[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.]

                                 
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