[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
WHERE HAVE ALL THE LETTERS GONE? THE MAILING INDUSTRY AND ITS FUTURE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON FEDERAL WORKFORCE,
U.S. POSTAL SERVICE AND LABOR POLICY
of the
COMMITTEE ON OVERSIGHT
AND GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
MAY 12, 2011
__________
Serial No. 112-53
__________
Printed for the use of the Committee on Oversight and Government Reform
Available via the World Wide Web: http://www.fdsys.gov
http://www.house.gov/reform
U.S. GOVERNMENT PRINTING OFFICE
70-526 PDF WASHINGTON : 2011
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COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM
DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana ELIJAH E. CUMMINGS, Maryland,
JOHN L. MICA, Florida Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina ELEANOR HOLMES NORTON, District of
JIM JORDAN, Ohio Columbia
JASON CHAFFETZ, Utah DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee PETER WELCH, Vermont
JOE WALSH, Illinois JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania
Lawrence J. Brady, Staff Director
John D. Cuaderes, Deputy Staff Director
Robert Borden, General Counsel
Linda A. Good, Chief Clerk
David Rapallo, Minority Staff Director
Subcommittee on Federal Workforce, U.S. Postal Service and Labor Policy
DENNIS A. ROSS, Florida, Chairman
JUSTIN AMASH, Michigan, Vice STEPHEN F. LYNCH, Massachusetts,
Chairman Ranking Minority Member
JIM JORDAN, Ohio ELEANOR HOLMES NORTON, District of
JASON CHAFFETZ, Utah Columbia
CONNIE MACK, Florida GERALD E. CONNOLLY, Virginia
TIM WALBERG, Michigan DANNY K. DAVIS, Illinois
TREY GOWDY, South Carolina
C O N T E N T S
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Page
Hearing held on May 12, 2011..................................... 1
Statement of:
Riebe, Dave, president of logistics and distribution, Quad/
Graphics; Jerry Cerasale, senior vice president, government
affairs, Direct Marketing Association; Rob Melton, vice
president of specialty paper, Domtar; and Todd Haycock,
director, postal services, 3i Infotech, North America...... 4
Cerasale, Jerry.......................................... 15
Haycock, Todd............................................ 31
Melton, Rob.............................................. 24
Riebe, Dave.............................................. 4
Letters, statements, etc., submitted for the record by:
Amash, Hon. Justin, a Representative in Congress from the
State of Michigan, prepared statement of................... 50
Cerasale, Jerry, senior vice president, government affairs,
Direct Marketing Association, prepared statement of........ 17
Connolly, Hon. Gerald E., a Representative in Congress from
the State of Virginia, prepared statement of............... 51
Haycock, Todd, director, postal services, 3i Infotech, North
America, prepared statement of............................. 33
Melton, Rob, vice president of specialty paper, Domtar,
prepared statement of...................................... 26
Riebe, Dave, president of logistics and distribution, Quad/
Graphics, prepared statement of............................ 6
WHERE HAVE ALL THE LETTERS GONE? THE MAILING INDUSTRY AND ITS FUTURE
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THURSDAY, MAY 12, 2011
House of Representatives,
Subcommittee on Federal Workforce, U.S. Postal
Service and Labor Policy,
Committee on Oversight and Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:36 a.m., in
room 2247, Rayburn House Office Building, Hon. Dennis Ross
(chairman of the subcommittee) presiding.
Present: Representatives Ross, Amash, Jordan, Walberg,
Lynch, and Connolly.
Staff present: Gwen D'Luzansky, assistant clerk; Justin
LoFranco, press assistant; Jeffrey Post, professional staff
member; Peter Warren, policy director; Kenneth John, detailee;
Kevin Corbin, minority staff assistant; and Mark Stephenson,
minority senior policy advisor/legislative director.
Mr. Ross. Good morning and welcome. I would like to call
the Subcommittee on the Federal Workforce, U.S. Postal Service
and Labor Policy to order.
Today our hearing is entitled Where Have All the Letters
Gone? The Mailing Industry and Its Future.
I will begin by reading our mission statement, as we do in
the full committee and subcommittees of the Oversight
Committee.
We exist to secure two fundamental principles: first,
Americans have a right to know that the money Washington takes
from them is well spent and, second, Americans deserve an
efficient, effective government that works for them. Our duty
on the Oversight and Government Reform Committee is to protect
these rights.
Our solemn responsibility is to hold government accountable
to taxpayers, because taxpayers have a right to know what they
get from their government. We will work tirelessly in
partnership with citizen watchdogs to deliver the facts to the
American people and bring genuine reform to the Federal
bureaucracy. This is the mission of the Oversight and
Government Reform Committee.
I will now start with my opening statement and then
recognize the ranking member for his.
The demand for profitable first class mail continues to
decline due to deep economic recession and the ever-increasing
reach of the Internet and new digital media. Today's hearing
presents an opportunity for lawmakers to hear important
testimony from the mailing industry which has been left reeling
in recent years by these developments. It is an industry whose
very survival depends on a strong and profitable U.S. Postal
Service.
The economic scope of the mailing industry and its impact
on the U.S. economy cannot be overstated. According to industry
sources, the mailing industry represents over 6 percent of the
Nation's jobs and over 7 percent of the Nation's GDP. The
industry touches virtually every private and public sector of
the economy, accounting for approximately 8.7 million jobs and
generating $1.1 trillion in economic activity in 2009,
according to a 2010 jobs report sponsored by the Envelope
Manufacturers Association Foundation.
Unfortunately, these numbers are down from recent years. As
the recession and electronic diversion have eaten away at the
mail volume, the printing, publishing, and paper industries
were especially hit hard, each losing 10 percent or more of
their employees from 2008 to 2009. Japs-Olson, a direct mail
printing company, had to lay off nearly 300 employees between
2006 and 2010, 30 percent of its work force. The U.S. Postal
work force declined only 15 percent during the same period,
even as mail volume fell by 20 percent.
Even as the use of Internet and new media increases, direct
mail remains an effective tool for communicating with consumers
at all levels. Combining direct mail with the Internet has
proven to be more effective than using either in isolation. As
a result, businesses across America, large and small, are
increasingly working mail-based advertising into their
marketing campaigns. When mailers pay postage, that postage
should be used to manage the Postal Service.
Unfortunately, the Postal Service has been unable to adapt
itself quickly to a world where electronic communication is
rapidly replacing physical mail. This failure of adaptation has
left the Postal Service with severe excess capacity and
burdensome labor costs, and put it on a trajectory that will
lead to fiscal insolvency by October 2011.
The looming fiscal crisis of the Postal Service can no
longer be ignored. Congress must work with businesses, unions
and Postal Service itself to reform the Postal Service's
business model and achieve long-term sustainability. In short,
together we must all work together and right-size the postal
system for the 21st century.
However, before we can discuss the details of reform, I
believe it is important to make sure that we understand the
challenges that the mailing industry has faced and continues to
face today. That is why we are here today.
With that in mind, I thank the witnesses for appearing and
I look forward to their testimony.
I now recognize the distinguished Member from
Massachusetts, the ranking member, Mr. Lynch, for his opening
statement.
Mr. Lynch. Thank you, Mr. Chairman. I appreciate the
courtesy.
I also want to thank our witnesses for their testimony.
Today the subcommittee will examine recent developments in
the mailing industry and, in particular, the economic and
business challenges faced by large volume mailers, supply
companies, and mail houses. Given that the Postal Service has
just released its second quarterly financial report for fiscal
year 2011, and the news is not good, it is my hope that this
hearing will also provide us with an opportunity to further
discuss the immediate steps that we can take in order to
restore the Postal Service to financial solvency for the
benefit of the entire postal community and for the country.
This week, the Postal Service reported that despite
significant cost reductions and revenue-generating efforts, it
ended the second quarter of fiscal year 2011 with a net loss of
$2.2 billion. That compares with a net loss of $1.6 billion
during the same reporting period last year. So, in addition,
the Postal Service witness continued decreases in total mail
volume, which dropped from 42.3 billion pieces to 41 billion
pieces, a drop in mailing service revenues which declined by
$568 million, and a loss in total operating revenue which fell
by $500 million.
Accordingly, the Postal Service projects that it will have
reached the statutory debt limit of $15 billion by the end of
the current fiscal year and, absent legislative change, the
Postal Service will be forced to default on its mandatory
payments to the Federal Government, including a $5\1/2\ billion
retiree health benefit fund payment that is due on September
30th of this year.
It is against this extraordinary financial backdrop that we
must examine recent trends in the mailing industry. After all,
the Postal Service is an industry cornerstone and its financial
recovery is vital to addressing many of the challenges faced by
other postal stakeholders, including mailers, print companies,
paper businesses, and general corporations across the United
States. For the sake of the Postal Service's long-term
financial viability, I understand that we must give due
attention to various modernization and restructuring proposals
in order to ensure that the Postal Service is able to
transition and grow in the digital age.
When it comes to addressing the Postal Service's current
financial situation, I believe we have reached the breaking
point, and we can no longer kick the can down the road.
Importantly, there are certain actions that we can take in the
short-term that will point the Postal Service down the right
financial path. For example, we can revisit the legally
mandated requirement that the Postal Service prefund 75 years
of future retiree health benefits with annual payments of $5\1/
2\ billion. Such a requirement is unheard of in the private
sector and is not faced by any other public enterprise.
In addition, we can work to reduce the Postal Service's
pension costs by addressing the significant overpayment of both
its civil service retirement system and Federal employee
retirement system liabilities. To this end, I have introduced
legislation, H.R. 1351, that will rectify the billions of
dollars in overpayments that the Postal Service has made into
its civil service retirement system account. Moreover, this
legislation would allow the Postal Service to use its Federal
employees retirement system surplus to cover the projected cash
shortfall that will result when its next retiree health
benefits payment comes due in the fall.
Mr. Chairman, I look forward to our witnesses' perspectives
on these issues, as well as the significant challenges that are
being faced by the mailing industry generally. I thank you for
holding today's hearing and I yield back the balance of my
time.
Mr. Ross. Thank you, Mr. Lynch.
Members have 7 days to submit opening statements and
extraneous material for the record.
We will now welcome our panel of witnesses. Mr. Dave Riebe
is president of logistics and distribution for Quad/Graphics;
Mr. Jerry Cerasale is senior vice president, government
affairs, for the Direct Marketing Association; Mr. Rob Melton
is vice president of specialty paper for Domtar; and Mr. Todd
Haycock is director, postal services, for Infotech, North
America.
I welcome you all. Pursuant to our committee rules, all
witnesses must be sworn in, so if you would please stand and
raise your right hands.
[Witnesses sworn.]
Mr. Ross. Thank you. Let the record reflect that all the
witnesses answered in the affirmative.
Thank you and please be seated. What we are going to do is
ask that you give a brief, less than 5 minute, summary of your
written testimony that has been presented to the committee, and
after that we will go into questions. Now I will recognize Mr.
Riebe for his opening statement.
STATEMENTS OF DAVE RIEBE, PRESIDENT OF LOGISTICS AND
DISTRIBUTION, QUAD/GRAPHICS; JERRY CERASALE, SENIOR VICE
PRESIDENT, GOVERNMENT AFFAIRS, DIRECT MARKETING ASSOCIATION;
ROB MELTON, VICE PRESIDENT OF SPECIALTY PAPER, DOMTAR; AND TODD
HAYCOCK, DIRECTOR, POSTAL SERVICES, 3I INFOTECH, NORTH AMERICA
STATEMENT OF DAVE RIEBE
Mr. Riebe. Mr. Chairman and members of the subcommittee,
thank you for providing me with this opportunity to testify on
behalf of Quad/Graphics. My name is Dave Riebe and I am
president of logistics services for Quad/Graphics, the largest
printer and mail order of magazines and catalogs in the United
States. We also print and mail many other types of products.
The majority of Quad/Graphics' 142 facilities are located
in the United States. On an annual basis, we partner with the
Postal Service to process 16 billion pieces of mail that
account for $4 billion in postage.
Economic activity and advertising spending are key drivers
of the demand for printing. The global economic recession has
caused a falloff in printing since 2007. Along with postage
increases and alternative marketing technologies, many printing
companies have failed and the industry is undergoing
consolidation over capacity. My company is not immune to the
continued impact of the recession. We have had to make job
reductions, plant closures, and complete other restructuring
actions.
Quad/Graphics is encouraged by the cost reduction realized
by the Postal Service during the last 10 years, but it has not
been enough to offset the decrease in mail. The Postal Service
currently maintains a network that was built to support 300
billion pieces of mail annually. Total mail volume in 2011 will
be closer to 170 billion. Its network needs to be right-sized
despite resistance from local communities and their U.S.
congressional representatives.
To survive and better serve its customers, the Postal
Service must be allowed to close and consolidate processing
facilities and post offices and right-size its payroll. Quad/
Graphics fully supports the Postal Service in that process.
Congress has an opportunity to help the Postal Service
resolve its financial shortfall by returning to the Postal
Service the more than $50 billion that have been overfunded for
the civil service retirement system. This money belongs to the
ratepayers since nearly all revenues of the Postal Service come
from postage, of which 90 percent comes from businesses.
Additionally, legislative changes are needed to modify or
eliminate the mandated $5\1/2\ billion annual payment to
retiree health care.
We recommend that the retirement system's overpayment
should be transferred from the pension fund to the retiree
health benefits fund to fully prefund those obligations. Quad/
Graphics encourages Congress to act in this manner.
The Postal Service must also grow mail volume and revenue.
It can do this by offering incentives to mailers. For years we
have said the Post Office needs to be more businesslike. We
have asked the Postal Service to be more creative in its
pricing strategy and to use rightful pricing flexibility.
In 2011, we are seeing a different approach by the Postal
Service to incentives that are based on value-added products
and services, and partnerships with mailers. Quad/Graphics
fully supports these efforts.
My company believes that print is a key element in
effective marketing campaigns that use multiple forms of media.
More than half of marketers are successfully utilizing three or
more types of media, including print, in their marketing
campaigns, according to a 2010 study. Quad/Graphics intends to
keep print relevant and cost-effective as an important way for
U.S. companies to conduct business. We are helping our U.S.
customers reduce their postal costs through investments in our
innovative distribution network.
In conclusion, if the Postal Service can manage its costs
and maintain an acceptable pricing structure, its business can
be maintained and growth will be realized in certain classes of
mail. Quad/Graphics will continue to do everything it can to
help the Postal Service be successful. We encourage Congress to
do the same.
Thank you, Mr. Chairman and the subcommittee, for allowing
me the opportunity to share with you information about Quad/
Graphics and the role we play in the mailing industry. I would
be happy to answer any questions. Thank you.
[The prepared statement of Mr. Riebe follows:]
Mr. Ross. Thank you, Mr. Riebe.
Mr. Cerasale, you are recognized for 5 minutes.
STATEMENT OF JERRY CERASALE
Mr. Cerasale. Thank you very much. Good morning, Chairman
Ross and members of the subcommittee. I am Jerry Cerasale. I am
the senior vice president for government affairs for the Direct
Marketing Association and we appreciate the opportunity to be
here.
Director Marketing Association is a trade association for
marketers and nonprofits to use communication channels to reach
customers and potential donors directly. Our members represent
about 70 to 80 percent of all the mail in the U.S. Postal
Service and about 85 percent of Postal Service revenues.
As you said, Mr. Chairman, the Envelope Manufacturers
Association has found that mail has an economic impact of $1.1
trillion, employing 8.4 million Americans. It is a very
important channel of communication for our members.
Marketers have always had to adapt to technology changes to
survive, and so must the Postal Service, and the Postal Service
has done so in the past; you go from horse drawn carriages to
Pony Express to the rail to the auto to the air, and hopefully
now to electronic.
The technology really affects direct marketers and our
members in four distinct ways: internally what happens at the
Postal Service, internally in their own operations, customer
preferences, and disposal of the mail as an important factor
with technology. The Postal Service has automation and it has
improved productivity.
Some of the productivity gains, some of the help has been
lost, however, with requirements that are placed on mailers for
preparation and IT requirements. The increased costs are
exactly like a postage increase, so some of that has been lost,
and we really hope that internally the Postal Service can do
more with electronic means to accept the mail and take postage,
to try and reduce paperwork there and make some savings.
For mailers, the new electronic communications really open
up a new avenue to reach customers and donors, but it is also
an avenue that we can use to complement the mail. New print
technologies allow multiple pieces of mail in one print run, so
we can take advantage of presort and also different demographic
considerations for the recipients.
We can complement electronic shopping. Something goes in a
shopping cart, it is removed from a shopping cart. You can
print a postcard or a catalog with that item that was removed
from the shopping cart and send it to them and increase sales
with a new offer.
Members are using electronic messages to say, hey, take a
look, look out for this catalog, it is coming in the mail
tomorrow, and that is an important thing. Mail is used to drive
traffic to Web sites. Our catalog members don't have to be told
when the catalog reaches the home, they just take a look at
traffic on their Web site; it is a driver to Web sites.
There are companies out there that will find out what my
preference is for receiving communications, and a marketer can
go to them and they will send to me an electronic message, to
Dave a mail message, so it can all be done at once. These kinds
of complementary activities of electronic and print are there,
and we hope it is being used. And it all depends on the return
on investment, the return on investment for the advertising
dollar. Wherever it is greater, that is where the marketers are
going to go.
On the environmental side, it is interesting. You want to
improve the value of the mail and the idea of the thoughts of
the importance of mail to consumers, and by technological
improvements in paper and so forth you reduce the environmental
imprint. But you also have increased recycling, and we are
working to try and get more and more mail recycled. The EPA
said 64 percent of standard mail was recycled in 2009. We want
that to increase so it increases the value of the mail in the
minds of the American consumers.
There is a consumer preference. Clearly, they like bill
pays and that saves marketers money. That first class mail is
going to go. They are incentives. They are happy to receive the
bill electronically. That saves marketers money and it meets
consumer preferences. That mail is going to be gone. But banks
have found electronic customers, they retain them more if they
send them a piece of mail.
I know my time is just about up. And we need postal
delivery.
We do applaud the Postal Service for looking for a summer
sale for mail pieces that have a QR code to try and complement
mobile communications with print. It all comes down to the
return on investment, postage. You have to figure out the
retirement and the health issue and the Postal Service has to
downsize, however. We have to have that straight.
Thank you very much for your time.
[The prepared statement of Mr. Cerasale follows:]
Mr. Ross. Thank you, Mr. Cerasale.
Mr. Melton, you are recognized for 5 minutes. Thank you.
STATEMENT OF ROB MELTON
Mr. Melton. Chairman Ross, Ranking Member Lynch, and
members of the subcommittee, my name is Rob Melton and I am the
vice president of converting papers for Domtar. Domtar is the
No. 1 producer of printing and writing papers in North America,
and we employ 8,500 people across the United States and Canada.
I very much appreciate the opportunity to appear before you
this morning to provide a paper manufacturer's perspective on
the Postal Service and the mail supply chain.
As Chairman Ross and others have mentioned this morning,
the Postal Service is the engine that drives the $1.1 trillion
mailing industry and provides 8.3 million jobs. As you know,
the Postal Service is on the brink of insolvency. Through our
active membership with EMA and customer relationships, we
clearly understand the devastating impact on the mail industry
if the Postal Service issues are not resolved.
Regulatory and legislative decisions that result in changes
to the reliability, level of service, and cost to deliver mail
all influence how our customers choose paper as their
communication medium over other technology options. With
approximately 30 percent of printing papers produced by our
industry traveling through the mail stream, these choices have
a dramatic impact on our bottom line. Uncertainty about the
viability of the Postal Service will negatively impact mailer
and marketer decisions to choose mail, so the urgency to
restore confidence that the Postal Service is a dependable
partner is great.
Our industry has been forced to respond to economic
challenges. The paper industry has faced very similar
challenges to the Postal Service. Structural decline in paper
consumption since 2004 has averaged 4 percent per year. Part of
this is due to the cyclical nature of our business and the
economy, but primarily due to the changes in the way people
communicate and conduct business. This has left us with excess
capacity and a cost structure that cannot be supported by
current or expected demand.
We have focused on cost, including making difficult
decisions to close higher cost machines and facilities, in
order to be more efficient and to maintain critical balance
between supply and demand. Since 2007, Domtar has closed
machines in Maine, Ontario, Wisconsin, and North Carolina. In
fact, a few weeks ago we announced yet another pending closure
of a machine in Arkansas. This is one of four machines that
exist in the facilities and will have a negative impact on 110
people.
These are real jobs in rural America with wages and
benefits in the six figures, jobs that are not easily replaced.
To put in context, U.S. paper and paperboard has declined 10
percent over the past 3 years. Fifty-two paper mills have been
closed; the paper industry work force has been reduced by 31
percent, losing nearly 400,000 jobs.
However, we have not just focused on cutting costs; we have
focused on meeting the evolving needs of our customers to try
to mitigate the trend of structural demand decline. Examples of
this include developing products for new print technologies
that will allow marketers to digitally print images to be more
customized and variable to drive response rates and improve
their returns. We also are reducing overall paper consumption
by making lighter weight papers that have similar attributes to
current products that allow mailing costs to go down, but yet
deliver the same results.
One fact that I think needs to be known is that we are
fighting back. We are making sure that consumers and perception
of the paper-based communications are well known. Sixty-three
percent of all paper produced in our industry is recovered.
That includes paper that is produced that goes into archival
applications, such as books or archives, but also toilet and
towel and tissue, so they are not recoverable.
We have also introduced a paper campaign, Domtar has, that
heavily raises awareness of the intrinsic value and sustainable
nature of paper through our Paper Because campaign. We have a
Web site, PaperBecause.com, which has a great deal of
information about this, and I encourage you to check it out.
One example of where Paper Because campaign is focusing is
on raising awareness of consumers of some misguided attempts to
convert paper-based mail recipients to electronic transactions,
often without choice. Recent polling data by Wilson Research
found that 66 percent of Americans preferred receiving paper
bills and statements, while only 13 percent preferred
electronic delivery.
Yet institutions are increasingly switching customers to
electronic statements without choice and in many cases are
charging for paper statements to manage their accounts. For
example, the Social Security Administration is no longer
mailing annual statements. While we appreciate the cost
savings, this is not without risk. We don't dispute that some
customers prefer electronic statements, but consumers should
have a choice and shouldn't be penalized for preferring paper-
based statements.
The short-term decisions that are acted upon to save the
Postal Service and control costs and deal with statutory fraud,
pension, and health care obligation funding rules will
underestimate the impact on mail volume and may accelerate
volume decline further.
The paper industry has been forced to make difficult
decisions. We have the ability to adapt, to change our cost
structure, to anticipate customer needs, and set about a task
to resolve them. The Postal Service should do the same. Failure
is not an option, as we have many industries and so many jobs
depend upon the well functioning reliable Postal Service.
Thank you for your time. I am happy to answer any
questions.
[The prepared statement of Mr. Melton follows:]
Mr. Ross. Thank you, Mr. Melton.
Mr. Haycock, you are recognized for 5 minutes.
STATEMENT OF TODD HAYCOCK
Mr. Haycock. Good morning, Mr. Chairman and members of the
committee. My name is Todd Haycock, and I am the director of
postal services for 3i Infotech North America. Thank you for
the opportunity to speak to you today about the changes that I
have seen over the past few years in this industry and what I
expect to see in the future.
As the Nation's largest outsource remittance processing
provider and one of the largest first class mailers in the
industry, mailing approximately half a billion mail pieces
annually, the U.S. Postal Service is one of our largest
partners.
It wasn't that long ago that the U.S. Postal Service was
the only choice for sending and receiving bills, invoices,
statements, and other transactional documents. However, this
shift away from physical mail delivery to other forms of bill
presentment and payment has increased pace in recent years as
the number of alternative consumer billing and payment options
has grown. You may be familiar with online bill presentment and
payment, but other channels are emerging, such as secure email
billing and payment, electronic mailboxes tied to physical
street addresses, mobile presentment and payment, text-based
billing and payment, and more.
The shift to alternative channels is coming at the
detriment of the U.S. Postal Service-handled remittance mail,
and the decline in postal remittance mail has caused 3i
Infotech to close processing facilities in Tampa, Florida,
Baltimore, Maryland, and Des Moines, Iowa. At the same time,
other remittance processors have decided to exit the business
entirely, to focus on their core financial services. We have
acquired and consolidated both JP Morgan Chase's and First
Tennessee Bank's remittance processing operations. I anticipate
that other consolidations will continue to occur in the
industry as providers find they can't maintain the scale or
efficiencies necessary to remain profitable.
When paired with trend directions and analyst predictions,
this continuing shift indicates that postal mail is changing
from being the dominant channel for bill and payment delivery
to being one of many channels available. Print bills and paper
remittance exist alongside all the other electronic channels,
with all measuring relatively equal levels of importance to the
biller.
At 3i Infotech, we follow these trends very closely and,
therefore, focus on providing new and expanded products and
services to serve the changing billing and payment market.
There are two sides to the equation: the bill and the payment.
I see this change in how payments are being made as being
driven by the consumer. The ease of making payments on a
computer or on a mobile device, where a few clicks can complete
the transaction, is a very appealing option to time-pressed
consumers.
On the other hand, the presentment of these documents has
not been subject to as vast of a shift away from the Postal
Service to electronic bill delivery. I believe this is mainly
because the shift is not being driven by the consumer, but by
businesses. I personally prefer to receive a paper statement
and then go online to make my payment, as do many individuals
that I know.
For businesses, however, there is good reason for trying to
drive consumers to electronic presentment. The biggest concern
is the cost. With postage rates increasing and the demand on
large mailers to make expensive changes to the mailing process
in order to meet changing postal requirements, businesses have
to make hard choices as to where to assign their resources and
capital. I am seeing more of my business customers pushing hard
to drive consumers away from paper. As an example, one of my
customers is currently planning on charging consumers $1.50 per
month if they wish to continue to receive paper statements. And
they are in the process of informing customers of this pending
change.
But this organization is not alone in pushing for
electronic adoption. As an example, between 2008 and 2009, one
of our customers saw a 5\1/2\ percent increase in the number of
monthly statements being presented electronically. In 2010, it
grew to an 8.3 percent increase. This means that electronic
presentment represents 11.3 percent of their total volume, and
will probably grow even more in 2011.
On the other hand, one of my other customers introduced
electronic presentment and payment in July 2008 and now, in
March 2011, they have 147,328 consumers receiving electronic
statements every month. That represents 16 percent of their
total volume.
Every study and analyst group predicts that the volume of
paper bills mailed through the U.S. Postal Service will
continue to decline in coming years in favor of electronic
alternatives. But the rate at which that decline occurs is
dependent on what actions the U.S. Postal Service takes over
the next couple of years. The ball is already rolling, and
reversing the current trend will be difficult. However, I think
if the U.S. Postal Service focused on what the mailers in the
industry need, the value the mail can provide, and decreasing
the complexity and cost of the mailing process, businesses will
divert their capital and resources to more oppressing projects
instead of trying to move away from physical mail in an effort
to cut costs.
The U.S. Postal Service faces substantial changes, both
financially and structurally, that need to be addressed
directly. However, I have observed that the new U.S. Postal
Service management team is willing to address these issues and
increase their focus on mailers. This is very encouraging and I
feel will be key in keeping the U.S. Postal Service as an
indispensable medium of commerce and communications.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Haycock follows:]
Mr. Ross. Thank you, Mr. Haycock.
We will now move into the series of questions and I will
recognize myself for 5 minutes.
It is interesting because we talk about the Postal Service,
and I equate it to the original information highway that over
the last 200 years has provided, by way of infrastructure, the
flow of information to households and to businesses everywhere,
and yet, over the last 20 years, predominantly with the use of
the Internet, we have seen times change. But I don't think we
have seen the Postal Service adapt to the market trends that
have happened as a result of additional information highways
that have been developed out there.
My first question would go to those that are in the
manufacturing arena, or not manufacturing, but in the mailing
arena.
Mr. Riebe, what percent, can you say, of your total cost is
labor cost for your business?
Mr. Riebe. I actually don't know that right off the top of
my head.
Mr. Ross. OK.
Mr. Cerasale, any of your members, do you have any idea, in
your association, what percent labor cost is of the total cost?
Mr. Cerasale. I don't. I know that some other delivery
companies, the labor cost is about 50 percent of their total
cost.
Mr. Ross. OK.
And, Mr. Melton, can you say?
Mr. Melton. About one-third.
Mr. Ross. About one-third, so about 33 percent is labor
cost?
Mr. Melton. Yes.
Mr. Ross. Mr. Haycock.
Mr. Haycock. I am not exactly sure, but I know it is less
than 50 percent.
Mr. Ross. OK. And what we have seen, the testimony here
today, we have seen the U.S. Postal Service post a $2.2 billion
loss for the last quarter, $2.6 billion for the year-to-date.
Eighty percent of their cost is labor cost. It almost makes it
cost-prohibitive to do business unless some significant
systemic changes are made. Your businesses have had to make
those changes.
Could you describe, Mr. Riebe, some of the changes that you
have had to make? Did it include layoffs? Did it include
product reformation and marketing changes or things of that
nature?
Mr. Riebe. Yes, thank you. Absolutely. When we hit the
recession, we are actually in an industry that just had too
much capacity, which is similar to other industries, and we
have put a big focus on looking at automation, which actually
reduces labor cost, and focusing on taking out equipment that
is not efficient, and we have seen a reduction in the overall
capacity that we have. Whereas, in some plants, we were running
at 50 percent capacity, today, through consolidation, we were
able to raise up the plants that weren't shut down to a
capacity rate of 85 to 90 percent, which is much more
economically efficient.
Mr. Ross. Thank you.
Mr. Melton, I know you mentioned, I think, that you have
had to undergo some changes, furloughs.
Mr. Melton. Yes. In the last few years, we have laid off a
significant amount of people as a result of having excess
capacity and machine and facility closures, probably in the
neighborhood of 3,000 people, 2,000 to 3,000 people.
Mr. Ross. Mr. Haycock.
Mr. Haycock. On our manufacturing side where we produce the
invoices and statements, we have continued to increase our
productivity and, thus, having to lay off employees as we
increase the productivity using automation and equipment to do
that. On the remittance side, we have also closed facilities
and consolidated because that volume has dropped dramatically.
Mr. Ross. Mr. Cerasale, go ahead.
Mr. Cerasale. We have seen studies show that during the
recession we had a reduction within the mailing industry of
about 25 percent for employees.
Mr. Ross. And what you have done, I guess, is to adapt to a
market change in order to stay solvent, and my question to each
one of you, with my last minute here, is do you think that the
Postal Service is doing enough to reduce their cost to avoid
insolvency?
Mr. Riebe.
Mr. Riebe. I don't, but I think they are being restricted
by some outside influences as well.
Mr. Ross. And what would those be?
Mr. Riebe. Well, I think the ability to be able to right-
size their facilities. There are definitely facilities out
there that are not supporting themselves and don't make good
business sense, but there is lobbying to keep them open anyway.
Mr. Ross. I understand.
Mr. Cerasale.
Mr. Cerasale. We can't afford the excess capacity; they
should be moving much more rapidly and reducing the excess
capacity of the Postal Service.
Mr. Ross. Mr. Melton.
Mr. Melton. Agreed. It is not going to get any better, and
you need to make tough decisions now to viable for the future.
Mr. Ross. And that includes consolidation?
Mr. Melton. Yes.
Mr. Ross. OK.
Mr. Haycock.
Mr. Haycock. It is interesting to me that years ago the
cost of manufacturing the statements to present for our
customers and the cost of postage were very similar, and now
the differential there is much bigger. We have reduced the cost
for manufacturing, but the postal costs have just continued to
go up, which brings attention to those costs that businesses
want to then stop mailing.
Mr. Ross. Thank you.
I see my time is up. I now recognize the ranking member
from Massachusetts, Mr. Lynch, for questions for 5 minutes.
Mr. Lynch. Thank you, Mr. Chairman.
Mr. Riebe, I agree with a lot of your testimony; we will
get to that part. I am just concerned, are you aware of the
labor contract recently ratified by the American Postal Workers
Union?
Mr. Riebe. I am aware of it.
Mr. Lynch. OK. The agreement, as you know, will reduce
Postal Service labor costs by instituting a 2-year pay freeze
and introduces a new career pay schedule that is below the
existing schedule and substantially increases the use of non-
career employees. Overall, this will result in over $3 billion
in savings over the term of the agreement, and the Postal
Service is looking forward to executing similar agreements with
the other postal unions going forward.
Would you agree that is a significant cost saving that will
result from this contract?
Mr. Riebe. I would say it is a step in the right direction.
Whether or not significant is the word I would use based on
their overall labor costs, I don't know if I could get there.
Mr. Lynch. I mean, you do agree that sorting mail, 40
billion pieces of mail, handling those packages and actually
physically delivering the mail is a labor-intensive process. I
don't know how you get away from that. If you are going to
actually take the mail and deliver it to every home and
business in America, that is labor-intensive. We don't have
robots that can do that. So it is a labor-intensive business. I
just don't see how you get away from that.
Let's go to something that we agree on. We have been in a
debate over the overpayment made by the U.S. Postal Service for
employee service that was outside of the U.S. Postal Service.
This is for employees who were under the Federal system. And I
agree with your testimony that the overpayments have been made
and they have been funded by postal customers.
I also believe that the U.S. Postal Service employees, the
postal clerks, the letter carriers, both rural and urban, our
mail handlers, the supervisors and postmasters, they have
earned those pension credits. So they have been shortchanged
because what they are working for is being syphoned over to a
Federal system. So we actually have a system right now under
this current formula that the U.S. Postal Service, its
customers and employees are subsidizing the Federal system.
Now, we have had a debate about this in committee and with
the representatives on the Federal Government side, and they
are saying that you were aware of this, that this was the plan
all along, and that you all understood that you were going to
be overcharged to pay for Federal employees who don't work for
you. That is the response I am getting from the Federal side,
and I am just curious. Were you told at the beginning that your
operations were going to subsidize employees who don't work for
the Postal Service? This is the relationship you have. Were you
told that, Mr. Riebe?
Mr. Riebe. Not to the best of my knowledge.
Mr. Lynch. Mr. Cerasale.
Mr. Cerasale. No. And I wasn't around, I might look it, but
I wasn't around in 1972, during that, so I am not sure what was
told back then.
Mr. Lynch. I think you were around in 1972.
Mr. Cerasale. I was around, but not in the postal area,
yes.
Mr. Lynch. All right. I was going to say you must have had
a rough life. [Laughter.]
Mr. Melton? I am no spring chicken either, sir, so.
Mr. Melton. I can say I wasn't around in 1972, but I don't
believe that would be the case.
Mr. Lynch. All right.
Mr. Haycock.
Mr. Haycock. I am in agreement, I don't believe that was
the case.
Mr. Lynch. I mean, I don't get this. That is the argument
that they are making, that the unions here, the mailing houses,
that the formula is the formula and that you were all part of
this, that you were going to subsidize the pensions for folks
that don't work for you or aren't in this business relationship
in the current configuration.
And I just scratch my head on how they came up with that.
They cannot argue that the formula doesn't favor the Federal
Government and put a greater burden on you, so they are arguing
that this was the deal. I would just say, if I was sitting in
your chair, I would be thinking about a lawsuit saying, wait a
minute, you can't take our revenues and pay the pensions of
folks that we don't have a relationship with, that aren't
servicing our businesses. And I don't know if your associations
have ever thought about that, but I would say now is the time
to start thinking about it. I really do, because I agree with
you.
I also agree on the consolidation of postal services. I am
running out of time here, but we have asked, and it is not
outside pressure, I don't believe, that is fighting against
these closures; I think it is institutional resistance. We have
38,000 post offices in America today. We have been spending on
the floor here inordinate amounts of time naming additional
post offices. I think we are going to run out of names before
we run out of post offices, to be honest with you.
But I agree that we have a lot of post offices out there
that are close together, and we could do a better job of
consolidating and closing some of those that have several close
together, clustered, where it would just a matter of walking up
the street and using the other post office, especially in some
of our densely populated urban areas. So I am with you on that,
but I have run out of time.
Thank you, Mr. Chairman. I yield back.
Mr. Ross. Thank you, Mr. Lynch.
I now recognize the Vice Chair of the subcommittee from
Michigan, Mr. Amash.
Mr. Amash. Thank you, Mr. Chair.
Mr. Riebe, you mentioned that the total mail volume for the
Postal Service is 170 billion pieces, and yet the
infrastructure is built to support 300 billion pieces. Due to
technology and electronic diversion, and given that mail volume
has declined steadily for the past 4 years, is it safe to say
that the Postal Service is wasting money to keep these systems
operating?
Mr. Riebe. In some ways they are required to keep some of
these systems running. Yes, absolutely I would say that.
Mr. Amash. Would it be sustainable for your company to have
twice the production capacity that you actually needed and to
spend money that you don't have on equipment that is hardly
being used?
Mr. Riebe. Absolutely not.
Mr. Amash. And I would ask the same question of the other
witnesses here.
Mr. Cerasale. There is excess capacity that should be
removed, and we would not. We can't afford to maintain that
excess capacity, and my members wouldn't survive if they
maintained that excess capacity within their operations.
Mr. Melton. We are in that exact same position and we have
closed facilities to match our demand.
Mr. Haycock. In our manufacturing, similar thing; we try to
maximize the equipment we have and not have excess capacity,
just to keep our efficiencies and our costs down.
Mr. Amash. And I assume each of you would also give the
recommendations to the Postal Service that we need to reduce
excess capacity.
Mr. Riebe. Yes.
Mr. Cerasale. Yes.
Mr. Melton. Yes.
Mr. Haycock. Yes.
Mr. Amash. Mr. Riebe, you talked about prefunding health
care with pension fund. Could you talk about that a little
more?
Mr. Riebe. Well, I think the belief is it is just to try to
create an economic environment for the Post Office that makes
them stronger. We just saw the quarterly results yesterday and
trying to find a way to use that funding to give them a
stronger foundation is kind of the theory behind it.
Mr. Amash. Mr. Riebe, in your company you also print stuff
that is not mailed, am I right?
Mr. Riebe. Correct.
Mr. Amash. And what percentage of your business would that
be?
Mr. Riebe. I would say 20 percent.
Mr. Amash. Has that changed over the past few years?
Mr. Riebe. Yes.
Mr. Amash. It has gone up or down?
Mr. Riebe. Well, it has gone up because we did a major
acquisition about a year ago, so that brought some product
lines into our business that weren't mailed directly.
Mr. Amash. Mr. Cerasale, what is the level of coordination
between direct marketers and the Postal Service? I guess what I
am asking is do they have personnel at direct marketing
facilities? What is generally the scheme?
Mr. Cerasale. For our larger members, they have a fairly
significant relationship with the Postal Service, particularly
at the plant level. Some of our members actually have postal
operations within the plant attached, mail units there, so
postal employees are there to accept the mail in the plant.
Now, some of our smaller members work with customer service
representatives and work through us, through the association.
We have a fairly consistent dialog with headquarters, not
down in the field level here, but with headquarters of the
Postal Service to try and work with them. So they have a
relationship with sales forces. Many of them use suppliers like
printers such as Quad, who print the mail for them, for many
members, and then enter it in the mail stream, and they have
relationships with the Postal Service.
Mr. Amash. Are there any alternatives that direct marketers
use besides the Postal Service?
Mr. Cerasale. Oh, absolutely. They are multi-channeled. You
use electronic, they use telephone, they use direct response TV
and radio, even broadcast kind of ads. But the Internet and
eventually moving to mobile. You have to use them all, or else
you are going to fail.
Mr. Amash. Mr. Melton, do you have any data to support your
suggestion that using paper is actually more efficient than
communicating electronically? I think you had said that people
prefer paper?
Mr. Melton. Yes. A study would show, in terms of bill
presentment, that people prefer a paper-based statement rather
than an electronic statement.
Mr. Amash. How much of your paper volume is related to the
Postal Service?
Mr. Melton. Approximately 40 percent.
Mr. Amash. And when you said that 63 percent is
recoverable, what does that mean exactly, is it that it is
recyclable?
Mr. Melton. That means that of the paper that is produced
in North America, 63 percent of that is recovered and brought
back in to be produced into products that would be called
recycled.
Mr. Amash. So 37 percent would come from trees?
Mr. Melton. Yes. That would be what we call virgin. But it
is also renewable.
Mr. Amash. Well, thank you. My time has expired. Thank you.
Mr. Ross. Thank you, Mr. Amash.
We are going to go around again with a few more questions,
if you all have time.
Let's talk about the electronic diversion and the Internet
because for so many businesses out there the Internet has been
a boost, but for, apparently, the U.S. Postal Service. So what
I would I would like you to do is to kind of put on a role of
you are postmaster for a day, and don't concern yourself with
prefunding or retirement, OK? Let's concern ourselves with
marketing ideas, innovation, and how we utilize the new avenues
of information age out there, the Internet, electronic
diversion, to enhance the Postal Service. I know we have talked
about consolidation.
Mr. Cerasale, in some of your comments, your opening
statement, you talked about how using digital media to physical
media, I guess is a way to put it. The Postal Service came up
with, just a couple years ago with a if it fits, it ships
program. These are innovative ideas. These are entrepreneurial
ideas. They come better from the marketplace than they do from
government.
So what I would ask you to do, if you could, think about
and explain to me or to this committee what you think could be
done in conjunction with the electronic media that is out there
today to enhance the Postal Service. Because even if we do take
care of the prefunding and the health care thing, we still have
a systemic issue that we have to deal with with the Postal
Service, and that systemic issue is how do we adapt them to the
changes in the marketplace, to the changes in the information
age so that we don't have to be back here again, as Congress,
trying to fix something that is antiquated.
Mr. Riebe.
Mr. Riebe. Yes. Part of it I brought up earlier. I think
volume-type discounts, getting creative with pricing,
incentivizing people to do more than what they are doing. From
my perspective, the electronic media world is still trying to
find itself, and for those of us who are on email, or if you go
on the Web, we still view print as the most unintrusive way,
print and mail, as the most unintrusive way to solicit somebody
to buy something for you. But complement it. Let people use the
Internet as the vehicle to order.
Now, that does have a negative impact on the Post Office,
but the belief is that when you are on the computer, and we all
get them now, you get a lot more emails than you ever used to
get; you don't know how you are getting them or why you are
getting them. And it is intrusive to me. Where mail, although
people try to make it seem intrusive, it is really not; it
comes in your mailbox and you have an opportunity to make a
choice at that point. But you don't have to deal with it when
you are at work, you don't have to deal with it when you are
trying to relax; you deal with it at your convenience. And I
still think that is a huge opportunity for the Post Office to
take advantage of the fact that it is unintrusive.
Mr. Ross. Thank you.
Mr. Cerasale. Well, I think, to start, we have to look at
mobile as well, and I think that this new summer sale they had
with the QR codes is a great idea for the Postal Service to
look at. I do think that the Postal Service should partner with
the private sector with information we have.
As I said before, if you know that I want to receive things
electronically and that Dave wants to receive things in paper
and Mr. Melton wants to receive things over the phone or
mobile, and you have that information and to work with
marketers so a marketer can go to one place and its message
gets sent out to paper to me or paper to him, email to me, on
the Web, through a mobile phone and have it go out. That is how
you can complement communications.
We have to look at this as a whole communications structure
and trying to reach customers, donors, potential customers,
potential donors and try and find the preferences that the
consumers want and get it out. That increases the ROI across
the board.
And I think the Postal Service is part of that mix. It is
going to be a changing part of the mix, and it is clearly going
to change how the mail is sent in, what is sent in. It may not
be a catalog, it might be a postcard, it may be a smaller
catalog, different things. That type of thing, I think, is
happening today, can happen today, provided Congress doesn't
really hit privacy legislation that harms this kind of
information. But that can happen now. That is where I would
look immediately.
Mr. Ross. Thank you.
Mr. Melton.
Mr. Melton. I think the most unique thing about the U.S.
Postal Service is it has, by mandate, the ability and
requirement to reach every household in the United States, and
that is a very unique infrastructure that I don't think has
been exploited properly.
Mr. Ross. I agree.
Mr. Melton. And some of that is due to statute, the types
of services and products it can offer as not to compete with
the private sector, I believe. As an example, you can walk into
a post office and you can buy packaging and you can buy
postage, but you can't buy the service to pack that package;
you need to go to a private store for that. So those are the
sorts of things I think that I would look to try to change. I
also think the ability to time delivery of packages with the
other channels that are there are a unique opportunity,
particularly with the technology that exists now to very
targeted make an offer to a consumer.
Mr. Ross. Thank you.
Mr. Haycock, briefly?
Mr. Haycock. I agree with what has been said here. I think
as the Postal Service focuses on what they core competency is
and the value of the mail, as has been said, something along
the lines of rather than paying an extra charge for 2 ounces,
include that in the overall price, so 1 ounce and 2 ounce is
the same price so you can add more marketing and reach those
customers, as has been mentioned.
Mr. Ross. Thank you. My time is up.
Mr. Lynch, you are recognized.
Mr. Lynch. Thank you, Mr. Chairman.
I agree with the chairman's suggestion that we need
systemic change, there is no doubt about that. And that is
notwithstanding the need for a reset on the health care
payments and a correction for the pension overpayment. But what
those two items do, though, is buy us time, because the pension
overpayment is anywhere between $55 and $75 billion, and the
health benefit contribution here for retirees is $5\1/2\
billion per year.
So if we look at the trend--and I give the Postal Service
some credit here, and I give the unions a lot of credit as
well. If you look at what they have done, since 2008 the Postal
Service has reduced its work force by 120,000 people. Since
2008 they have cut 120,000 positions.
And since 2009 it has reduced its total cost by $11
billion. Some of that is by automation, but $4 billion is
savings coming from reductions in labor costs. And if you add
the $3 billion in savings that is going to come out of the
American Postal Workers Union recent contract going forward for
the term of that contract, you are talking about $7 billion in
labor cost savings and you are talking about $14 billion in
reduction in cost. So they are making significant progress.
And what I am saying is with the correction to the pension
overpayment and the fast-track health benefit for retiree
payments, we could make much more progress if we give ourselves
more time.
Now let me turn to a blatantly self-serving question. Each
of you has briefly mentioned your concern for the financial
condition of the Postal Service, and you mentioned the retiree
health benefit payment of $5\1/2\ billion and also the Postal
Service overfunding, which is anywhere between $50 and $75
billion. Last month I introduced H.R. 1351, the U.S. Postal
Service Pension Obligation Recalculation and Restoration Act.
It just kind of rolls right off your tongue there. [Laughter.]
The act directs the Office of Personnel Management to
update the actuarial methodology to be used in allocating the
CSRS retirement benefits liabilities between the U.S. Postal
Service and the Federal Government. So we are trying to reset
that and correct it. Any resulting surplus from this
recalculation, if it is $55 or $50 or $75 billion, would then
be transferred over to the Postal Service retiree health
benefit fund and, further, the act would require that the
Postal Service $7 billion refund would be refunded immediately
and applied to the 2011 retiree health benefit payment and
worker's compensation fund.
Now, it is sort of what you were talking about to start
this off, Mr. Riebe. Is that something that you think would get
this thing going in the right direction, get the Postal Service
going in the right direction and be helpful to you and your
businesses?
Mr. Riebe. Absolutely.
Mr. Lynch. OK.
Mr. Cerasale.
Mr. Cerasale. It would, and we support it.
Mr. Lynch. Thank you.
Mr. Melton.
Mr. Melton. [Remarks made off mic.]
Mr. Lynch. Thank you.
Mr. Haycock.
Mr. Haycock. Yes, it would.
Mr. Lynch. OK, thank you. I told you it was self-serving.
[Laughter.]
I appreciate that.
Look, in all seriousness, I appreciate you are in business.
It takes a lot of courage to put yourself out there. You have
been very helpful with the committee in giving us your
perspectives. I appreciate greatly that you came here, you took
the time to come here to testify before Congress to give us the
perspective that you have and to provide some more impetus for
change in this system that we all rely upon. So I appreciate
you coming in and helping the committee with its work. Thank
you.
I yield back.
Mr. Ross. Thank you, Mr. Lynch.
I now recognize Mr. Amash for further questioning.
Mr. Amash. Thank you, Mr. Chair.
Mr. Haycock, can you tell us a little more about your
company?
Mr. Haycock. Sure. We are the largest outsource remittance
processing provider, so all remittance statements, you send
your coupon in with your check, we process those, as well as
doing electronic processing of payments; and then we also do
the bill presentment, so we send out bills in the mail stream,
invoices, statements. We also provide other channels for our
customers, electronic channels as well.
Mr. Amash. You said the Postal Service is one of your
biggest partners. What other sorts of organizations would be
big partners?
Mr. Haycock. Software providers that help us do operations;
equipment manufacturers that provide us with equipment to do
our processing.
Mr. Amash. One of the things I found interesting, you said
you were encouraged by the new Postal Service management team,
but expenses this year are up $100 million over the first 6
months. Can you explain why you are encouraged and what you
think about that?
Mr. Haycock. I am encouraged because what I am seeing is
more customer focus. They are reaching out. They seem to be
looking at new ideas, not trying to do business as usual, but
looking at out-of-the-box items. I know there have been some
discussions within the Postal Service about new options or new
incentives and other ways of looking at adding value to the
mail. So even though those haven't been implemented yet, I am
encouraged that they are looking at those items, looking at the
mailers.
Mr. Amash. So is it your belief that the expenses will
gradually go down as time goes on?
Mr. Haycock. I don't know if that is the case.
Mr. Amash. According to USPS data, it appears that for the
first time less than half of USPS's revenues will come from
first class mail this fiscal year. Ten years from now--and this
is a question to all of you--do you think first class mail will
continue to be the dominant revenue source at the Postal
Service?
Mr. Riebe.
Mr. Riebe. I do not.
Mr. Cerasale. I agree, it will not be the dominant revenue
source.
Mr. Melton. It will not.
Mr. Haycock. Well, the current trends show that is the
case. I think if we continue the same path it will definitely
not. I think there is an opportunity to change that trend by
accommodating the mailers that do first class mail and using
that value that the mail has could slow that trend, anyway.
Mr. Amash. And again this would be a question for all of
you. Are mailers preparing for a post-first class mail world
and do you think that the Postal Service's current business
model will work if first class declines from 78 billion pieces
in 2010 to 46 billion pieces in 2020?
Mr. Riebe. I do not.
Mr. Cerasale. I believe it has to change.
Mr. Amash. And do you think mailers are prepared for this
world?
Mr. Riebe. It depends how it changes.
Mr. Cerasale. They are prepared in the sense of looking a
return on investment, and they are going to use alternative
means if it is not there. Mailers are prepared, marketers are
prepared to use the mail, and advertising mail is going to be
dominant. The Postal Service has to downsize to meet that new
need, its marketers needs, and they will remain a viable
channel for us. But they are prepared in the sense of they will
go to alternative means if the return is better elsewhere. It
is not at the moment, that is why they are in the mail. The
mail is still a good response vehicle. But that will change if
the Postal Service doesn't change on its own.
Mr. Melton. Yes, I think that the standard mail side of it
will continue to grow and I think the value of that has been
proven, and the returns are there and I think it is only going
to improve as technology allows them to be more targeted. I
also believe that on the statement presentment side that there
is an opportunity for transpromotional advertising and goes
along with the bill. You have a relationship with a customer
already, the opportunity to sell them more is there and
technology is allowing that.
Mr. Haycock. In my business, that is what we do, is first
class mail, and I do see that shift away from first class mail
happening, and for my business, we offer other alternatives,
other channels and opportunity for our customers to choose
which channels they want to use. And we have to kind of go down
that path in order for us to keep a viable business.
Mr. Amash. Thank you. I am going to yield back.
Mr. Ross. Thank you.
I now recognize the gentleman from Virginia, Mr. Connolly.
Welcome.
Mr. Connolly. Thank you, Mr. Chairman.
I would sort of like to pick up on where our colleague from
Michigan left off. You know, in and of itself, the decline in
first class mail doesn't mean anything. There were companies in
1900 who were making a lot of profit producing buggy whips, but
if they didn't see the future, they were in trouble, even
though in 1900 it looked like a profitable business for quite
some time to come. The fact that we have a shifting market, in
and of itself, the question is can we create, as you suggest, a
new business model--by the way, I have some legislation I hope
you will look at that does just that--that helps take
cognizance of the changes in the market.
For example, companies like Amazon.com have become very
profitable with online sales. They have to, however, get those
products to market. And the Postal Service, 1 percent now of
its business is packages like that, but it is 2 percent of its
profit. So the margin is pretty good.
Mr. Melton, Mr. Haycock, do you think that there could be a
future in expanding that kind of niche business for the Postal
Service at some level of profitability?
Mr. Melton. Absolutely. And I think there are opportunities
to perhaps share some routes, as an example. If we are going to
reach every household in the United States, you might as well
take advantage of sharing some of those routes.
Mr. Connolly. If we are serious about making the Postal
Service successful as we move forward in this century--and I
know my colleague, Mr. Lynch, has introduced legislation I
certainly support and supported in the previous Congress in
this whole prefunding issue, which is very substantial and it
is an onus on the Postal Service that is unique to the Postal
Service, Congress does not require it of anyone else, and it is
costing them billions of dollars every year. So when we look at
a figure that says you are losing $7 billion a year, but if we
amortized, for example, the estimated overpayments and
continuing 100 percent requirement, frankly, we could probably
substantially change that number in a positive direction.
But beyond that, that buys us some time, substantial amount
of time in which to figure out the business model. Mr. Melton,
you mentioned something about why not let the Postal Service,
for example, engage in packaging services. Is that correct?
Mr. Melton. Yes.
Mr. Connolly. Are there other areas anyone on the panel
thinks that might be something that come into the Postal
Service as a niche market for them or something they ought to
get into? And before you answer, I point out Congress is part
of the problem. The 2006 legislation, God knoweth why,
proscribes the Postal Service from entering certain kinds of
business. Given the situation were are in today, if we really
mean what we say about caring about its fiscal plight, why
wouldn't we rescind those restrictions and let 1,000 flowers
bloom to see what works?
Mr. Melton.
Mr. Melton. Yes, I agree it is tough to run a business when
you have restrictions on controlling your costs and also
limited in meeting some market demands that may be there. So I
would encourage that those things are looked at.
Mr. Connolly. Mr. Haycock.
Mr. Haycock. The only concern I would have about opening
everything up would be losing focus on their core, what they do
best at. Now, I would agree that if there are other areas that
could use that core business and utilize their infrastructure,
what they have today, then I would be open definitely for them
to do that.
Mr. Connolly. Sure. But can I just engage you on that? I
have a very large postal office in my district, in Merrifield,
it is sort of a regional post office. People go there all the
time for all kinds of things. Why not let them have a Starbucks
outlet there so that people, when they go there to do their
other core business, can also get a cup of coffee? You are able
to do that at the grocery store these days. You are also able
to do banking at the grocery store, even though neither one of
those are core missions of the grocery store. But in terms of
convenience and making it a focal point in terms of retail
activity, you enhance the viability of the enterprise.
Wouldn't that be some kind of model we ought to be looking
at for the Postal Service?
Mr. Haycock. That seems very reasonable, absolutely.
Mr. Connolly. Thank you.
Anyone else on the panel? I have 30 seconds left.
Mr. Cerasale. I think co-location, as you explained, is
valuable. They can even try and locate it at another facility
and have a post office there and open more times. You also have
the ability to co-locate State and local government things in a
government facility there as well, so that is an area, looking
at the 38,000 of them, or it could be less, postal facilities,
you can try and enhance that real estate footprint.
Mr. Connolly. Mr. Chairman, my time is up, but the
gentleman makes a very good point I commend to my colleagues,
because as someone who ran a local government for a long time,
historically, a lot of post offices have the stovepipe model;
we are separate unto ourselves and sovereign, and don't bother
us. And a new model would suggest this kind of co-location with
State and local services and government, there could be cost-
sharing, there could be huge efficiencies, and again you are
making that post office, which already exists, a more focal
point for the community, which, by the way, my legislation also
addresses.
Thank you.
Mr. Ross. Thank you, Mr. Connolly. I appreciate that input.
I want to thank the panel members for being here today. We
are grateful for your input and this subcommittee now stands
adjourned. Thank you.
[Whereupon, at 10:45 a.m., the subcommittee was adjourned.]
[The prepared statements of Hon. Justin Amash and Hon.
Gerald E. Connolly, and additional information submitted for
the hearing record follow:]