationwide is permanent and that this mail volume will never
return. Although the network plan does not specifically
identify any facilities, it appears that the Postal Service is
intending to make permanent changes based on a temporary
condition.
It bears noting that their own report references a lack of
available data. It seems that much of it is premature. And we
have gone down this road before. Both the Postal Rate
Commission and the General Accountability Office found the
Postal Service's previous report on realignment to be sorely
lacking. This time, however, I must agree with the Postal
Service that it lacks both the historical data and the accurate
future projections that are necessary to finalize any
realignment plans.
Despite that shortcoming in this report, my union and our
union members have been working with the Postmaster General to
make the system more streamlined, resulting in the increased
productivity and the higher service standards referenced in the
report. Where we see an achievable goal that is based on a
concrete analysis of on-the-ground conditions, we have been
able to achieve the results that best serve the American
public.
Both service and productivity are at an all-time high.
Career mail handlers and other postal employees are doing a
fantastic job under difficult conditions. When postal plants
are closed or consolidated into other facilities, there are a
lot of dislocations and much inconvenience to the local
communities and postal employees. From a union perspective, any
movement of employees must be accomplished in accordance with
the collective bargaining agreement and should make good
business sense. Improving the postal system includes preserving
the skilled work force.
Finally, the process followed by the Postal Service prior
to realignment is critical. By not analyzing each situation in
advance with employee and community input, prior area mail
processing studies have been seriously flawed.
As has been proven numerous times, the career craft
employees often have valuable input and insights to share.
While the Postal Service can boast about saving billions of
dollars based on productivity gains and improved efficiency--I
am going to modify my testimony briefly here. I was happy to
hear Pat Donahoe speak of the good working relationship with
the unions and with the craft employees and give them credit
for some of the savings that has been realized by the Postal
Service, including reducing 100,000 postal employees over the
last 7 or 8 years.
Finally, I must mention the most recent development which
has the Postal Service offering voluntarily early retirements
to thousands of career employees. Obviously, this is a
volunteer program, and early retirement may not make sense for
most eligible employees. But, again, the Postal Service is
thinking about making permanent changes based on temporary
economic conditions.
Ultimately, some mail handlers may opt for this early
retirement option, and I do not wish to prevent them from doing
so. But as a policy matter, we do not believe it makes business
sense to ask employees to retire voluntarily while also
proposing to outsource postal work to private contractors.
Should not someone in postal management be trying to realign
the work, so that career employees who otherwise might retire
before they are ready to can continue to perform the work that
otherwise might be subcontracted?
Thank you for allowing me to testify. I would be happy to
answer any questions.
[The prepared statement of Mr. Hegarty follows:]
[GRAPHIC] [TIFF OMITTED] T8658.072
[GRAPHIC] [TIFF OMITTED] T8658.073
[GRAPHIC] [TIFF OMITTED] T8658.074
[GRAPHIC] [TIFF OMITTED] T8658.075
[GRAPHIC] [TIFF OMITTED] T8658.076
[GRAPHIC] [TIFF OMITTED] T8658.077
Mr. Davis. Gentlemen, thank you very much. We certainly
appreciate your patience.
Let me just ask you, you have been here all afternoon and
you have heard the testimony of representatives from the Postal
Service, the PRC and the Government Accountability Office.
You just mentioned, Mr. Hegarty, the attrition early
retirement plans. Are you suggesting that these are somehow
tied in with a privatization scheme or plan and they are just
all working, kind of, hand-in-hand together?
Mr. Hegarty. I believe they are related. I don't subscribe
to conspiracy theories. But I think, yes, I think you have to
look at what the Postal Service is asking. I have some figures
here, just for the mail handlers and the clerk craft and
supervisory, they are looking at approximately 70,000 employees
who are eligible for voluntary early retirement. They only
expect 10,000 of those 70,000 to accept it, but if we lose
10,000 more employees nationwide, someone has to do that work.
And my thinking is, certainly, the outsourcing of the bulk mail
center work is a component of that plan.
Again, I don't want to stop the mail handlers from retiring
early, if that is their choice. And I believe President Burrus
has put this message out to his craft as well. People are going
to have to take a real close look at how that is going to
impact them financially. If you are a Civil Service employee,
you already have approximately 25 years of Postal Service,
because the Civil Service Retirement System, as you know, was
capped in 1983 and all employees hired in 1984 and later are
under FERS. You will take a penalty if you retire under certain
conditions under Civil Service.
Now, they say there is no penalty under FERS, but the
penalty under FERS is that you lose your ability to contribute
to the Thrift Savings Plan, lose the employer's matching
contributions for the Thrift Savings Plan, and you certainly
will take a hit on your Social Security. If you retire at the
age of 52 or 53, you are not going to be able to collect your
Social Security.
So I just want my folks to go into it with their eyes wide
open. And I am not, again, saying that I would stop any mail
handlers from taking the volunteer early retirement. But I just
think the plan that the Postal Service has put forth is part of
a key part of their program to reduce career employees and, in
fact, outsource work to the private sector.
Mr. Davis. Let me ask both you and Mr. Reid: When there
have been consolidations, would you say that there has been
adequate communication relative to preparation and planning for
this activity that would give affected employees enough time
and opportunity to pretty much know what is coming down the
pike and to plan adequately for it?
Mr. Reid. Mr. Chairman, I would think the answer to that
would have to be no. There have been cases where our members
have not found out about what was going on until they were
contacted by reporters from local newspapers. We have argued
for years that there must be more community involvement and
input into the system. And the Senate qualified in
appropriations language a couple of years ago that could
include the input of postal workers as well.
But just off the top of my head, without giving you any
specific examples, I would argue that they have not given us
adequate input and notice before consolidation decisions are
made.
Mr. Davis. So you would argue for greater communication
between the collective bargaining units and the Postal Service?
Mr. Reid. Absolutely, Mr. Chairman.
Mr. Hegarty. I would echo that sentiment. I think, in some
instances, they have given adequate notice. There are
protections built into the collective bargaining agreement
where the employees have to be given specific notice before
they can be relocated, and you have to factor in all the
different types of facilities that may be consolidated.
For instance, we had a consolidation from Bridgeport, CT,
down to Stanford, CT. I am going to guess that is probably 18
miles away. You would have to say that the impact on most of
those employees was minimal. They had to commute an extra 18
miles. I am not saying it is easy, especially knowing some of
the traffic down in that area, being from New England myself.
So there was inconvenience to the employees.
The collective bargaining agreements, in many instances,
will raise some complications that need to be dealt with by
postal headquarters and with the headquarters people from the
union as well, because we have an Article 12 which allows jobs
to be withheld for other craft employees. So, for instance, if
employees in the American Postal Workers Union are expected to
be impacted by upcoming automation, the Postal Service can
withhold jobs in the mail handler craft for those excess
employees.
We have a current situation occurring right now in
Westborough, MA, where the facility is being closed completely
and approximately 75 mail handlers are impacted. We have a
dispute, and I am working on that dispute with postal
headquarters right now. They have told all of those employees
that they have to travel 65 miles to Springfield, MA, to
continue their employment with the Postal Service, and they
have no option to get postal jobs in nearby facilities.
In fact, there are postal jobs, mail handler jobs,
currently under withholding in Boston, which is only 29 miles
from Westborough. We have other closer facilities. It is 12
miles to Worcester. It is 47 miles to Brockton, MA. There are
probably six or eight facilities that are closer than
Springfield.
And we are asking postal headquarters to get involved in
this, because the impact on these employees is going to be
severe. Especially if they worked 20 miles outside of
Westborough, now they have an 85-mile commute instead of a 20-
mile commute. And I am afraid we may lose some of those
dedicated postal employees due to the unreasonableness of local
management to work with us and find closer positions for them.
Mr. Davis. Thank you very much, gentlemen.
Mr. Marchant.
Mr. Marchant. Thank you.
What we have found in our district office--and I am from
the Dallas-Fort Worth area--most of the calls that we get in
our district office are not about the mail service, lack
thereof or otherwise, but most of the calls that we get
concerning the Postal Service are employee-employer conflict
calls.
I don't know, Mr. Davis, if that sounds familiar to you.
Mr. Davis. I thought they didn't have that in Texas.
[Laughter.]
Mr. Marchant. And, to me, in my district office, this is
the face of the post office. And there seems to be so much
conflict between the Postal Service itself and its employees in
its grievance system and the way that it is resolved.
We have heard some testimony just recently that process has
been stepped up, redone, streamlined, etc. And, frankly, it is
that worker that is in my age group, it is that worker that is
in that low-50 to upper-50 age group that seems to have the
conflict and the disagreement and the grievance. That just is a
sense of frustration to me, because we seem to get that call,
you know, either sometime in the middle of the process or after
the process.
Do you feel like there is any progress being made there?
Because, I can tell you, that is what we deal with a lot.
Mr. Hegarty. I think we have made some progress. I think
the contract interpretation manual that we put out several
years ago--and I have mentioned this in prior testimony--was an
understanding reached between postal headquarters and the mail
handlers' headquarters, and I know the other crafts have those
as well. It kind of clarifies a lot of the gray areas in the
contract.
That used to be a problem. I will go back to my experience
on the workroom floor, dealing with management. I would show
them a contract violation, and they would say, ``Well, I don't
agree with your interpretation of the contract.'' So a lot of
that was put to rest with the parties putting many of those
interpretations down in black and white.
But you are always going to have personality conflicts. You
are always going to have some managers--and it is not just a
one-way street--who still act in an authoritarian manner and
just boss people around or tell them what to do and don't
adequately explain themselves.
So, I am hoping those are isolated incidents. I am sure
those are the calls you get. Nobody is going to call you and
say, ``Gee, I just want to let you know the post office does a
great job, and it is a good employer, and I like working
there.'' You won't get those calls. You will get the calls when
someone has an issue with their supervisor or an employment
issue like that. But I think we have made some progress over
the years.
Mr. Marchant. I would encourage both sides to keep working
on that. My point is that, of all the branches of the quasi-
U.S. Government, I rarely get a call from the Air Traffic
Controllers or the Justice Department employees or the GAO or
Social Security Administration--I mean, never, frankly. But
somehow or another, local Congressmen seem to be drawn into
this web quickly.
In my office, we are reluctant to become involved, because
there seems to be a pretty established structure on how to get
grievances addressed on both sides. I know this isn't the
subject of this testimony.
Mr. Reid. I would just like to add, Mr. Marchant, I would
certainly associate myself with the comments of President
Hegarty, but I would also point out a lot of the problems we
have arise because of a complaint of the employee, rather than
a grievance of the employee. It is something that doesn't rise
to a grievable nature, but it is something they don't like.
They don't like their supervisor's hair, they don't like the
way they act, they don't like their friends.
So, a lot of times, I think what I have heard from
congressional offices is that they get calls from their
constituents about complaints which aren't necessarily
grievable actions under the collective bargaining procedure.
But I also agree with John. I think the procedure has
gotten better. The number of cases pending arbitration has
reduced considerably. Certainly on the national level I think
the working relationship is a lot better than it is on the
local level, most often because of just differing
personalities.
But if there is something we can do to help you with that--
--
Mr. Marchant. Thank you. It is just that we are a little
unsure at what point to intervene on behalf of a constituent.
We have a constituent here, as well as an employee. So I just
wanted to express that to you. Thanks.
Mr. Reid. We often work with congressional offices to try
to sort that out. If there is something you would like us to
help you with, we would be more than happy to do it.
Mr. Marchant. We may take advantage of that. Thank you.
Mr. Davis. Well, it seems as though this has ended with
perfection. I don't know if it was designed to be that way or
not.
Let me just agree with Mr. Marchant in terms of the whole
business of conflict. That does continue to exist. I would also
agree that there seems to be some success in helping to reduce
it. But if there is an office that does not get a lot of those
calls, I would like to find it. That seems to be one of the big
issues. But, certainly, all of the other issues, I think, are
pronounced and are before us.
So I want to thank you gentlemen for your patience, for
your testimony, and all of those who have been patient all
afternoon.
If you have no further questions, Mr. Marchant, I certainly
don't, we can both run over and vote and end the day.
So, gentlemen, thank you very much.
The hearing is adjourned.
[Whereupon, at 6:20 p.m., the subcommittee was adjourned.]
[Additional information submitted for the hearing record
follows:]
[GRAPHIC] [TIFF OMITTED] T8658.078
[GRAPHIC] [TIFF OMITTED] T8658.079
[GRAPHIC] [TIFF OMITTED] T8658.080