The following is from a letter to the editor of the Wall Street Journal by Michael Coughlin. Coughlin recently left Accenture, the global consulting, technology and outsourcing company, after almost 10 years with their global postal practice. Prior to that time, Coughlin spent 32 years with USPS, the last 12 as Deputy Postmaster General and a Member of its Board of Governors. The opinions expressed here are his alone and not attributable to either Accenture or the USPS.

In its August 22 editorial, "A Better Way to go Postal", the Journal has resorted once again to an anti-government, anti-union diatribe in addressing what is becoming an increasingly serious problem with one of this country’s more important institutions, the United States Postal Service. USPS, and the public it serves, does indeed face a daunting challenge, but serving up the traditional "bromides" of monopoly, inefficiency, out-of-control stamp prices, bad union contracts and the contrasting success of UPS and FedEx, offers nothing in the way of solution and clouds the discussion with a barrage of misinformation.

Let’s try a few facts on for size.

Until 1970, it was the Congress that set postage rates, mail classifications and postal wages. From 1932 until 1958, Congress held the First Class stamp rate at 3 cents, for a combination of political, economic and social reasons. They then allowed 3 one penny increases over the next 12 years, when rate making was ssigned to the USPS and a regulatory process involving the Postal Rate Commission. From that time, USPS was allowed to operate on its own revenues and charged to "break-even". Oh yes, and postage rates at that point in 1970, required a taxpayer subsidy of 25% of operating costs (about $2 billion) in order to "break even". By 1982, USPS eliminated that subsidy altogether and has operated without subsidy ever since. "Real" postage rates since 1970 are essentially the same, even though certain rates, including those for newspapers, continue to receive favorable treatment by legal mandate.

For most of its existence, USPS has operated on a business model (how they make money and fulfill their mission) that relied on ever increasing volumes of First Class and Standard mail, and the associated revenues, to offset the costs of an ever increasing network of delivery stops across the country (now at 149 million delivery points 6 days per week). It was those volume increases, coupled with the periodic price change that has financed the universal mail system in this country over the last 40 years.

Today that model is in big trouble. Technology has been eroding mail volume growth for some 20 years and, as business has changed some of its basic processes, that erosion has become an absolute decline in volume. The economic downturn of the last year has dramatically accelerated the volume loss to the point where it will probably fall to about 175 billion pieces this year ( it reached a peak of 212 billion only 3 years ago). It is this volume/revenue loss that is driving the projected $7 Billion loss this year, that, and the congressionally-imposed requirement that USPS pre-fund its retiree health benefits liability to the tune of about $5 Billion each year for the next 10 years. USPS has accepted this obligation and made the appropriate payments each of the last 2-3 years, in spite of the fact that virtually no other organization, public or private, has such a requirement and the USPS Health benefit trust fund balance now stands at $32 billion. USPS has asked for legislative relief and a relaxed payment schedule to ease the short term cash burden and that legislation is pending.

This situation obviously begs the question, "What has USPS management done to address the challenge?"

• In the current FY alone, they have reduced costs by over $6 billion, including the elimination of 100 million work hours or 65,000 FTE’s
• They have eliminated 150,000 jobs in the last 3 years.
• They continue to eliminate unneeded retail outlets where circumstance and regulatory restrictions permit.
• They have offered early retirement opportunities to thousands of employees.
• They have capped management pay.
• They have sharply reduced Capital outlays to conserve cash
• They have asked major suppliers to lower costs and prices
• Their Civil Service Retirement System obligations are fully funded (how many other organizations can say that?)
• They have deployed some 2,500 automated postal centers around the country to improve customer service.
• They have established a world class web site that gets some 1.2 million visitors per day.
• They have introduced innovative new products like flat-rate shipping, incentive pricing and Intelligent Mail services.
• They have entered innovative partnerships with companies like (oh dear!) FedEx, UPS, Mastercard, Pitney Bowes and Ebay, each designed to leverage the individual strengths of USPS and its partners.
• They have further strengthened their team with outstanding senior level appointments from the private sector in Marketing, Finance and Information Technology.

Most importantly, they have achieved record high levels of on time delivery, and customer satisfaction and they continue to top the list of "most trusted" organizations.

Are they perfect? Of course not! But then, we have had all too many examples of "less than perfect" management leadership in the private sector in the last couple of years. On balance, Jack Potter and his team have done an outstanding job facing up to the challenges, while dealing with the limitations placed on their organization existing law and political reality.

When one looks at the current situation of USPS and the continuing problems with its business model, there appear to be a few obvious short term moves to preserve some semblance of affordable universal mail service in this country.

• USPS needs some relaxation of its required payment schedule on its retiree health benefit liabilities. This will preserve cash in the short run, without jeopardizing future health Benefit payments or relieving USPS of its obligations.
• USPS needs the flexibility to adjust the number of required delivery days from six to five, a requirement now imposed by law. The US is one of the very few countries in the world that still provides 6 days of delivery and few will miss it if eliminated.
• USPS must be allowed to reduce the size of its Processing network. Today, there are some 300 Processing facilities around the country, where mail is collected, sorted and forwarded onto destination. Given the decline in volume and the high level of automation deployment, there is a strong likelihood that this network could be reduced by as much as two-thirds. Congress must step back and allow USPS to adjust its network and reduce the associated employment, without the burdensome and time-consuming process requirements now imposed.• There are over 36,000 postal retail outlets today. Many of these locations are simply redundant in terms of service requirements given the virtual nature of many of today’s postal transactions, as well as the mobility of the served population. Today there is a legal restriction on closing a postal outlet for purely economic reasons, and alengthy regulatory process to follow if there is to be a closure. It is likely that half or more of these facilities could be closed and still meet the requirements of the population. It no longer makes sense to require USPS to maintain local facilities to preserve "community identity" or retain a community gathering place. This has nothing to do with mail service.
• USPS must pursue structural change in its workforce. Today, a very large majority of its career workforce is made up of full time, 8-hour per day, 40-hour per week employees. Yet many of today’s work assignments are not 8 hour requirements or 40 hour per week needs. USPS needs to confront the unions and Congress needs to keep its hands off the collective bargaining process as these objectives are pursued. At the same time,Union leadership must recognize that the longer term welfare of their membership will be served by adapting to a dramatically changed environment.

Oh yes! And then there is the matter of the monopoly and privatization as suggested by the Journal. Certainly, these options must be on the table as the "postal problem" is considered. The European Union has been on a path of "liberalization" (elimination of the monopoly or reserved area) for almost twenty years, and some European postal operators have already eliminated the monopoly. Several have gone to private ownership and are listed on the appropriate stock exchanges. At the same time, most of these have been allowed unfettered access to other sources of revenue beyond traditional mail services (logistics, financial services, express services), some to the point where traditional mail revenues represent less than half of all company revenues. Most of these companies are prospering in their new configurations, continuing to provide high quality mail services while generating revenues and profits in new business areas.

This is not to suggest that this will work in the US. First, there is a large majority of the country (it’s not just postal employees) who resist the idea of monopoly elimination or privatization. The reasons vary, but much of it has to do with the current high level of satisfaction with today’s postal service quality and prices and strong reluctance to letting someone other than USPS handle their mail. There is also a strong resistance to an agency of the US government (USPS) engaging or competing in business activities available from the private sector. That is probably appropriate for the US, but given these circumstances, what potential investor is going to want to buy into a "privatized" USPS? The Journal Company, perhaps???

Mail service in this country is a very serious matter. The "mail industry" represents almost a trillion dollars in GDP and something approaching 9 million jobs. It is lot bigger than just USPS, a central player in the industry Addressing the USPS challenge will require a fact-based discussion, a recognition of the hard choices that will have to be made and the leadership and political will to make things happen. The Postal Accountability and Enhancement Act, passed in 2006, was supposed to be a "reform" of the system that could last the country another 20 to 30 years. While it contained some helpful changes, it has not even come close to addressing the fundamental issues and the changes likely necessary to maintain an affordable universal mail service in this country.
Bashing government, postal management and postal unions armed with a very cloudy set of "facts" isn’t much help either. It’s time for the stakeholders to get serious and address this issue without preconceived notions!