[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
THE POSTAL SERVICE: PLANNING FOR THE 21ST CENTURY
=======================================================================
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
FIRST SESSION
__________
JULY 26, 2007
__________
Serial No. 110-199
__________
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
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
HENRY A. WAXMAN, California, Chairman
TOM LANTOS, California TOM DAVIS, Virginia
EDOLPHUS TOWNS, New York DAN BURTON, Indiana
PAUL E. KANJORSKI, Pennsylvania CHRISTOPHER SHAYS, Connecticut
CAROLYN B. MALONEY, New York JOHN M. McHUGH, New York
ELIJAH E. CUMMINGS, Maryland JOHN L. MICA, Florida
DENNIS J. KUCINICH, Ohio MARK E. SOUDER, Indiana
DANNY K. DAVIS, Illinois TODD RUSSELL PLATTS, Pennsylvania
JOHN F. TIERNEY, Massachusetts CHRIS CANNON, Utah
WM. LACY CLAY, Missouri JOHN J. DUNCAN, Jr., Tennessee
DIANE E. WATSON, California MICHAEL R. TURNER, Ohio
STEPHEN F. LYNCH, Massachusetts DARRELL E. ISSA, California
BRIAN HIGGINS, New York KENNY MARCHANT, Texas
JOHN A. YARMUTH, Kentucky LYNN A. WESTMORELAND, Georgia
BRUCE L. BRALEY, Iowa PATRICK T. McHENRY, North Carolina
ELEANOR HOLMES NORTON, District of VIRGINIA FOXX, North Carolina
Columbia BRIAN P. BILBRAY, California
BETTY McCOLLUM, Minnesota BILL SALI, Idaho
JIM COOPER, Tennessee JIM JORDAN, Ohio
CHRIS VAN HOLLEN, Maryland
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
Phil Schiliro, Chief of Staff
Phil Barnett, Staff Director
Earley Green, Chief Clerk
David Marin, 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 26, 2007.................................... 1
Statement of:
Siggerud, Katherine A., Director, Physical Infrastructure
Issues, U.S. Government Accountability Office; and Gordon
C. Milbourn III, assistant inspector general for audit,
Office of the Inspector General, U.S. Postal Service....... 5
Milbourn, Gordon C., III,................................ 35
Siggerud, Katherine A.................................... 5
Waller, John D., director, Rates, Analysis and Planning,
Postal Regulatory Commission; and William P. Galligan,
senior vice president, operations, U.S. Postal Service..... 72
Galligan, William P...................................... 73
Waller, John D........................................... 72
Winn, Michael J., director of postal affairs and mailing
operations, R.R. Donnelley; Robert F. McLean, executive
director, Mailers Council; Jerry Cerasale, senior vice
president, government affairs, Direct Marketing
Association, Inc.; and Timothy J. May, general counsel,
Parcel Shippers Association................................ 89
Cerasale, Jerry.......................................... 109
May, Timothy J........................................... 120
McLean, Robert F......................................... 102
Winn, Michael J.......................................... 89
Letters, statements, etc., submitted for the record by:
Cerasale, Jerry, senior vice president, government affairs,
Direct Marketing Association, Inc., prepared statement of.. 111
Davis, Hon. Danny K., a Representative in Congress from the
State of Illinois, prepared statement of................... 3
Galligan, William P., senior vice president, operations, U.S.
Postal Service, prepared statement of...................... 76
May, Timothy J., general counsel, Parcel Shippers
Association, prepared statement of......................... 123
McLean, Robert F., executive director, Mailers Council,
prepared statement of...................................... 104
Milbourn, Gordon C., III, assistant inspector general for
audit, Office of the Inspector General, U.S. Postal
Service, prepared statement of............................. 37
Siggerud, Katherine A., Director, Physical Infrastructure
Issues, U.S. Government Accountability Office, prepared
statement of............................................... 8
Winn, Michael J., director of postal affairs and mailing
operations, R.R. Donnelley, prepared statement of.......... 92
THE POSTAL SERVICE: PLANNING FOR THE 21ST CENTURY
----------
THURSDAY, JULY 26, 2007
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 2 p.m. in room
2154, Rayburn House Office Building, Hon. Danny Davis of
Illinois (chairman of the subcommittee) presiding.
Present: Representatives Davis of Illinois, Norton,
Marchant, and McHugh.
Staff present: Caleb Gilchrest, professional staff member;
Lori Hayman, counsel; Cecelia Morton, clerk; Ashley Buxton,
intern; Ed Puccerella, minority professional staff member;
Benjamin Chance, minority clerk; and Kay Lauren Miller,
minority staff assistant and office manager.
Mr. Davis of Illinois. Welcome, Ranking Member Marchant,
members of the subcommittee, hearing witnesses and all of those
in attendance.
Let me welcome you to the Subcommittee on the Federal
Workforce, Postal Service, and the District of Columbia hearing
entitled, ``The Postal Service: Planning for the 21st
Century.'' Hearing no objection, 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.
As I indicated, we are delighted that all of you are here,
and I will begin the hearing.
Ranking Member Marchant, members of the subcommittee and
hearing witnesses, welcome to the subcommittee's hearing on the
infrastructure and realignment of the U.S. Postal Service.
Today's hearing will examine the Postal Service's efforts to
update outdated mail delivery standards and how it intends to
realign its infrastructure through consolidating operations and
closing annexes.
The Postal Service's delivery performance standards and
results are central to its mission of providing reliable and
efficient postal service. Standards are essential to setting
realistic expectations for delivery performance and
expectations. Timely and reliable reporting of performance
results is essential for oversight transparency and
accountability.
Mail delivery standards are important, so the Postal
Service and officials can monitor the progress of mail delivery
in cities like Chicago. They are working to improve mail
service. The Postal Service has informed me that based on an
increased focus on mail processing and delivery performance,
Chicago performance scores are showing a positive trend. The
Postal Service, recognizing the importance of the timely
delivery of mail, has integrated performance targets and
results for some types of mail into its performance management
system.
However, all mail should be subject to mail standards. A
decline in first class mail due to increased competition and
shifts in population demographics has resulted in the Postal
Service examining ways to realign its infrastructure. I am
interested in hearing how the Postal Service intends to realign
its work force, processing and distribution infrastructure to
address these concerns.
At the request of myself and other Members of Congress, the
Government Accountability Office [GAO], has completed its
report on the Postal Service's realignment efforts. The report
entitled, ``U.S. Postal Service: Mail Processing Realignment
Efforts Underway Need Better Integration and Explanation,''
discusses, among other things, the need for the Postal Service
to establish measurable targets to meet cost savings goals and
establish criteria for selecting facilities for consolidation
and realignment. The report will be released today and will
contribute greatly to today's discussion.
I want to thank you all again and look forward to testimony
from our witnesses.
[The prepared statement of Hon. Danny K. Davis follows:]
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Mr. Davis of Illinois. At this time I would like to yield
to the ranking member, Mr. Marchant.
Mr. Marchant. Good afternoon, and thank you, Chairman
Davis, for holding the hearing today about the U.S. Postal
Service Infrastructure and Realignment. I understand that with
any organization as large as the Postal Service, changes take
time and a great effort from many diverse groups. As we
continue our role on the subcommittee in providing oversight of
the Postal Service, I am reminded it is not a perfect system,
but one which is ever-changing and expanding. We can't expect a
system which moves 213 billion pieces of mail a year to be
perfect or stagnant.
With the release and enactment of postal reform
legislation, as well as the current challenges faced by the
Postal Service, today's Postal Service faces many more
challenges than ever before. But through such challenges come
opportunity.
I look forward to hearing from all of the witnesses today
and learning more about the Postal Service and what it can do
to maintain a viable delivery system in the 21st century. Thank
you, Mr. Chairman.
Mr. Davis of Illinois. Thank you, Mr. Marchant.
We will now hear from our witnesses. First I would like to
introduce the first panel. Panel one is Ms. Katherine Siggerud,
who is Director of the Physical Infrastructure Issues Team at
the Government Accountability Office [GAO]. She has directed
GAO's work on postal issues for several years, including recent
reports on delivery standards and performance, processing that
work realignment, contracting policies, semi-postal stamps and
biological threats. We welcome you.
Mr. Gordon Milbourn III was named assistant inspector
general for audit of the U.S. Postal Service Office of
Inspector General in February 2005. He is responsible for all
audits in the Postal Service areas of cooperation, financial
management, technology and headquarter operations.
If the witnesses would rise, it is the tradition of this
committee to swear in all witnesses. So if you would raise your
right hands.
[Witnesses sworn.]
Mr. Davis of Illinois. The record will show that each one
of the witnesses answered in the affirmative. You may be
seated.
Thank you very much, and we will begin with Ms. Siggerud.
STATEMENTS OF KATHERINE A. SIGGERUD, DIRECTOR, PHYSICAL
INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE;
AND GORDON C. MILBOURN III, ASSISTANT INSPECTOR GENERAL FOR
AUDIT, OFFICE OF THE INSPECTOR GENERAL, U.S. POSTAL SERVICE
STATEMENT OF KATHERINE A. SIGGERUD
Ms. Siggerud. Chairman Davis, Ranking Member Marchant, Mr.
McHugh, thank you for your invitation to appear today at this
hearing on the Postal Service and its planning for the 21st
century. My remarks reflect reports we issued in 2005, 2006 and
at this hearing today. On that basis, my statement will focus
on first, major challenges affecting the Service's mail
processing operations that have prompted the need for network
realignment. Second, concerns we raised in our 2005 report and
today's report about the Service's efforts to realign its mail
processing network and implement its area mail processing
consolidations. And finally, concerns we raised in our 2006
report about the Service's progress in implementing delivery
performance information.
Mr. Chairman, there is broad agreement on the Service's
need to realign its processing networks. In addition to many of
today's witnesses, the President's Commission and the Service's
own transformation plan have called for action to assure that
this network meets current and future processing needs, reduces
costs, improves efficiency and eliminates redundancy.
The Postal Accountability and Enhancement Act reinforced
the urgency of this realignment effort. We found that several
trends have created excess capacity in the network and
productivity variations across plants. First, the changing
marketplace and shifts in how customers use the mail, in
particular, declining first class mail volume and increasing
standard mail volume.
Second, the changing role of mailers, as driven by work-
sharing discounts, which involve mailers preparing, sorting or
transporting mail to qualify for reduced postage rates. These
activities allow mail to bypass mail processing and
transportation operations.
Third, evolutionary changes have resulted in a network of
plants that are markedly different from one another, making it
difficult to standardize operations. And finally, shifts in
national demographics. Service facilities may not be optimally
located due to changing demographics and transportation modes.
Turning now to our concerns about the Service's realignment
efforts, our 2005 report concluded that the Service did not
have answers to important questions about how it intended to
realign its mail processing networks. This conclusion still
holds true today. We find that the Service's strategy for
realigning its processing network first lacked clarity,
criteria and processes for eliminating excess capacity in its
network. Second, it largely excluded stakeholder input from its
decisionmaking processes. Third, it was not sufficiently
transparent and accountable; and fourth, lacked performance
measures.
Mr. Chairman, I want to emphasize that we support the
Service's efforts to realign its processing networks, but we do
have some concerns. The Service has started to implement
several network realignment initiatives. Overall, progress has
been somewhat slow. These initiatives include area mail
processing or AMP consolidations, development of a network of
regional distribution centers, and creation of surface
transportation centers.
The realignment efforts are at different stages of
implementation. For example, in February 2006, the Service said
that it was planning to develop a network of between 28 and 100
regional distribution centers that would serve as the
foundation for its processing network. However, the Service is
apparently reconsidering this approach and Tuesday issued a
request for information regarding hiring private suppliers to
handle some or all business mail. At this point, it is not
clear how these various initiatives are integrated or whether
they are meeting the realignment goals.
AMP consolidations focus on moving processing activities
from one plant to another to achieve efficiencies. Our report
raises several issues related to these consolidations. Concerns
raised by us and others include the Service's unclear criteria
for selecting facilities and deciding on AMP consolidations,
use of inconsistent data calculations, limited measures of the
effect of changes on delivery performance and lack of clarity
regarding how stakeholder and public input is solicited and
used.
It is important to note that the Service is revising its
guidelines for AMP consolidations to address these issues.
After reviewing a draft of these changes, we made two
recommendations. First, that the Service ensure that the
facilities plan required by the Postal Accountability and
Enhancement Act explains the integration of realignment
initiatives and establishes measurable targets, and second,
that the Service continue to improve the quality of public
notices and engagement and increase transparency in
decisionmaking.
We reported last year on the Service's limited progress in
measuring and reporting on its delivery performance. The report
detailed the limited scope of the Service's delivery measures,
which covered less than one-fifth of mail volume. We also
covered the need to update delivery standards to reflect
current operations, particularly for standard mail and
periodicals.
We reported on impediments to progress and recommended the
Service provide clear management commitment and more effective
collaboration with mailers to implement delivery measurement
and reporting for all major types of mail.
In conclusion, the Postal reform law officers the Service
opportunities to respond to our recommendations from all these
reports and requires the Service to submit a plan to Congress
describing the strategy, criteria and processes for realigning
its network.
Also, the Service must develop modern service standards and
annually report to the PRC on the speed and reliability of
delivery of most types of mail.
Mr. Chairman, this concludes my statement. I am happy to
answer any questions the subcommittee may have.
[The prepared statement of Ms. Siggerud follows:]
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Mr. Davis of Illinois. Thank you, Ms. Siggerud. Now we will
turn to Mr. Milbourn.
STATEMENT OF GORDON C. MILBOURN III
Mr. Milbourn. Mr. Chairman and members of the subcommittee,
I appreciate the opportunity to discuss the Postal Service's
network and its recent realignment efforts. I will also address
our work in this important area and some of the challenges
remaining.
We describe the Postal Service's network in detail in our
testimony submitted for the record, and an overview diagram is
attached. As you know, the Postal Service has one of the
world's largest distribution networks, built on the premise
that first class mail volume and revenue will continually rise
and cover costs.
However, in recent years, single piece first class mail
volume has decreased substantially. In addition, the increasing
automation of formerly manual processes and work-sharing
discounts that keep mail out of parts of the processing stream,
have left the Postal Service network over-sized.
In 2001, GAO placed the Postal Service on its high risk
list, and Congress asked for a plan to address GAO's concerns.
In response, the Postal Service's 2002 transformation plan
included a redesign of its logistics networks, called Network
Integration and Alignment [NIA]. Our NIA reviews identified the
potential for stakeholder concerns about the fairness and
accuracy of the process and the need for policies and
procedures for independent verification and validation of the
project models.
In September 2004, the Postal Service announced the
Evolutionary Network Development [END] initiative, as the next
step in optimizing its networks. The Postmaster General
indicated the change to END was made because of the
unpredictability of mail volume and processing. A key feature
of implementing END is the Area Mail Processing [AMP] study,
which is used to consolidate mail processing functions,
eliminate excess capacity and increase efficiency.
Our END concerns have centered on the need for more
effective resolution of stakeholder issues for both a top-down
and bottom-up approach in using AMPs and for better project
management. In reviewing some of the AMPs, we found their
conclusions adequately supported, but we reported concerns,
such as data problems and incomplete service impact
documentation.
The Postal Service is currently implementing our
recommendations to improve the AMP process. Most recently, in
October 2006, Postal Service management announced a
reexamination of the assumptions behind the END initiative.
This was followed closely by passage of the Postal
Accountability and Enhancement Act, which requires a
realignment plan by June 2008. Planning for large-scale
projects can vary from long-range detailed plans with
elaborately sequenced steps to short-range incremental
approaches. Each has its merits and the Postal Service has
chosen the incremental approach, which provides network
flexibility as circumstances change, reduces risks inherent in
attempting to make all network changes at once, allows testing
via pilot projects in a more forgiving environment, generates
incremental internal capital to cover the cost and tends to
make the overall picture clearer as local problems are
resolved.
In recent years, this incremental approach has allowed the
Postal Service to make progress in optimizing its network. For
example, it has eliminated over 180 million work hours and
converted over 30 facilities to a new infrastructure.
This approach has also highlighted many significant
challenges still being faced in realigning the network. For
example, not all postal stakeholders share the same goals, as
found in such fundamental issues as providing universal 6-day
service, which may not make economic sense in all locations,
and eliminating mail acceptance points, which would streamline
the network and save costs, but often produces mailer
opposition.
The mix of volume and types of mail is constantly changing.
Relationships with mailers are continuously evolving in regards
to discounts and mail preparation and submission requirements.
And the velocity of the build-down must avoid protracted,
anemic staffing of an over-sized network which can lead to
operational and service failures.
The act does not specify a planning model and the Postal
Service believes it is well served by using an order of battle
approach that incorporates flexibility and expects external
change to occur throughout the process. The Postal Service
network much reach an optimal size that still provides
enterprise resilience in the event of major disruptions,
natural disasters or acts of terrorism.
Further, robust measurement is needed to monitor cost and
service impacts as the plan unfolds. Finally, the plan must be
effectively communicated to all stakeholders to prevent
surprises and a negative impact on customer service. The
support of Congress and the Postal Regulatory Commission is
critical during this time of great change in order for the
Postal Service to continue providing universal service at
affordable prices.
We will continue to support postal efforts, and we are
cognizant of our responsibility to keep Congress fully and
currently informed. I will be pleased to answer any questions.
[The prepared statement of Mr. Milbourn follows:]
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Mr. Davis of Illinois. Thank you both very much.
I will begin questions. I will begin with you, Mr.
Milbourn. You just indicated that the Postal Service's network
should be resilient to such things as natural disasters or acts
of terrorism. Could you enhance that for us?
Mr. Milbourn. Absolutely. There are really two what I would
consider main considerations when we think about enterprise
resilience with the Postal Service's network. One involves what
you just alluded to, localized or regional catastrophes of one
kind or another, such as Hurricane Katrina or the anthrax
attacks that occurred here in the Washington area a few years
back.
But there are also regular, significant events that affect
the whole country. And what I mean by that is what we call the
annual Christmas surge that occurs in November and December.
This is one area that requires some degree of resilience in the
network. The other is being able to resume processing and
delivery in the event of a catastrophe such as a Hurricane
Katrina that puts some facilities or post offices temporarily
out of operation.
The Postal Service has capacity in its network right now to
handle these types of events. The challenge as we see it is
that as they begin to streamline the network, can they continue
to build in some resilience to handle the Christmas surge and
to be prepared for catastrophes such as these. We think it is
going to be very difficult to find the right balance between
the costs that would be involved with that and the actual risk
of a disruptive event.
Mr. Davis of Illinois. So are you suggesting in terms of
planning that the Service might put additional emphasis or more
emphasis on planning for these likelihoods?
Mr. Milbourn. Absolutely. These need to be carefully
considered. The likelihood of the risk, which in the case of
the annual Christmas surge is 100 percent. The likelihood of a
Katrina is far less than that, but the impact of a Katrina in a
local area is very significant. So there are ways to address
those risks. It doesn't mean you have to build a network that
is constantly large and can handle them. But you need to think
about ways of sharing the risk, tying in with other networks
that may be of assistance if something like that occurs. It
just needs to be carefully thought out and planned for.
Mr. Davis of Illinois. Thank you very much.
Ms. Siggerud, in the GAO report that you released today,
GAO recommended that the Postal Service enhance the planning,
accountability and public communications related to its
realignment efforts. How did the Service respond to that
recommendation?
Ms. Siggerud. We made observations in several different
areas. Let me start with the AMP consolidations themselves. I
said in my short statement that we had some concerns about the
data analysis and criteria used in that process. Because the
Postal Service is in the midst of revising those guidelines in
ways that seemed largely responsive to concerns raised by us,
the IG and the PRC as well, we didn't make specific
recommendations there.
Where we did make recommendations was in the communications
side of the House. In particular, we have concerns about the
content of some of the material that goes out to explain what
is being studied and what actions might be taken. We thought
those could be clarified and simplified in a number of ways.
The Postal Service did agree with that.
We also were concerned about this event called the town
hall meeting and its timing with regard to when it could best
bring useful information to bear on the AMP consolidations. The
Postal Service also agreed that there would be some benefit to
moving that town hall meeting earlier in the process.
Finally, the Postal Service did not have, at the time we
were doing our work, any indication in its guidelines how it
would actually use this information obtained from the public
through the town hall meeting or other sources. It has also
agreed to clarify that.
Then finally with regard to talking about integration and
planning, we view the report that is due next June as the
Postal Service's opportunity to respond to and explain what it
plans to do in a number of area having to do with realignment
of the network.
Mr. Davis of Illinois. In 2006, GAO reported that the
Postal Service did not measure and report its delivery
performance for most types of mail and that its progress to
improve delivery performance information has been slow and
inadequate. Has the Postal Service made progress in measuring
and reporting delivery performance since that time?
Ms. Siggerud. Yes, we have seen some progress, mainly in
planning and thinking about how it is that it will accomplish
those activities that you just mentioned. Because the Postal
Accountability and Enhancement Act called for development of
modern service standards and for information about that to be
reported to the Congress this December, the Postal Service has
put together a series of work groups that are in fact making
progress on those issues. We have been observing those
activities, and it looks like there are a lot of ideas out on
the table, and that this report that is coming out this
December is promising in terms of its responsiveness to the
issue on the standards.
With regards to measurement, there's two activities going
on. The Postal Service will be required to report to the Postal
Regulatory Commission on its delivery performance. It will take
some time before the information that is needed will be
available on a large scale basis to deliver on that. So there
need to be some decisions made about whether there will be sort
of interim measures used before the concept of intelligent mail
provides more widespread and reliable information.
In addition, of course, the Postal Regulatory Commission is
setting up its own regulations about what would constitute the
best type of information in terms of delivery performance.
There has been a lot of activity on that front as well, in
terms of comments provided to the Regulatory Commission from
mailers and other stakeholders.
Mr. Davis of Illinois. Thank you very much.
Mr. Marchant.
Mr. Marchant. Thank you, Mr. Chairman.
Ms. Siggerud, your report in 2005 and 2007 concluded that
the Postal Service is not sufficiently transparent and
accountable on how it intends to realign its processing
network. Transparent and accountable to who?
Ms. Siggerud. Well, I would say of course to the Congress
itself, which has an interest in this area. To the public and
as well to the mailing industry which relies on the Postal
Service for an important part of the economy.
What we are really saying here is that when there is a
transformation effort of some kind, which is really what this
is, that the concept of transparency, and we have also said
this in other areas, of course, transparency is really what are
we trying to accomplish, what are our views on how we are going
to get there. And then accountability is really then how do we
know when we get there, how are we going to measure our
performance. There are a variety of ways to accomplish this
type of effort. The Postal Service is making progress on those
concepts with regard to some of these individual efforts that I
talked about. The plan as a whole, though, is still somewhat in
development and lacking in a few of those areas.
Mr. Marchant. Do you think that the fact that the major
element that the labor negotiations and the contract with the
letter carriers, do you think it is possible for the Postal
Service to make those final changes and those final plans and
make them available until they finalize those negotiations and
know what their work force costs are going to be, etc?
Ms. Siggerud. Well, yes, we think it is. Clearly the waiver
issue and the cost associated with labor is very important in
planning. But I really, a lot of what we are talking about here
of course is also the network itself and the fixed costs
associated with that. We have seen a fair amount of progress in
certain areas of this network planning. What we haven't seen is
an integration of what the vision is and how we are going to
get there. I understand that the Postal Service places a very
substantial challenge in this area. But it has been clear from
the transformation plan the Postal Service put on itself, the
President's Commission and from the direction from the Reform
Act in December that there is a very strong interest in making
progress and having some of the transparency and accountability
that we have been talking about.
Mr. Marchant. What would you consider to be your most
important concern over at the Post Office, in their
realignment?
Ms. Siggerud. In the realignment area, well, I think what
we would like to see is some clear goals set for this
realignment effort in terms of timeframes, in terms of costs to
be achieved, for example. And if a plan could be put together,
some vision, perhaps, even for segments of the realignment that
we are talking about, so that the mailing industry, the public
and the Congress have some sense of what to expect, that would
be, in our view, very good progress.
Mr. Marchant. Mr. Milbourn, what do you see as the biggest
network realignment challenge?
Mr. Milbourn. I agree with Ms. Siggerud that the one she
just cited is enormous. I would add to that by saying, I think
the ability of the Postal Service to reduce its costs
substantially while still delivering service equal to, if not
better than, the service that it currently delivers, is an
enormous challenge. And that incorporates streamlining of the
network. But you alluded to the work force and union
negotiations, it kind of goes beyond that. But I think the
streamlining of the network is a huge piece of that, and how
they are able to plan for and accomplish massive streamlining
focused on costs and still be able to focus on and deliver the
service at the same time is a real challenge.
Mr. Marchant. Thank you, Mr. Chairman.
Mr. Davis of Illinois. Thank you very much.
Ms. Norton.
Ms. Norton. Thank you very much, Mr. Chairman. I appreciate
this testimony.
I am interested in an overarching and I think obvious
question, in light of the fact that the Post Office is here, we
in Congress are quite pleased to look past, and that is whether
essentially this model gives the Postal Service today a mission
impossible. First of all, we are dealing with a model that we
enacted, we passed in 1970, and of course, we updated the act
most recently, and very recently have updated it.
But I have trouble finding any precedent for the model we
are dealing with. And I am very interested in your ideas on
planning. I would like to know if you can think of any
comparable model that, for example, presents the kinds of
issues that have come before us. The Postal Service has been
told to meet the same conditions that private mailers meet. We
told them to do that in 1970.
Think of what 1970 was. It was pre-technology, no one even
envisioned that there would be a faster, cheaper, way to
communicate. If you decide to cut out even one post office some
place, it is a major issue in that community, and Members of
Congress will join the community in saying, you had better not
do it. Yet the Postal Service has had some success in fighting
through that. We think they will perhaps have more success.
Nevertheless, as an example, that is an 18th century model.
Much of the Postal Service still is a model from this
original act passed, setting up the Post Office of the United
States of America, and it came in controversy, came before this
committee on outsourcing, major issue. Because postal workers,
for reasons that range from security reasons to their own
employment object to what looks like creeping outsourcing.
Private mailers don't have that problem.
Even the Congress will take on the Postal Service on
something that it recognizes that half the time across party
lines we don't even recognize. While I recall a few years ago
when the Postal Service did what every big private corporation
does and got sponsorship of the Olympics, and so it was the
Postal Service logo. Members of Congress, I am telling you,
Republicans as well as Democrats, came forward and said, what
in the world are you doing sponsoring the Olympics? You know,
gone from everybody's brain was the notion that this is what
private corporations do, and they don't do it on a whim, they
do market surveys.
We talk about major disruptions. Well, you know, private
companies who go down the drain, we have had a major disruption
of the worst kind here, everybody has to prepare for that. They
have to prepare for it in a very special way, because nobody
will accept we have had a major disruption if we can't deliver
the mail.
The delivery times, each Member will hold the Postal
Service accountable for delivery times within its jurisdiction.
It is a major problem here even in the Nation's capital and
this region. A number of years ago, they had to get their ducks
in a row. We talk about stakeholder input. There is lots to be
said to that. The more you get of that, of course, the more
demands there are going to be on the Postal Service of the kind
that everybody's grandmama made, got to have Saturday delivery,
got to have what we have always had.
And finally, of course, I mentioned the granddaddy of them
all, whether you will think that the Postal Service is just a
complete and total anachronism based on technological changes
and a generation that increasingly doesn't even use newspapers
other normal contraptions of modern society, but depends on
technology.
I am interested in an overriding issue that one, whether
there is any model like this in the world, and whether you
think planning will overcome all of these obstacles. If I could
name, the closest model I can think of is one that the Congress
has completely rejected, and that is that while we have a
railroad system that harks back to the 19th century, every
modern society says if you want to have a railroad system and
you have to have one and you want to have passengers, you have
to massively subsidize it. Well, the United States says, hey,
we are not going to subsidize Amtrak or anything else, you are
on your own. And by the way, keep them running and modernize
the thing. So we just look away from the obvious issues.
Well, you can do that on Amtrak and you will end up with
what we have today and people get on planes, buses or whatever.
On the Postal Service, the Congress won't tolerate it. At the
same time, the Congress is saying, you do the same thing UPS
does, you need to do the same thing FedEx does, you do it
without one cent from us.
I for one find all this very intriguing, structurally and
intellectually. But I need to hear from experts whether you
think this is a model that can survive the ages.
Ms. Siggerud. Ms. Norton, those are a lot of questions. I
will answer what I can. I have to say that I think your
observations----
Ms. Norton. It really is one question. I just gave you
examples of what I think Congress just looks past and says, you
all do it anyway, don't tell us, just do it.
Ms. Siggerud. I think your summary of the challenge was
right on, that is that the Postal Accountability and
Enhancement Act said the Postal Service, in fact, harkening
back to 1970, the Postal Service should act as a business. This
most recent act said that postage rates need to be held, of
course, to the rate of inflation. But many stakeholders,
including the Congress, have taken off the table a number of
cost control options that the Postal Service could use to
respond to that rate cap that you were mentioning.
Ms. Norton. And you could depend on us not to put them back
on the table. [Laughter.]
Ms. Siggerud. I guess I want to focus on the issue of, is
there another model out there like that. Clearly, the Postal
Service is the biggest post in the world, and handles a larger
volume than any other country. But I want to focus my comments
on this concept of the network that we have been talking about
and the costs associated with that. The closest model that we
have in the United States, to the challenges of right-sizing
that network is really the BRAC approach, where there is in
some excess capacity stakeholders who want a variety of
different things and indeed, to cut costs. To the extent that
has been a successful approach, and there are differing views
on that.
There are a couple of things that have been key to that.
One is that the BRAC process set out principles, what are we
trying to accomplish, what tools do we have. It named people
that would be important for making those decisions and then it
laid out a process for making decisions. Whether that is useful
in thinking about the costs the Postal Service faces may be
worth considering.
Ms. Norton. By the way, that is a very interesting and
intriguing thing, given the experience with BRAC, one wonders
how far down the Postal Service would have to get before
Congress politically embraced that model. But it is a very
interesting and intriguing notion.
Yes, Mr. Milbourn.
Mr. Milbourn. I have seen a couple of different models, one
very close over a fairly extended period of time and the other
just from some reading and research. But they both offer some
lessons learned, I think. One is the Internal Revenue Service.
I spent a fair amount of my career there, and both started
there and then came back to it after the Reorganization Act of
1998. They had a modernization program and a restructuring
program that was on two different levels.
One was to go from a regionally based structure to a
taxpayer type or a customer type driven structure. That was
actually a fairly easy thing to do. Commissioner Rosati took
that bull by the horns and did a very remarkable job of
reorienting the people of the IRS and the structure and some of
the processes.
The very difficult part that they have been struggling with
since I first worked there in the early 1980's is the issue of
modernizing their computer systems. They have been attempting
to modernize their archaic master file for 20 some years now,
and are not dramatically close to finishing yet. And they have
had a series of very extensive plans. But as the plan unfolds,
and time passes, technology changes, the world changes around
them, much as you were saying. So the plan has had to change
and evolve over time. They have had to basically retrench along
the way.
I think that is a key lesson learned. If you are having a
long-term restructuring that you need to be flexible enough to
be able to account for changes in the environment and new
things that come at you over time.
The other model, and this is one I am far less familiar
with, but some of the European posts, Deutsche Post, for
example, it is my understanding when they embarked on a
modernization project, and admittedly, it is dramatically
smaller than what we are talking about here, they elected to do
what amounted to shock therapy. They just re-did everything at
once, re-did their processing, re-did their equipment. That is
my understanding of it.
I don't see that the Postal Service could do something like
that because of the enormous cost involved. But there certainly
are some lessons learned, good, bad and indifferent, from
taking that kind of approach.
Mr. Davis of Illinois. Thank you very much, Mr. Milbourn.
We will go to Mr. McHugh.
Mr. McHugh. Thank you, Mr. Chairman.
Welcome. By way of editorial comment, I would say how much
I know we all appreciate the continued efforts of both the GAO
and the Inspector General. Over my 14 years of involvement in
these issues, we have called upon GAO repeatedly to guide us
and to assist us. This is the latest initiative, and we are
always not just very happy but very much in need of your help
and we appreciate that. As someone who had a little something
to do with the creation of an independent inspector's office, a
few bumps and grinds aside, I think it was a wise decision. We
are seeing a little bit of that today.
Mr. Milbourn, I hope I didn't bob my head too hard in
agreement as you were talking about what perhaps is one of the
most profound and yet in its structure one of the most simple
challenges the Postal Service faces, that is to cut costs but
do it in a way that hopefully enhances service. Yet as I look
through the GAO report, one of the more striking statements I
saw, and probably because it was bold headline, but it is also
in the text, was that USPS does not have a mechanism for
determining AMP consolidation impacts on delivery performance.
And then they go on to talk about there are some proxies, but
proxies are not direct performance standards.
How do we help the Postal Service to develop that kind of
process? And the second question is more rhetorical, how can
you really go through a very necessary and yet critically
dangerous process like the AMP without having some kind of
performance standard measurement? Do you have any answers to
that or suggestions, either one of you?
Mr. Milbourn. I do think it has to be something on a global
scale. In other words, I don't think that the Postal Service
can approach individual AMPs from the standpoint of trying to
set performance or service standards for that individual
consolidation. To me, I tie this back to the requirements of
the new act that says they have to do this kind of thing
globally for the different categories of mail. Once they have
that, then they have the criteria to use with each individual
AMP.
What we have been finding in our reviews with the AMPs is
simply the fact that they have to be very cognizant of and
analyze what are the expected changes when they make a
consolidation to the standards that they already have and
ideally to future ones as they become established. And that
needs to be a critical part of the decisionmaking on whether in
fact to consolidate under any given AMP.
Mr. McHugh. Ms. Siggerud, any thoughts on that?
Ms. Siggerud. I would agree wholeheartedly with what Mr.
Milbourn said. I think constructing some sort of delivery
performance measurement approach AMP by AMP would be not a good
use of the Postal Service's resources and probably not
possible. We do need to look to this time down the road when
the reporting standards and the new technology will make such
type and measurement available.
Mr. McHugh. So we can, I think, all agree it needs to be
system-side and that we don't really have the answers at the
moment as to what those are. This is a work in progress, but--
and I hope the Postal Service agrees--it is a work that has to
be completed if you are going to have an efficient evolution to
a new model and one that enhances delivery performance, yes?
Ms. Siggerud. Yes.
Mr. McHugh. Well, that really, that was 4 minutes.
Mr. Milbourn, you talked about probably one of the best
ways to de-conflict the process, and the gentlelady from the
District of Columbia was talking about some of the challenges
of having Congress involved. But probably the best thing we
could do is tell Congress you can't contact the Postal Service,
particularly in AMPs. I just had two go through it, and I will
tell you, I wrote a few letters, and I am sure we all did.
But you talk in your testimony about reconciling what you
defined to be the sometimes conflicting message, that is a very
gentlemanly way of putting it, sometimes conflicting messages
from influential stakeholders and mitigate their risk for
possible to preclude paralyzing inaction. Boy, how can we do
that, because that is a hard one.
Mr. Milbourn. This is going to be really tough, because
there are so many important stakeholders out there. There is of
course Congress. But there are also mailers. And you and me
receiving mail at our house are an important stakeholder.
I think the Postal Service needs to reach out very broadly
to all possible groups to solicit this kind of input in an
attempt to resolve these kinds of conflicting views. The
question I think that will remain is, is it within the Postal
Service's authority to elect to resolve some of these on its
own, or will it be directed to do certain things irrespective
of what seems to be the best business decision to make with all
of the necessary input?
Mr. McHugh. Mr. Chairman, I should have left him alone, he
wasn't paying attention to the clock. If I may, with your
forbearance, just one what I hope will be a quick question. Ms.
Siggerud, you spoke about, and of course, the topic here today
is the mandate for modernizing service standards and measures.
You talked about the PRC involving itself in their necessary
work of developing regulations.
I am just curious, did you have a chance to assess the
PRC's efforts there, or is that progressing in a sufficient
manner, do you think?
Ms. Siggerud. We have not assessed the PRC's efforts in
this area at this time.
Mr. McHugh. Thank you, Ms. Siggerud. Mr. Milbourn, I don't
expect you have an opinion on that?
Mr. Milbourn. No, sir.
Mr. McHugh. OK, thank you.
Thank you, Mr. Chairman. I told you it would be brief.
Mr. Davis of Illinois. Thank you both very much. We may
have some additional questions that we would like to submit to
you in writing. But given the fact that we've got three panels,
we will proceed and thank you very much for your testimony.
While we are getting ready to seat panel two, let me just
acknowledge that we are always pleased to have present former
Members of Congress who have deliberated long and hard on these
issues. I see that former Representative William Clay. Sir, we
are delighted that you are here. Thank you.
While you are being seated, I will go ahead and introduce
the witnesses. Panel two is 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 in supporting the commissioners in all
proceedings and the development of commission reports.
Mr. William P. Galligan was named senior vice president of
operations in May 2005 and reports to the Deputy Postmaster
General and Chief Operating Officer. Mr. Galligan has
responsibility for the Postal Service's engineering facilities,
network operations management and delivery and retail
functions.
Gentlemen, we welcome you both and thank you very much. If
you would stand and raise your right hands.
[Witnesses sworn.]
Mr. Davis of Illinois. The record will show that each one
of the witnesses answered in the affirmative, and we will begin
with Dr. Waller.
STATEMENTS OF JOHN D. WALLER, DIRECTOR, RATES, ANALYSIS AND
PLANNING, POSTAL REGULATORY COMMISSION; AND WILLIAM P.
GALLIGAN, SENIOR VICE PRESIDENT, OPERATIONS, U.S. POSTAL
SERVICE
STATEMENT OF JOHN D. WALLER
Mr. Waller. Thank you, Mr. Chairman. Thank you for the
opportunity to be here today.
My remarks are based on the Commission's 2006 proceeding on
the evolutionary network development plans of the Postal
Service. A copy of the Commission's opinion is attached to my
full written statement.
The Commission endorses the Service's goals to create a
more efficient and flexible postal network that realizes cost
savings while maintaining service standards. The Commission
also recognizes both the value of using modern, computerized
optimization and simulation techniques to identify mail
processing facilities for consolidation and the need to conduct
site-specific reviews of individual facility consolidation
plans as a reality check on the outputs of the computer models.
However, the Commission's analysis identifies significant
problems that could result in a less efficient network with
slower service. For instance, the emphasis on consolidating
operations from smaller plants into larger ones, rather than
consolidating from less productive plants into more productive
ones. Focusing on more productivity holds more promise.
Transportation was not adequately considered in the END
plants. It was not clear how nationwide transportation would be
realigned, since the backbone of the network, the regional
distribution centers, is shrouded in uncertainty. The Postal
Service estimated there could be anywhere from 28 to 100 such
centers.
At the local level, only 6 of the 17 of the consolidation
plans reviewed by the Commission revealed estimated
transportation cost savings.
As of last year, network development plans did not consider
the significant changes in mail processing and transportation
that will occur with the introduction of the flats sequencing
machines. These machines are huge, expensive and were not
incorporated in the planning models.
The Postal Service recognizes that its network redesign
program could have a significant impact on service. However, in
the proceeding, it did not provide a reliable estimate of the
volume of mail that would experience either a downgrade or an
upgrade in days to delivery. Nor did it estimate how often the
Postal Service would need to move up collection times from the
blue boxes or require earlier bulk drop-offs at their plants in
order to meet performance standards. Nor did it provide
information on the impact consolidations might have on time of
delivery during an individual day to the homes and businesses.
The Commission also found problems in faulty assumptions in
the computer models; in particular, not using actual mail
processing productivity and cost characteristics. Instead, the
models assumed idealized operations that ignore currently wide
disparities in productivity among plants.
There is also assuming that unit costs decrease as plant
sizes increase and this conflicts with evidence presented to
the Commission. The site-specific development evaluation
problems included lack of consistency in review procedures,
lack of criteria for approval or disapproval of proposed
consolidations, lack of public and mailer input and a severe
tardiness in errors and analysis in the post-consolidation
reviews where the Postal Service would learn as it goes
forward.
While changes have been made and were made during the time
of the proceeding, it was questionable if flaws have been
remedied, particularly given the GAO report that has just been
released.
In closing, let me emphasize that the Commission believes
that the Postal Service should have the flexibility and
authority to adjust its operations and networks to meet its
business needs and create cost savings and efficiencies.
However, the Postal Service must be accountable and transparent
to all postal customers and be sensitive to the needs of the
communities it serves.
Thank you. I will be pleased to answer any questions you
may have.
Mr. Davis of Illinois. Thank you very much, Dr. Waller.
Mr. Galligan.
STATEMENT OF WILLIAM P. GALLIGAN
Mr. Galligan. Good afternoon, Mr. Chairman, Ranking Member
Marchant, members of the subcommittee. I am pleased to be with
you today.
As senior vice president of operations for the Postal
Service, I am responsible for engineering, facilities, delivery
and retail operations and most relevant to our discussion
today, network operations. There is a close and inter-dependent
relationship amongst these activities. They have a strong
influence on the viability of our network.
Ultimately, our service standards and ability to meet them
are based on the effectiveness of the network. I look forward
to discussing both of these important issues with you.
It is important that we view them within the context of the
Postal Accountability and Enhancement Act, which was enacted
last December. The law resulted in major changes that affect
not only the Postal Service, but the entire mailing industry.
One of the most significant changes is the requirement that
price adjustments for our market-dominant products cannot
exceed annual growth in the consumer price index. These
products represent 90 percent of our business.
Unfortunately, some key cost drivers, such as energy and
health care benefits regularly exceed CPI growth. With this
requirement, the challenge for the Postal Service is to reduce
costs and increase productivity, while providing high quality,
affordable, universal service to our Nation. One approach we
are pursuing is the examination of our processing and
distribution and transportation network. Today's network is a
product of an evolutionary process that began when our system
was created over 230 years ago. It expanded to serve a Nation
that was growing in population and territory. This
infrastructure was adjusted over time to accommodate steadily
growing mail volumes, the latest trends in transportation
technology and specialized facilities to achieve greater
efficiency.
In 1970, more than 2,000 facilities performed outgoing mail
processing. Today, the number is less than 400. But in view of
changes in mail volume, and the types of mail entering our
system, we must continue to make our network even more
efficient and capable of satisfying our customers' needs. Since
1998, single piece, first class volume has declined by almost
14 billion pieces, or 25 percent. This erosion continues by 1.5
billion pieces each year. Without offsetting system
adjustments, this volume erosion reduces network efficiency and
negatively affects our bottom line.
We have also seen a growing shift to pre-sort mail which
enters our system much closer to its final delivery point. In
1970, virtually all mail moved in and through our system. Today
about 40 percent of the mail we handle no longer requires end
to end transportation. This decline in single piece first class
mail and the entry of more mail deeper into our system means
that our network is not aligned with current and future needs.
Excess mail processing and transportation capacity drives up
unnecessary costs and challenges our ability to operate within
the statutory limits of a rate cap.
As Postmaster General Potter testified here last week, our
challenge is to close the gap between prices and costs while
maintaining quality service. He explained that management could
proceed along any of three paths. The first is continuing
status quo, which is obviously unacceptable. The second path is
extensive contracting out of work now performed by our
employees. But this could undermine labor-management and
employee relationships that are so important to contributing
the excellent service we provide our customers every day. We
prefer a third path, working cooperatively with our
stakeholders to confront the critical issues we are facing as
an organization and as an industry.
The continuing modification of our network to reduce
duplication, increase efficiency, accommodate new equipment and
meet changing needs of our mailers is a strategy we are
pursuing along this path. Network adjustments have contributed
to our ability to achieve record levels of service, customer
satisfaction and unprecedented levels of productivity. Based on
more recent stakeholder input, we have been working to improve
our business processes related to implementing network changes.
These include expanded public notice, expanded public input and
increased transparency.
Through all of these changes, we remain committed to our
customers by maintaining overall service responsiveness and to
our employees by not laying off a single career postal
employee. The new postal law also requires us to develop modern
service standards and related measurement systems. Together
with a large and diverse group that represents all elements of
the mailing community, we are working to identify what changes
may be warranted. We are on target to complete this process
next month. We are already consulting with the Postal
Regulatory Commission so that new service standards can be
published by late December.
In developing measurement systems, we are exploring the
possible use of our intelligent mail bar code as part of an
information platform that will allow us to leverage internal
passive data collection to efficiently measure actual service
performance.
We look forward to working with our stakeholders,
particularly the Postal Regulatory Commission, in achieving
agreement on revised service standards and measurement systems.
I appreciate having the opportunity to discuss these important
issues with you today and I would be pleased to respond to any
questions you may have.
[The prepared statement of Mr. Galligan follows:]
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Mr. Davis of Illinois. Thank you gentlemen very much.
Mr. Galligan, I think you present a rather comprehensive
look at some of the problems and difficulties which the Service
is facing, especially when you talk about the decline in first
class mail and decline in the number of pieces of mail that
there is to be delivered. Given these difficulties, or given
these realities, redesigning and streamlining the postal
infrastructure has been under consideration for quite some
time. When you consider service to customers, the needs of
mailers, the future impact of automation, and the entire
environment in which you are working, what do you envision the
new network looking like? And when would you see it sort of
coming online in terms of saying, here is what we think it is
really going to have to be?
Mr. Galligan. Mr. Chairman, I think that in much of the
discourse around this subject, we have to look at it from two
different points of view. Our core competency as an
organization is our network of delivery and retail facilities.
That intact is a fundamental strength of our organization.
Our processing and distribution centers, that are world-
class, with letter and flat automation and we are adding to
that flat automation base as we move forward with the flat
sequencing system, form the backbone of our future network. We
also have an excellent air strategy that is part of that
network, that moves mail in the air via two very competent
suppliers and a select number of commercial airlines.
Where we are right now, I know it has been called unclear,
but it is in fact part of a business concept that we are
working through, is what do we do with our long-haul ground
network and what has been called our bulk mail center network.
We are working through market research on that effort, and
certainly we intend to be out with our facilities plan in
accordance with the new law by June of next year.
So my vision of the future at this point in time is we are
certain that the erosion of first class mail continues. The
consolidation of outgoing facilities continues on a very
evolutionary scale. Our air network strategy is very clear. The
work we are doing right now that will bring certainty to our
total ground network and our bulk mail center network is still
to be determined. It is a work in progress.
Mr. Davis of Illinois. You gave great credence to the
relationships between all components of the system, that is,
management and labor, working cooperatively together. What
mechanisms do you have in place to solicit input from the
unions and management associations relative to planning the new
system or the new design?
Mr. Galligan. We fully intend, as we move through
examination of any business process, to communicate to our
impacted organization, union organizations, what it is we are
looking at, research and how that would play out. We have
already been in communications, I personally, with leadership
around where we are with our business concepts. These are not
plans, these are not decisions. These are essentially steps
forward for us to build a business case that will ultimately
bring to fruition a full-scale facilities network plan for the
U.S. Postal Service. I look forward to working with the
leadership of all impacted labor organizations to be very up-
front in that regard.
Mr. Davis of Illinois. Dr. Waller, what are the PRC's views
on the Postal Service's strategy for realignment that you have
heard up to this point? How do you respond to what you have
heard?
Mr. Waller. Well, a lot of what we have heard is still
similar to what was there last year. It isn't as if that much
time has gone by. So a lot of the reactions are the same that
are in the report.
It has just been pointed out that particularly the big hole
is the BMC network, and what is the strategy going to be there
for that. I think new initiatives are being pursued by the
Postal Service, from what was just said, to try and firm that
up. I think that is a useful move because you can't, unless you
know what the backbone of the major transportation system is
going to be, it is hard to adjust and say anything more than we
said before.
I think some of the criticisms still hold. I don't know to
the extent that they are going to revise their use of the
models that were a part of the END process. But to the extent
there, they do need some revisions to put in inputs that
reflect more reality of what is going on out there in the field
right now.
There is a great diversity in the performance among the
plants. Until that comes before the Commission, a lot of times
there is no explanation of why that diversity exists. It is
just said to be fixed and persistent over time. Until some of
those are understood better, it is going to be hard to
understand how they are going to affect that ending up with a
more productive network. Hopefully that will be taken care of,
too, and they will have more realistic models if they continue
to use that approach.
Mr. Davis of Illinois. Thank you gentlemen, very much. Mr.
Marchant.
Mr. Marchant. Mr. Waller, you said in the last part of your
testimony that the PRC has brought transparency to the postal
network development plans. But the previous panel specifically
said that was not the case.
Mr. Waller. I think where we were when we started the case
to where we were when we ended the case, when the case started
and took a great deal of effort on the part of the people
asking questions to find out exactly how many of the facilities
were under consideration for modification, I think this
enlivened the process very much, the review of them that has
been going on then across the country right now.
We, I think through the asking of questions about the AMP
process, got much more public input. There was a lot of forces
causing that to happen. But as it became apparent, as the case
started, that very little was out there in the public,
including just what was the list of candidate facilities that
had come out of all this modeling process, I think that helped
add transparency. I think the AMP process did improve with more
public input. But just identifying that was a need has, I
think, been a value added.
Mr. Marchant. So you don't view the Government
Accountability Office, do you view them as an adversary or as
someone who is helping you?
Mr. Waller. Oh, I think it is very useful. I think they
endorsed and reiterated a lot of the conclusions that were in
our advisory opinion. I think there is a lot of similarity and
they just picked it up and said, yes, in the few months that
have gone by, not much has changed.
Mr. Marchant. I have a bulk mail facility in my district.
When it comes to the bulk mail facilities, is that really a
public input issue? Or are the retail facilities more of a
public input?
Mr. Waller. I think it is a public--any part of the node
that mail is particularly dropped off, there are particular
discounts that are for the BMCs. If you close or move them,
people that are using them as an input are going to have to
adjust where they, and it may be more expensive for them.
Mr. Marchant. So in this case, the public would be the
retailers, the mailers.
Mr. Waller. It would be retailers, it would be the local
communities, too, that would be affected. I think the broader
you set a net to get ideas, the better off you are going to be,
because the more people are going to understand the needs. So I
would say both the local community, the labor, people who
understand the local issues. But in particular, the mailers
that actually use it have to, I mean, it has been pointed out
that the work sharing concept has evolved to a large extent.
Well, that is where now the mailers are doing a lot of the
work previously done by the Postal Service and inserting it
deeper into the system. Those insertion points are very
critical, both to the mailer, what kind of service are they
going to get at that insertion point, etc., and if you start
mixing those up, you have to examine the impact it is going to
have on them.
For instance, I would assume that there are a lot of
possibly mailers near you, consolidators near your center who
have built infrastructure themselves. So it is not just the
Postal Service that would end up changing. There would be
changes within the mailers who would use it. If they can't
continue to use it in an efficient way, then the system itself
overall is not going to get more efficient. So it has to be
considered as not just what is happening to the Postal Service,
but what is happening to the people who insert mail into the
system and then how fast it gets to the people who are
receiving the mail.
Mr. Marchant. Well, and every 2 years, all of us have the
opportunity to get into the bulk mail business. [Laughter.]
Especially in media markets like Dallas, where that is the
only affordable way to communicate, whether it be campaign or
MRA. So it is a vital interest to all of us. But yes, my
district is surrounded, DFW Airport. So yes, the bulk mail
people have located there, J.C. Penney, all of the major
mailers.
I appreciate your efforts. Thank you.
Mr. Davis of Illinois. Thank you very much. You mean
television is too----
Mr. Marchant. For my district it is. [Laughter.]
Mr. Davis of Illinois. So you can't be doing much of that.
Let me just ask an additional question or so. Mr. Galligan,
nobody likes to mention or make reference to, but I did note
that Mr. Milbourn in his testimony did suggest that there might
be times when you might have to look at the appropriateness of
6 day delivery in some instances, or some places. Is there much
thought or conversation given to that kind of thinking?
Mr. Galligan. I know Congresswoman Norton mentioned mission
impossible. I don't share that we are on a mission impossible
course, but it is a mission challenged. My personal opinion,
and I think it is shared by our Postmaster General, is that the
issue of 6 day delivery cuts to a public policy debate that
goes to the notion of universal service.
I can assure you that organizationally, in my delivery and
retail organization, we are not preoccupied at this point in
time with any notion around changing our days of delivery to a
5-day model or an every other day model. There would be a point
in time where our cost burden against the top line revenue is
so out of whack that needs to be considered. I think it is a
matter of public policy debate. I think it would cut through to
the very notion of the mail monopoly and universal service.
And not to pass a monkey off my back, Mr. Chairman, but I
kind of think that issue would probably fall up to your Chair.
Mr. Davis of Illinois. Well, I think it is something that
certainly some people give thought and consideration to. And I
think it is something that we have to be cognizant of. I will
agree with your initial assessment that there are no simple
solutions to very complex problems. There are complexities
which do in fact exist. I think what we all want to do is try
and make sure that we have a viable Postal Service that does in
fact embody the principles of universal service and the
principles of work opportunities and all of those things that
we have come to know it as being.
So let me thank you gentlemen for your testimony. I am sure
we will be continuing to look at all of that.
Let me also just indicate that Congressman Adam Schiff has
questions that he would like to submit as part of the record to
the Postal Service for answers. Without objection, that will be
so ordered.
Gentlemen, thank you very much. We appreciate your being
here.
While our third panel is being seated, I will go ahead and
introduce them. Panel three, Mr. Michael Winn, has served as
the director of postal operations for R.R. Donnelley, who is a
member of the Association for Postal Commerce. Mr. Winn has
been active in many printing industry associations and has been
a member of the graphic arts industry for over 30 years. I
might also indicate that R.R. Donnelley is one of the major
business operations in my congressional district. We are indeed
pleased and delighted to have them.
Mr. Robert E. McLean has been the executive director of the
Mailers Council since 1996. He furnishes management services
for the non-profit advocacy organization, serves as its public
spokesman and represents the Council on Capitol Hill.
Mr. Jerry Cerasale joined the Directing Marketing
Association [DMA], in 1995. As senior vice president,
Government Affairs, he is in charge of the DMA's contact with
Congress, all Federal agencies and State and local governments.
And Mr. Timothy May serves as general counsel and postal
counsel to mail order companies, mailer associations,
publishers and organizations of postal employees, including the
Parcel Shippers Association, the National Association of Postal
Supervisors, NetFlix and Capital One.
Gentlemen, welcome. And if you would rise and raise your
right hands.
[Witnesses sworn.]
Mr. Davis of Illinois. The record will show that each one
of the witnesses answered in the affirmative. And welcome. Mr.
Winn, we will begin with you.
STATEMENTS OF MICHAEL J. WINN, DIRECTOR OF POSTAL AFFAIRS AND
MAILING OPERATIONS, R.R. DONNELLEY; ROBERT F. MCLEAN, EXECUTIVE
DIRECTOR, MAILERS COUNCIL; JERRY CERASALE, SENIOR VICE
PRESIDENT, GOVERNMENT AFFAIRS, DIRECT MARKETING ASSOCIATION,
INC.; AND TIMOTHY J. MAY, GENERAL COUNSEL, PARCEL SHIPPERS
ASSOCIATION
STATEMENT OF MICHAEL J. WINN
Mr. Winn. Thank you, Mr. Chairman.
Mr. Chairman and members of the subcommittee, thank you for
providing me this opportunity to testify on behalf of the
Association for Postal Commerce [PostCom]. I am a member of
PostCom's board of directors and the executive committee of the
board. On behalf of PostCom's membership, we appreciate the
opportunity you have provided PostCom to submit our views on
the significant postal issues that you are examining in this
hearing.
PostCom's membership consists of businesses and
organizations, large and small, that use the postal system to
communicate with their customers, donors and constituents.
PostCom membership also includes the printers, logistics
companies, fulfillment houses, software providers and others to
make use of the postal system possible. Collectively, our
membership is estimated to account for in excess of 70 percent
of all the revenues the Postal Service receives from the
standard mail sub-classes.
But our interest in the postal system goes far beyond these
sub-classes. It is estimated that PostCom members accounted for
about 50 percent or more of the total volume of catalogs
weighing over one pound, books, audio and video materials and
parcels that the Postal Service handles each year. Our
membership also makes extensive use of first class mail and of
both domestic and international shipments handled by
alternative service providers, such as UPS, FedEx and DHL.
PostCom thus has a vital interest in assuring the existence of
an efficient, responsible, financially stable and competitive
Postal Service.
My company, R.R. Donnelley, is the largest printer and
postal logistics provider in the United States. As a mail
service provider, we work with our customers to prepare
enormous amounts of mail in all classes: periodicals, catalogs,
parcels and letter mail. R.R. Donnelley produces a very
significant portion of the mail pieces that are processed by
the Postal Service and provides logistics for even more.
The passage of the Postal Accountability and Enhancement
Act was a critical step to enable the Postal Service to address
the difficult issues that it confronts in the current market
environment. The Postal Service faces the continued expansion
of postal delivery points, which increases its costs and at the
same time, a decline in the rate of growth of mail volume,
which adversely affects revenues.
With the passage of this act, Congress altered the
regulatory framework in a comprehensive manner that strengthens
regulatory oversight and enhances transparency, while providing
the Postal Service the necessary management incentives to meet
these challenges through greater operational efficiency and
high quality service standards. PostCom supported the passage
of the Postal Accountability Act and we are deeply grateful for
the hard work that this committee put into that effort.
Mr. Chairman, we submitted detailed written testimony, so I
will give a summary today. First, on postal realignment or END,
Evolutionary Network Development, PostCom members support the
realignment of the network, because we need an efficient, cost-
effective method of delivering our message to the consumers.
However, there is room for improvement in the way the
realignment process is operating. That is really around
communications.
The ultimate objective of the network redesign is to have
an efficient network based on the needs of delivery, the new
automation that is being deployed to efficiently process the
mail, and to control costs. However, if it is done without a
proper communication plan, which any good business should have,
it is going to be incurring costs that are unnecessary. I will
give you an example.
If we do not have a transparent view of how the network is
going to be realigned, as logistics providers, we quite often
have trucks redirected in transit from one facility to another.
Our customers make mail plans to meet in-home dates months,
sometimes weeks in advance. So we depend on the communication
from the Postal Service as to where we are going and how to
most efficiently get it there. Redirections increase costs and
possibly even create delays for our customers.
Let's talk about another thing under the banner of network
realignment, and that is, as the Postal Service is deploying
new automation and changing the mail preparation requirements
that are put on mailers and mail service providers, we have to
be careful not to just shift costs out of the Postal Service
out of the private sector, we look at total system costs to our
customers, the mailers, as the correct way to be realigning the
network and changing requirements for mail preparation and
delivery.
A little bit on service standards. Service standards are
absolutely vital to the mailers, along with good measurement
and reporting. The reason is that an entire business decision
is based on an in-home date. A mailer needs to know when their
message is going to reach the consumer, so they can respond
accordingly. I will give you two brief examples. Periodicals,
subscribers buy periodicals because they expect to receive the
periodical at a certain time. If that is not maintained, it is
very likely that the subscriber will not re-subscribe. So the
business decision there is, how do you produce the periodical
with a dependable service standard and measurement to reach a
certain in-home date.
Even more challenging is on the side of the catalogs.
Catalogs start with an in-home date and from there they develop
their mail plan, when they are going to drop the mail. From
there, they tell their printer when they are going to be able
to print. Then there is a decision on the inventory and the
content of that catalog. Coordinating the in-home date with
inventory on hand and a staff call center is the challenge. And
it all stems from service standards with critical entry times.
Critical entry times can also be affected by the automation
that is being deployed. If that changes, we need transparency
in seeing how that is going to change, so we can adjust our
mail plans and other planning accordingly.
In conclusion, I would like to thank you, Mr. Chairman, and
the subcommittee, for allowing me to testify today on behalf of
PostCom. We appreciate your accepting of our written testimony.
[The prepared statement of Mr. Winn follows:]
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Mr. Davis of Illinois. Thank you very much.
Mr. McLean.
STATEMENT OF ROBERT E. MCLEAN
Mr. McLean. Thank you, Mr. Chairman, Mr. Marchant.
The Mailers Council is the largest group of mailers and
mailing associations in the Nation. We represent for-profit and
non-profit mailers, both large and small, that use the Postal
Service to deliver correspondence, publications, parcels,
greeting cards, advertisements and payments. Collectively, the
Council accounts for approximately 70 percent of all of the
Nation's mail.
The Mailers Council believes that the Postal Service can be
operated more efficiently, supports efforts at containing
postal costs, and has the ultimate objective of lower postal
rates without compromising service. We welcome this opportunity
to testify on the creation of delivery service standards and
performance measurement systems. These were issues of singular
importance to mailers who lobbied for their inclusion in the
Postal Accountability and Enhancement Act, the Postal Reform
bill signed into law last December that many people on this
dais had something to do with. Whatever differences mailers may
have had on other sections of the bill, our members were and
are unified in their support for standards and a meaningful
performance measurement system.
There are several reasons why we are interested in new
delivery standards. For many mail classes, the Postal Service
today has delivery guidelines, not standards. And its
measurement systems fail to measure the type of mail that
compromises most of the volume it delivers.
Although Title 39 directs the Postal Service to operate
like a business, in this area the Postal Service is doing quite
the opposite. Private sector companies would not conceive of
functioning without standards for one fundamental reason:
setting standards and measuring the organization's success in
achieving them makes the organization better. Only by measuring
performance can an organization identify where problems exist
and then correct them and reward managers for their
improvements.
We believe that creating new delivery service standards and
performance measurement systems can be done in a way that will
satisfy mailers for four reasons. First, because of
improvements in the technology found in every mail processing
facility, much of the data needed to determine delivery
performance already exists. Second, data collection for
delivery measurement in classes that affect the larger mailers
can be developed without large new expenses. Third, any
additional cost would be an insignificant portion of the postal
budget. And fourth, mailers will dedicate their time to working
with the Postal Service to design these processes, because they
will help make management more efficient and hold down postage
costs.
As for the features we expect to see in the new delivery
standards, they must be realistic and reliable. The Postal
Service must avoid lowering existing service standards. We need
new and more complete reporting of delivery performance as
well. Mailers are interested in the speed and consistency of
delivery. So we need a system that will tell us if the Postal
Service is achieving both goals.
New delivery performance reports must be timely and
detailed by geographic location. The Mailers Council opposes
the concept of fining the Postal Service should it fail to meet
delivery standards. Because the Postal Service receives 100
percent of its revenue from mailers, the imposition of a fine
would actually be a fine on mailers.
The Postal Service's board of Governors must encourage the
creation of new executive compensation systems that reflect
management's ability to meet those standards. These systems
must offer greater compensation where consistent, on-time
delivery is met.
You also asked us to comment on the closing and
consolidating of postal facilities. In its efforts to improve
delivery performance and in response to ongoing changes in mail
volume and composition, the Postal Service will need to
consider consolidating some of its facilities. We will support
the Postal Service in realigning its mail processing and
delivery networks. We recognize that closing a postal facility
is difficult, because it affects the lives of so many
individuals. However, right-sizing the postal network is an
essential step to keeping down the cost of postage. Therefore,
we hope Members of Congress, including members of this
subcommittee, will support such decision that are essential to
improving postal efficiency nationwide.
Where consolidations have been handled successfully, postal
managers communicated with mailers, employees and the public
served early and often. They also allowed sufficient time to
plan delivery and transportation changes. Where such
consolidations have been handled poorly, postal managers have
moved too quickly and failed to sufficiently discuss the
implications with its customers, like Mike, and its employees.
The Mailers Council members have spoken with senior postal
officials, including Postmaster General Jack Potter about how
network realignment will be handled in the future. As a result,
we are confident that mailers will be brought into discussions
earlier and that we will be assured that managers in the field
will have the resources they need to be able to implement such
difficult changes.
Mr. Chairman, thank you again for this opportunity to
represent our views on these important postal issues. We will
gladly answer any questions you and your colleagues have.
[The prepared statement of Mr. McLean follows:]
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Mr. Davis of Illinois. Thank you very much.
Mr. Cerasale.
STATEMENT OF JERRY CERASALE
Mr. Cerasale. Thank you, Mr. Chairman, Mr. Marchant. It is
a pleasure to be here. Thank you for inviting the DMA to give
our comments on this important matter.
I am Jerry Cerasale, the senior vice president for
government affairs for the DMA. DMA is an association, the
largest American association of multi-channel marketers, using
the mail, internet, television, radio, telethon, to reach
customers and potential customers, and also those who support
those marketers. Mail is an important cog in the direct
marketing industry in the United States, which has an effect of
over $1.4 trillion on the American economy.
The Postal Service needs flexibility in order to create an
efficient transportation, sorting and delivery network. We
support the Postal Service in those efforts and we supported
the Reform Act giving the Postal Service management those tools
to try and reach an efficient system. But we cannot and we must
be vigilant against allowing realignment to become a hidden
rate increase, a rate increase to mailers beyond the CPI cap.
I will give you a couple of examples. One, change the time
of delivery for bulk mail to a facility from 6 p.m. to 6 a.m.
Think about a magazine that is necessary to get information out
quickly. That is a huge cost to them, because that eliminates
an entire day. They have to change their entire operations.
Think about changing where you have to drop ship your mail.
An example, an absurd example, but interesting example, you
require J.C. Penney in Texas to enter their mail not in Dallas,
but in Chicago, or R.R. Donnelley to enter not in Chicago but
in Dallas. Those are huge increases, and just changing where
you have to enter the mail can in fact be a hidden increase
toward mailers. So we have to be aware of that as you look at
realignment as well, although the Postal Service is required
and must work to realign the network, especially with
diminishing first class mail volumes.
The Reform Act also talked about service standards, and
that is one of the things that you wanted to hear about today.
We hope that we are very cooperative with all the players in
setting up these service standards, including the Regulatory
Commission. I think we must start where we are, where the
guidelines are, where the standards are now. That is a good
starting place on where the negotiations should begin. But it
is important to note that smaller mailers that mail nationwide
that are the bulk of DMA membership, and especially the non-
profit mailers, receive very, very poor service for mail that
is going across the country. Standard mail can be 2, 3 weeks
for delivery. In this day and age of our transportation
networks, the Postal Service can and must do better.
But again, in setting the goals, setting the standards
which have to be met, that is only half the way. We have to
have performance. The Postal Service must meet those standards.
That is important, because as you have heard, mailers rely upon
when the mail will go into the home. And the Postal Service's
goal should be not to meet them 95 percent of the time, they
should meet them 100 percent of the time. That is success, not
95 percent.
These measurement standards should be open for all to see.
It is important to understand that they meet them.
Operators are hired, fulfillment people are hired, e-mail
messages, Web page advertisements, in-store advertisements are
all geared to when the mail is going to reach the potential
customer. And it is important that they meet them. We know it
and the Postal Service meets its.
And standard mail is unique, direct mailers are unique.
Because you have to meet it, not beat it. The same problems
occur if the mail gets to the home before expected. The ads
aren't there, the operators aren't there, the inventory may not
be there. So in our view, you have to meet it, not beat it, not
miss it, meet it.
We think it is important that the measurement standards,
you can't have a measurement for each piece of mail. But it has
to be regionalized, it has to be disaggregated enough so it is
not just the entire Postal Service. We have to be able to
measure and see where the problems are. Marketers have to know
where the issues are, where do they have to change their entry.
Maybe you get better service in one region than another, and
you have to change your pattern, your mailing pattern, in order
to have the in-home date the same.
I thank you for this opportunity and am willing to answer
any questions you may have.
[The prepared statement of Mr. Cerasale follows:]
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Mr. Davis of Illinois. Thank you very much.
We will go to Mr. May.
STATEMENT OF TIMOTHY J. MAY
Mr. May. Thank you, Mr. Chairman. My name is Timothy May, I
am a partner in the law firm, Patton Boggs, and am general
counsel of the Parcel Shippers Association, on whose behalf I
appear today.
Parcel Shippers is an industry association whose membership
packages, largely from businesses and consumers, and companies
that support those activities. Our main objective is to
encourage a competitive environment that results in the best
possible service at the lowest possible cost. Our members use
all the private carriers as well as the Postal Service.
Our members have a hand in the vast majority of the Postal
Service's products and the package services class, which is now
categorized as competitive products under the new law. They
also ship and consolidate for delivery to the Postal Service
hundreds of millions of packages such as first class mail
parcels, standard mail parcels, bound printed matter and media
mail. Those are now categorized as market-dominant products. It
is for those products that the Postal Service must in the
future develop measurement standards and reporting systems.
At the moment, for most other mail, the market-dominant
mail, Postal Service really only has guidelines, if you can
call them that, rather than standards. And it doesn't really
measure mail that consists of the most substantial volumes it
delivers. For example, for most packages, the delivery is
anywhere from 2 to 9 days, depending upon where you put it in
and where it is going. In the case of standard parcels, those
less than a pound, the standard delivery is in 3 to 10 days,
depending upon how far it goes.
But again, those really aren't standards. It is kind of a
guideline and we hope it gets there. There is very little
measurement of that.
What our members want is a consistency of speed and
reliability. We are particularly concerned about products that
are delayed beyond the expected time of delivery, which we all
refer to as the tail of the mail. Those are the several
percentages of mail that just don't get there on time. The
customers are irate, all kinds of business is lost, there are a
lot of costs involved in reshipping to them.
But as far back as 2000, parcel shippers asked the Postal
Service for delivery standards, performance measurements and
reporting for a new category of package services called Parcel
Select Service that was approved in 1999 by the Postal Rate
Commission. That began a collaboration between our association
and the Postal Service's Mailers Technical Advisory Committee,
to resolve issues such as how to start and stop the service
clock, and critical entry times.
Those issues are now resolved today. We have excellent
Parcel Select delivery standards, 1 day for parcels entered at
the destination delivery unit, 2 days for parcels entered at
the destination sectional center facility and 2 to 3 days for
parcels entered at the destination bulk mail facility. That is
excellent service, and we are getting very high performance,
upwards of 98 percent on time.
Last year, the Government Accountability Office, and you
had testimony today, issued a generally critical report on
Postal Service delivery performance standards, but said that a
noteworthy exception was the standards that evolved through the
collaborative efforts of parcel shippers and the Postal Service
for parcel select parcels. While these standards and reporting
techniques were developed for what are now deemed to be the
competitive products, we see no reason why that same or similar
standards are not reasonable as well for market-dominant
packages.
The Postal Service now measures and reports for us using
delivery confirmation data that allows the service to be
accurately measured and reported at a very detailed level.
Parcel Select shippers can get detailed summary reports
regarding the performance delivery on their own parcels and can
compare that with reports of aggregated data to see how they
are doing compared to their peers. Much-improved technology is
now available such as intelligent mail bar code, and that
provides transparency, such as tracking and tracing.
Unique identification of mail pieces should be the norm in
the future, not the exception. Also in the future, any good
performance measurement system, to be effective, will have to
disaggregate data on the tail of the mail, that mail that is
there too late, how much is it, where is it, so those packages
are delivered later than the standard.
The law now requires that 6 months after the development of
the standards and measurement system, after that, the Postal
Service has to file a plan to meet these standards. Also, a
central part of that plan deals with postal facilities.
Congress found, as you know, that there were more facilities
than the Postal Service needs, and that streamlining of the
distribution network could pave the way for potential
consolidation of sorting facilities and the elimination of
excess costs. The Postal Service must detail its plan for this
rationalization of the infrastructure.
The Postal Service was already at work on that prior to the
enactment of the recent reform law, and even adopted a
proceeding at the Postal Rate Commission called the
Evolutionary Network Development changes [END]. You had some
testimony just prior to this from the director at the Postal
Rate Commission about that proceeding and the deficiency they
found in the Postal Service's approach. Interestingly enough,
Congressman, one of our large members, we developed this
information to give to the Postal Rate Commission, one of our
large members in Dallas, that ships out of the bulk mail center
in Dallas, one of the proposals, but again this was all very
sketchy, one of the proposals of the Postal Service was to do
away with the bulk mail facilities and substitute in their
place up to perhaps 100 regional distribution centers.
In Texas, if that were to happen, there would likely be
five distribution centers in Texas instead of the one bulk mail
center. They are not going to move it to Chicago, but they did
have plans to move it out of the BMC and to move it into these
new regional distribution centers.
Our member calculated the additional costs to them of
having to bring their parcels to five distribution centers
around the State rather than the one BMC in Dallas, and also to
have to do away with bed-loading, because they were going to
require containerization, and the amount of the cost to that
mailer for those packages being shipped out of Texas, they
estimated it to be an increase of anywhere from 16 to 26
percent in their total costs.
Now, the Postal Service had given no consideration to that
whatsoever, the impact of that on mailers, the cost to mailers.
So that is simply unacceptable, and that has to be considered.
We have been working with the Service, again through the
MTAC process, on END. Our committee has formally presented a
position paper to MTAC on this restructuring. That is attached
to my testimony as Exhibit 1. That paper explains the
principles we believe should guide the Postal Service as it
realigns its network.
Consistent deliveries, lower end to end cost in service,
enhancing work-sharing discounts, visibility, effective
containerization, not just--not eliminating bed-loading, unless
that is necessary, and maximum automation. The Service needs to
heed advice from committees such as ours and we believe that
the success that we had and that can solve the process on
standards can be a model for the facilities streamlining that
has to take place.
Obviously that process requires consultation not only with
mailers, but with the communities affected and employees of the
Postal Service who will undoubtedly be affected. We hope that
the subcommittee will continue to scrutinize carefully the
progress the Service makes in rationalizing its infrastructure
and in formulating and implementing new standards and
measurements of service and reporting systems comparable to
what we now have for Parcel Select.
Thank you for this opportunity.
[The prepared statement of Mr. May follows:]
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Mr. Davis of Illinois. Thank you very much.
Mr. Marchant, do you have any questions?
Mr. Marchant. Yes. Last week the subcommittee looked at the
issues concerning outsourcing on the part of the Postal
Service. Do you or your members or your clients have any views
on the whole concept of outsourcing and independent
contractors?
Mr. May. We are not, per se, opposed to outsourcing. But to
us, we think you have to make the case for it. You have to
demonstrate that it really cannot be done effectively in-house
and that indeed, you will save money by going out of the
Service. And also, there are important considerations you have
with your employee agreements. The contract the PMG just signed
with the Letter Carriers Union, for example, does not allow
them to surplus any existing Postal Service carrier routes by
outsourcing them.
So they don't have a free hand in this. But as in private
industry, labor and management collectively bargain and they
agree. The Postal Service is somewhat handicapped, because
under the present system, in an impasse, they have to go to
impasse arbitration. That has often been not satisfactory.
Happily this time, for example, with the Letter Carriers
contract just consummated, they were able to reach an agreement
without having to go to arbitration.
But certainly there will be occasions when there will be
outsourcing. But we don't have a position per se on it. We are
not urging that it be done. If it makes sense, do it. But make
the case that it does.
Mr. Marchant. Mr. Cerasale, do you see the effective future
of the Postal Service's being effective using some kind of
outside contractors, do you see that as an essential part of an
effective delivery system for your clients and customers?
Mr. Cerasale. The Postal Service has historically used
contractors for transportation and so forth in the past. I
agree with Mr. May that they have to make a case for it.
One of the things for an efficient Postal Service and how
it works, however, is that the labor management climate within
the Postal Service, the Postal Service has to work and work
well, and that means management and their employees working
together and working well. That is part of an efficient Postal
Service as well. We are not opposed to contracting out. But we
are not saying that you have to contract out. We think that
right at the moment, it is part of the collective bargaining
agreements, I think, with all the unions. The Postal Service
has to work within that framework that it currently has.
I don't think you take it off the table. I don't think you
say, it is not there. I think it is part of what the Postal
Service has in front of it, part of the tools it has to work
with and with its employees. But an efficient Postal Service,
one that works efficiently for us is one that works with its
employees who are, where there are customers, are they both
employees and Postal Service. So it has to work together. So
that is a part of what efficiency is as well.
Mr. Marchant. Thank you, Mr. Chairman.
Mr. Davis of Illinois. Thank you very much.
Gentlemen, during this part of the discussion, on two or
three occasions I heard differentiation between guidelines
versus standards, or I heard mention that in some instances,
the Service has guidelines but not standards. What is the
difference?
Mr. May. Well, Mr. Chairman, a standard is something you
have committed to, that you will get delivery. For example, the
commitment we have for Parcel Select standards is if we drop
our packages at the destination delivery unit, that is the
standard, which means we have been guaranteed and our customers
can rely on that, that is going to be delivered in 1 day and
with a 98 percent success rate. So that is a standard.
A guideline says, well, it will take anywhere from 2 to 9
days, depending on where it is in the system. That is a
guideline. Frankly, to the extent that they even measure it at
all, it is less than 50 percent accurate. So lots of work has
to be done there. There is no reason why everybody can't have
the same kind of standards and reportability and reliability
that we have been able to achieve for Parcel Select by
cooperating with the Postal Service.
Mr. Davis of Illinois. And you are wanting the Postal
Service to move closer to a level of exactness?
Mr. May. Exactly. And we see no reason why, within some
tolerance, they can't have the same quick delivery, quick
certain delivery guidelines and reporting systems for all of
the mail, not just Parcel Select.
Mr. Cerasale. From our view, what you measure is what you
receive. So the real key for these standards is, we have to
have measurement of those standards. That is where management
will put efforts and make sure they meet them. So the big key
in service, creating service standards, is the measurement and
the guidelines that we have. There really is not measurement
there.
Mr. McLean. The other key to this is that performance
measurement that we are discussing today will be much more
detailed and will be made public. The standards that are being
established are a fine idea, but without the measurement, they
would essentially be meaningless. Today the Postal Service has
two measurement systems involving outside auditors. One measure
the general public attitude toward the Postal Service, and the
other measures the very small percentage of a specific type of
mail. These standards will be much broader, as will the
performance measurement systems.
So we will get a much better sense of how the Postal
Service is doing when it comes to delivering large chunks of
the mail that really provide almost 80 percent of their revenue
throughout the year, not just the revenue that comes from a
very small subset of a single class of mail.
Mr. Davis of Illinois. As the Postal Service goes through
its thinking about realignment, are you all satisfied that you
have an opportunity for input into the process?
Mr. May. Well, we certainly have. We have no complaints
about that. That doesn't mean they are going to listen to us
and agree with everything we have said. But we have, largely
through the Mailers Technical Advisory Committee process, we
have had and are continuing to have the opportunity to present
our views on standards for other package services and
measurements, how they will be measured, and also our views,
and we will put it in writing eventually, what our position is
on the restructuring of the infrastructure of the Postal
Service. As I say, we have gone into print with that. It is
attached to our testimony.
Mr. Davis of Illinois. Mr. Winn.
Mr. Winn. I would have to answer that question as no, we
have not had sufficient communications nor been really allowed
to provide good input from our perspective. I will give you the
example. We have consolidation facilities all over the country
where we consolidate mail and then we drop ship it certain
times at certain locations in the Postal Service. The location
of those facilities is critical to where we are entering mail.
So if the network is realigned without visibility into what it
is going to look like in the future, our consolidation
facilities may be in totally the wrong places. We will have to
move, increased costs to our customers, again, total system
costs.
Mr. Davis of Illinois. Mr. McLean.
Mr. McLean. I think that where the Postal Service could
improve in this area is by talking to us more often and giving
us more lead time when it plans on changes, whether they are
closing or consolidation. Mike, in his testimony, gave a great
deal of attention to the in-home delivery date, and that is
what is really affected, as well as the transportation costs
that mailers will be required to pay.
Mr. Galligan, the witness who testified earlier today, has
been very accessible to us. We are in the process of trying to
schedule a meeting with the Postmaster General and our entire
membership some time between now and the end of the year. The
network realignment will be one of the topics that we will talk
with him about.
So we are seeing more accessibility. We just hope that we
will see more information a little farther ahead than we have
in the past.
Mr. Davis of Illinois. Mr. Cerasale.
Mr. Cerasale. The accessibility is there. I don't
necessarily think that we have seen all the information that we
think we should receive and that is a really important part of
the discussion, is to take a look at the plans and then listen
to us as we talk on them. I think we are encouraged by where
the Postal Service is moving on this. But the jury is still out
whether or not they really are giving us the plans and having
some meaningful discussion on them.
Mr. Davis of Illinois. Well, it looks like our timing is
perfect. Gentlemen, I want to thank you all for your testimony,
for being here with us. I want to thank all of the witnesses
for appearing and all of those who have come.
Of course, we have a vote on and I have to go and vote, so
this hearing is adjourned.
[Whereupon, at 4 p.m., the subcommittee was adjourned.]