• on Mar 15th, 2010 in Labor | 21 comments
    March 18 marks the 40th anniversary of one of the most momentous events in postal history — the postal strike of 1970. The night before, postal workers in New York voted 1,555 to 1,055 to go out on strike in protest of a House committee vote to limit their wage increase that year to 5.4 percent on the heels of a 41 percent increase in Congress’s own pay. The wildcat strike and picketing were effective in shutting down postal operations in New York and quickly spread to about 30 other cities. Within days about 152,000 workers in 671 locations were on strike. It was illegal for federal workers to strike, or even to advocate a strike, but union officials said they had no control over the action. The strike shut down New York’s financial industry, kept 9,000 youths from receiving draft notices, delayed the mailing of census forms and tax refunds, and generally disrupted the country’s communications. Injunctions and heavy fines were levied on union leaders; but the membership paid no attention. President Nixon called out 24,000 military personnel to distribute the mail, but they were ineffective. While the president asserted there would be no negotiations until the workers returned to work, Secretary of Labor William Usery did engage in negotiations that brought the strike to an end after 2 weeks. By all accounts, the strike was extremely successful for the unions, and it set the course of postal affairs for decades to come. No postal worker was ever disciplined for the walkout. Negotiators agreed to a 6 percent wage increase retroactive to 1969, and an additional 8 percent contingent on enactment of the Postal Reorganization Act. The bill had been languishing in Congress, but by April 16, 1970, agreement was reached. It not only provided the 8 percent pay raise, but also allowed postal workers to reach the top of the pay scale in only 8 years — in contrast to the 21 years previously in effect. After the first contract, pay for the newest worker had surpassed what a 21-year veteran had made 3 years earlier. Although the agreement directed the large increase towards high-cost areas like New York, where the strike began, it was effective across the nation, even in low-cost areas where compensation had been ample. The practice of uniform wages continues today at the Postal Service; even though the federal pay system introduced locality pay in 1990. The binding arbitration feature of the Act could also be traced to the strike. According to a union history, binding arbitration was included in the bill “in lieu of the right to strike,” though of course no federal employee has ever had such a right. This feature of the law has meant that the Postal Service has never been able to exert control over its labor costs. Unions also insisted that the Postal Service would not be called a government corporation, to guard against any implication that workers would lose the security of their federal jobs. The strike also set in motion lasting changes in the postal labor movement. Union heads that had tried to control the strike, and were willing to compromise with government leadership, lost credibility. A city carrier, Vincent Sombrotto, was in the forefront of rank and file members in New York insisting on the strike. After the strike, he led a movement to open up union elections and eventually headed the National Association of Letter Carriers for 24 years. Coincidentally with the formation of the Postal Service, five distinct unions of postal clerks, mail processors, maintenance, and motor vehicle workers merged into a new American Postal Workers Union, which provided a more unified voice for labor in political and collective bargaining negotiations. This topic is hosted by the OIG’s Risk Analysis Research Center (RARC).
  • on Mar 3rd, 2010 in Strategy & Public Policy | 21 comments
    On March 2, Postmaster General John E. Potter presented a 10-year “action plan” to meet the challenges faced by the Postal Service as it encounters declining mail volumes combined with increasing overhead costs. The plan comes as a product of a yearlong study by the Postal Service and a number of leading consultants to identify and analyze over 50 different actions that could help counter the changing marketplace. The Postmaster General warned that if the Postal Service continues to operate as it is, it will run a cumulative debt of $238 billion over the next 10 years. Even if the Postal Service institutes every conceivable control within management control – product and service actions, productivity improvements, workforce flexibility improvements and purchasing savings – it can only shrink the debt to $115 billion.

    In order for the Postal Service to continue its primary mission of affordable and reliable delivery, it will need the kind of flexibility that only legislative changes can provide. The Postmaster General outlined key areas:

    • 1.Retiree Health Benefits Prefunding – The Postal Service currently would shift from prepaying its fund to paying premiums as they are billed, as other government agencies and private companies operate. 2.Delivery Frequency – The Postal Service would consider 5-day delivery and other adjustments that would allow it to operate more efficiently. 3.Expand Access – The retail network would be examined in order to close unproductive outlets and expand the postal presence in other retail channels, including online. 4. Workforce – In order to have greater workforce flexibility, the Postal Service would need to shift workers and better utilize part-time employees in the workforce. 5.Pricing – The prices for postal products need to reflect demand and market-dominant products should be limited by a single price cap. 6.Expand Postal Products and Services – Given the evolving needs coming from technological and consumer change, the Postal Service is looking to streamline the process involved with rolling out new products and services. 7.Oversight – The current oversight model has encumbered the Postal Service with a number of agencies and commission as with authority as well as Congress. The roles and processes of oversight need to be clarified to allow for efficient operations.

    What do you think? Are the actions mentioned above enough for the Postal Service to remain viable in the future? Would you suggest further steps? This topic is hosted by the OIG’s Risk Analysis Research Center (RARC).

  • on Feb 16th, 2010 in Delivery & Collection | 11 comments

    By Robert Cohen

    Should the Postal Service pursue a last mile strategy? A strategy that emphasizes delivery and deemphasizes the retail, processing, and transportation functions which are outsourced explicitly or through pricing incentives. In some ways, the Postal Service is already pursuing a last mile strategy. Historically, the Postal Service has generally set worksharing discounts based on cost avoided. In other words, the discount is set at the amount of money the Postal Service saves if it doesn’t do the activity itself. If a presorter can sort the mail more efficiently than the Postal Service, it will choose to do so. This is good for society as a whole because it provides the lowest overall cost for end-to-end mail service. It also means that the Postal Service receives the same profit per piece whether it is workshared or not. The profit from the 80 percent of the mail that is workshared comes from delivery. A last mile strategy would mean that the Postal Service should extend worksharing to provide discounts for dropshipping bulk First-Class Mail. This would benefit many bulk First-Class mailers because the printing of their mail could be distributed around the country eliminating mail processing and transportation costs and delays. It would provide a greater incentive for First-Class mailers to use the delivery system, and research has shown that new worksharing discounts are highly stimulative to new volume. (See "The Effects of Worksharing and Other Events on U.S. Postal Volumes and Revenues" by Edward S. Pearsall available at www.prc.gov.) The introduction of dropship discounts in Standard Mail was associated with a large expansion of Standard Mail volume. The strategy would also imply that the Postal Service should move towards 100 percent passthrough for all its worksharing discounts and thereby reduce upstream costs to the mailers. Again, this would maximize the incentive to use the delivery network. In some cases discounts are not set at 100 percent of avoided cost because these discounts are not defined well and and they lead to anomalous results (e.g. Standard mail dropship discounts). The Postal Accountability and Enhancement Act of 2006 may have given the Postal Service the opportunity to adjust worksharing discounts so that they are less than avoided cost. Setting discounts that are smaller than avoided cost adds a small additional amounts of institutional cost contribution relative to the large amount included in the implicit price for delivery. It is, however, inconsistent with a last mile strategy because it increases upstream prices. Looking at the Postal Service more broadly, the strategy would encourage contracting out upstream activities that can be done at a lower cost than in-house. It may be that savings and service improvements could be generated by contracting out significant portions of the ground transportation network in a way similar to the FedEx air transportation contract. There are presorters in almost every large city that would be prepared to sort single piece and bulk letter mail. This would be most attractive in cities where the Postal Service’s processing productivity is comparatively low. Retail also deserves attention because much of this function could be contracted out. Selling some retail facilities and then contracting for retail services from the new owners could allow the full utilization of their commercial potential. Worksharing began as presorting in the 1970s and was a significant move in the direction of a last mile strategy because it allowed the bypass of some upstream activities. Over the years worksharing has been further developed so that it now encompasses almost all upstream activities. The result has made mail service in the United States a collaboration between the Postal Service, mailers, and third party providers. A rate structure was created around worksharing that put virtually all the institutional cost contribution of workshared mail in the implicit charge for the delivery function and the one thing the Postal Service reserves to itself is the delivery of mail to the mailbox. An explicit last mile strategy would simply be a continuation of the successful outsourcing strategy that began over thirty years ago. An unabridged treatment of this topic is available here. Mr. Cohen was the manager of the Mail Classification Research Division at the U.S. Postal Service from 1974 to 1978 when he joined the Postal Rate Commission, now known as the Postal Regulatory Commission. In 1979 he was named the director of the Commission's Office of Rates, Analysis and Planning. He retired from that position in 2005 and has been an independent consultant since then. DISCLAIMER: The views expressed in this post are solely those of Mr. Cohen and do not necessarily represent the views of the United States Postal Service or the Office of Inspector General. The U.S. Postal Service Office of Inspector General cannot guarantee the source, originality, accuracy, completeness, or reliability of any statement, data, finding, or opinion presented by this guest blogger.

Pages