##### Developing a Secure Future {#developing-a-secure-future .unnumbered}

##### for the {#for-the .unnumbered}

##### United States Postal Service {#united-states-postal-service .unnumbered}

presented by:

###### Peter Johnson {#peter-johnson .unnumbered}

**President**

**LINX-PS Inc.**

**David Rawnsley**

**President**

**Postal Services International Ltd.**

February 12^th^, 2003

**[Table of Contents]{.underline}**

1\. Executive Summary [4](#executive-summary)

2\. Introduction [6](#introduction)

3\. Challenges Facing the USPS [7](#challenges-facing-the-usps)

3.1. Changing Demand for Postal Products
[7](#changing-demand-for-postal-products)

3.2. Increased Competition [9](#increased-competition)

3.3. Ability to Fund Changes [10](#ability-to-fund-changes)

3.4. Inability to Improve Productivity
[10](#inability-to-improve-productivity)

3.5. Financial Viability [11](#financial-viability)

3.6. Business Complexity [12](#business-complexity)

3.7. Labor/Management Problems [12](#labormanagement-problems)

4\. Addressing the Labor Issue [12](#addressing-the-labor-issue)

4.1. Balanced Solution Required [13](#balanced-solution-required)

4.2. Choosing the Appropriate Labor Law
[14](#choosing-the-appropriate-labor-law)

4.3. Sharing the Productivity Bonus
[15](#sharing-the-productivity-bonus)

4.4. Quantifying the Productivity Bonus
[15](#quantifying-the-productivity-bonus)

4.5. Taking Advantage of High Attrition Rates
[17](#taking-advantage-of-high-attrition-rates)

5\. Expanding Private Sector Involvement
[18](#expanding-private-sector-involvement)

5.1. Current Situation [18](#current-situation)

5.2. Potential for Expansion [19](#potential-for-expansion)

5.2.1. More Work Sharing [19](#more-work-sharing)

5.2.2. Contracting Out [19](#contracting-out)

5.2.3. Outsourcing [20](#outsourcing)

5.2.4. New Business Arrangements [20](#new-business-arrangements)

5.3. Benefits and Disadvantages [21](#benefits-and-disadvantages)

6\. Solving Problems with Technology
[22](#solving-problems-with-technology)

6.1. Solving Operational Problems [22](#solving-operational-problems)

6.1.1. Network Optimization [22](#network-optimization)

6.1.2. Management Information System
[23](#management-information-system)

6.1.3. Access to funding [23](#access-to-funding)

6.2. Competing in the e-Business World
[23](#competing-in-the-e-business-world)

7\. The Global Postal Industry [24](#the-global-postal-industry)

7.1. The Domestic Situation [24](#the-domestic-situation)

7.2. The Pan-American Situation [25](#the-pan-american-situation)

7.3. The European Market [25](#the-european-market)

7.4. The Rest of the World [26](#the-rest-of-the-world)

8\. Universal Service Obligation and the Monopoly
[27](#universal-service-obligation-and-the-monopoly)

8.1. The Universal Service Obligation
[27](#the-universal-service-obligation)

8.2. The Monopoly [28](#the-monopoly)

8.3. Competitive Access [30](#competitive-access)

8.4. Managing the USO [31](#managing-the-uso)

9\. Learning from Others [31](#learning-from-others)

9.1. Government Agency [32](#government-agency)

9.2. Commercial Government Enterprise
[32](#commercial-government-enterprise)

9.2.1. Canada Post Corporation -- Crown Corporation
[32](#canada-post-corporation-crown-corporation)

9.2.2. New Zealand -- State Owned Enterprise
[33](#new-zealand-state-owned-enterprise)

9.2.3. Australia [33](#australia)

9.2.4. United Kingdom [34](#united-kingdom)

9.2.5. The Developing World -- World Bank Direction
[34](#the-developing-world-world-bank-direction)

9.3. Private Corporation [35](#private-corporation)

9.3.1. Holland [35](#holland)

9.3.2. Germany [35](#germany)

9.4. Which Model Works Best? [36](#which-model-works-best)

10\. Drawing Conclusions [37](#drawing-conclusions)

11\. A Business Model to Match the Conclusions
[38](#a-business-model-to-match-the-conclusions)

# Executive Summary

The Postal Service is currently facing a number of challenges. It is
experiencing a change in demand for its products. The market place has
become much more competitive. It is experiencing difficulty in achieving
productivity improvements even though it has automated most of its
processes. In part this may be due to the complexity of running a
business that operates in a number of different industry sectors or more
likely it is directly related to the very poor labor/management
situation that exists.

To address the labor issue any reforms must recognize the needs of both
parties and ***both*** must benefit from any changes. Currently the
Postal Reform Act (PRA) is not working as can be seen from the massive
backlog of grievances. It needs to be replaced by labor law equivalent
to other industry players, such as UPS, and the collective agreement
re-negotiated.

The Postal Service and the unions must be ready to share the extensive
"productivity bonus" with each other and other stakeholders, such as
their business customers and the general public. The potential for
improvement is very high and this means that future pay increases must
be linked to ***real*** productivity improvements that are associated
with measurable reductions in the work force.

As much as 25% of the Postal Service has already been privatized through
contracting out and work sharing. While technology has the potential to
help the Postal Service it may also harm it. It can benefit from the
assistance of complex computer software to support management, on the
other hand, increased electronic substitution will hurt it unless it
allowed to compete in that market place.

In assessing the future the Commission must recognizes that the postal
industry is a global industry and no longer only a domestic one. Canada
imports mail from the US destined for Canada bypassing the USPS.
European countries conduct a similar operation on US soil, with both the
Dutch (through TNT) and the Germans (through DHL) already active in the
US domestic parcel market. In Europe the market is highly competitive
with the European Commission encouraging cross border competition and
the gradual elimination of the monopoly.

The Universal Service Obligation (USO) is often used as the main
justification for the monopoly, though in those countries where the
monopoly has already been eliminated the USO has not been detrimentally
impacted. Ensuring the USO in a non-monopoly postal world is both
achievable and easily managed.

The Postal Service has proposed three business model options to the
Commission. Comparison with reforms in other parts of the world suggest
that those countries that have partially privatized -- Holland and
Germany -- are fast becoming global players ahead of those saddled with
a "commercial government enterprise" type of solution.

We draw the following conclusions:

-   No successful restructuring can occur without the buy-in of both
    management and labor and that further contracting out will
    jeopardize this.

```{=html}
<!-- -->
```
-   ***This is not a short-term exercise***. This transformation could
    take up to ten years to successfully complete and must be structured
    to survive changes in government.

-   Considerable scope for improvement exists together with a unique
    opportunity to implement it without widespread layoffs. An annual
    target of 8% is certainly achievable, yielding +50% over ten years.

```{=html}
<!-- -->
```
-   As e-Business erodes its revenues the Postal Service should be
    allowed to compete for this electronic business like any other
    corporation.

```{=html}
<!-- -->
```
-   The Postal Service should be structured to compete in the global
    postal market.

```{=html}
<!-- -->
```
-   Most of the above conclusions are difficult to support if a monopoly
    is maintained.

```{=html}
<!-- -->
```
-   The most successful, international postal operators are the ones
    that have been privatized and operate in the same manner as any
    other corporation.

We propose that the following model be investigated. The business
structure should be that of a private corporation with the attendant
labor and commercial law. The corporate ownership to rest initially with
the government. A government regulator be appointed to establish the
criteria around the USO, develop a plan for reducing and subsequently
eliminating the monopoly, set the base-level price of a first-class
stamp, and to monitor all activities in the market place.

# Introduction

The Presidential Commission investigating the US Postal Service has been
tasked with determining the role of the Postal Service in the 21^st^
century and beyond. It has provided the public with an opportunity to
provide input and it will conduct a number of public hearings.

LINX-PS Inc. and Postal Services International Ltd. (PSI)[^1] are both
international postal consulting companies with extensive experience
working with the USPS and its customers. They have also provided advice
to postal clients in a number of other countries. We have provided our
thoughts to the Commission, as we believe it is essential that the
Commission's decisions be made in the expanded market of the Global
postal industry.

To complete its mandate the Commission must understand the current
issues and problems that the Postal Service faces. Understand what is
happening on the international scene, especially as the United States
market is of significant interest to other potential entrants. The
Commission must take notice of the changes occurring with regard to
universal service and the monopoly and evaluate whether experiences
gained in other countries, where the monopoly has been eliminated and
universal service has been maintained, can be applied in the US.

This document presents our understanding of the current issues facing
the Postal Service. It discusses the labor/management situation and the
potential for taking advantage of the "productivity bonus". It presents
the current situation with work sharing and looks at the problems this
has created with the unions. It assesses the potential for technology to
solve operating problems and whether the Postal Service should be
allowed to compete in the e-business world. An overview of the Global
Postal market showing what is happening from a Pan-American, European,
and worldwide perspective. We present the various arguments around the
Universal Service Obligation (USO) and the monopoly and try to drawn
useful information from the experiences of reform in other countries.
Finally we draw conclusions and provide a business model that will match
those conclusions.

We would like to thank the Commission for providing us with the
opportunity to share our knowledge in this manner.

# Challenges Facing the USPS

A number of critical issues currently face the Postal Service, which
collectively are responsible for the position that it finds itself in
today. The demand for its high revenue, good margin mail is decreasing
as the market place changes and customers become more value-conscious.
Competition is increasing, both from other service suppliers and other
technologies, increasing the need to invest in new and improved
equipment. Capital expenditure has been frozen for some years because of
cash flow constraints placing greater emphasis on achieving productivity
gains through improvement to operations. However, typically the Postal
Service has struggled to improve its productivity, even when installing
new labor saving equipment and this is one of the reasons that its
financial viability has been called into question. The complexity of
managing a postal enterprise, which is unlike any other business.
Finally, and perhaps most importantly, the Postal Service employs around
900,000 people the majority of whom are members of large and powerful
unions. These unions are highly protective of job security, members pay
and benefits, and are committed to maintaining and growing the size of
their membership. This positions the unions in direct conflict with
privatization, cost reduction and productivity improvement. This may
represent the single largest challenge to any group advocating USPS
reform.

## Changing Demand for Postal Products

Over the last 15 years first class single piece mail has been steadily
reducing (see Graph 1)[^2]. In fact in more recent years the rate of
loss seems to be increasing.

![](media/image1.wmf)

Reasons for this decline are numerous but generally reflect the change
in the postal market place where business has become the major client of
the postal service and individual use of the mail service is restricted
to such things as greetings cards, invitations, and presents. Mail sent
from person to person accounts for only 6.5%[^3] of the total first
class mail.

During the same period (1988 -- 2002) has continued to grow though this
has also tapered off during the last three years (see Graph 2)[^4]

![](media/image2.wmf)The extent to which substitution has impacted the
mail is unclear although certainly the expanded use of e-mail has had
some impact. However, other countries are seeing drastic reductions
associated with on-line banking and this yet to hit the United States.

## Increased Competition 

The Postal Service is protected by a monopoly for its letter products
but even these are coming under pressure from competition. For example
the postal service offers discounts to its customers for conducting
"work sharing" activities. This is self-created competition as if the
customer (or a third-party pre-mailer) can perform the work for less
than the discount paid then it is beneficial for the customer to take
advantage of this option. This is good for the Postal Service in times
of increasing volumes as it reduces volumes and frees up capacity,
however in times of reducing volumes and available capacity this is bad
news.

In advertising, a significant market for the postal service, the market
is very sensitive to an increase in price. While direct mailing remains
a very attractive advertising medium it must compete with telemarketing,
newspaper advertising, etc., for its share of the advertisers budget.

The competition for parcels and express items has become quite intensive
with many foreign competitors entering the US market. With the advent of
on-line and television shopping this is seen as a growth market for the
future. United Parcel Service (UPS) remains the dominant player but
FedEx Ground, DHL (a Deutsche Post subsidiary), TNT (part of the TPG --
the Dutch Post Office) are gaining market share. The main sector where
the Postal Service is successful is for parcels less than 2 pounds. Here
the Postal Service has a 35% share of the market[^5].

## Ability to Fund Changes

The Postal Service presently funds its capital expenditure program from
cash flow[^6]. It typically has an annual capital expenditure plan of
\$2-4 billion. Unfortunately, when it is losing money or when cash flow
is constrained the first casualty is typically the capital-spending
plan. In the last few years the Postal Service has drastically curtailed
its capital spending and while this has little immediate impact the
longer-term impact may be more damaging.

The size of the Postal Service is also a problem when it comes to
funding changes. Changing some branding aspect that requires a change in
a post office means changing over 27,000 locations. Similarly a new
piece of sorting equipment impacts 300+ processing plants.

## Inability to Improve Productivity

While the Postal Service has made considerable investments in automation
and it has discussed "break through" productivity improvements it has
been unable to capitalize on improved productivity. The following chart
shows how poorly they have performed over the 30-year period from 1970
until 2000[^7]. However, the productivity potential still exists and
this is the good news in an otherwise dismal picture.

![](media/image3.wmf)

Another problem for the USPS has been translating the investment in
automation into reduced operating costs. In neighboring Canada, the
processing costs of canceling, facing and sorting the mail was reduced
from CDN\$1.3 billion to CDN\$800 million with the introduction of
similar equipment to that introduced by the USPS. In the United States
the costs remained fairly constant.

Another example is the introduction of machines for "delivery
sequencing" (this eliminates much of a letter carrier's final case sort)
that have not been matched by a reduction in letter carriers.

## Financial Viability

The Postal Service faces a troubling financial future and is on the
GAO's list of "High Risk" agencies. Robinson & Rawnsley pointed out in
their paper "USPS Finances: Is there a financially viable future?" that
of the Postal Services \$59.4 billion in assets 56% was in fact a
deferred liability for retirement costs[^8]. They also pointed out other
long-term liabilities for retiree health benefits and increased pension
costs that are not included in the liabilities on the balance sheet.
Re-formatting the balance sheet to reflect these changes suggested a net
capital deficiency of \$59.7 billion.

## Business Complexity

While many are critical of how the Postal Service runs its business it
must be remembered that it is not just one type of business. In fact it
is not just two. The Postal Service has at least five different
businesses each with their own specific characteristics. Most of these
businesses would also be recognized as one the largest in their
industry. They have a retail business that manages 27,000 post offices.
They have a transportation business that handles contracts to move the
mail all around the country on a daily basis. They have a processing
operation similar to many manufacturing businesses with 300+ plants. And
they have a delivery operation with letter carriers either on foot or in
an extensive motorized operation. Finally they are beginning to have an
on-line business -- different again from all their existing businesses.

It should also be remembered that with their salary cap it is virtually
impossible to recruit senior knowledge resources in these diverse areas
and career postal employees fill most senior positions.

## Labor/Management Problems

The USPS currently has a backlog of over 125,000 grievances[^9] and
spends over \$200 million[^10] a year on the arbitration process.
Compare this to General Motors where the number is less that a 100 and
we see that the area of labor/management relations is one in which the
USPS is in desperate need of a transformation.

# Addressing the Labor Issue

If the Postal Service is to have a viable future then it must find an
accommodation with its unions. The current situation cannot be allowed
to continue or it will jeopardize the long-term survival of the Postal
Service.

There is little to gain by trying to assess who is the culprit in this
demise. In a situation such as this no-one can escape blame -- the
Postal Service, the unions, the PRC, the Congress, arbitrators, lawyers,
competitors, all have contributed to this mess. What is required now is
to reconstruct this relationship in a manner that can allow the future
USPS to be successful.

This will potentially require the rewriting of the collective agreements
and reviewing the appropriate labor law to govern the employees. It will
require that the "productivity bonus" that is available be distributed
amongst the many stakeholders, including the employees. It will require
that the Congress address the issue of the unfunded pension and
healthcare liabilities. No small task but essential for any transformed
Postal Service to work.

## Balanced Solution Required

Management and labor need a shared vision of the transformed Postal
Service and its position as a provider of business and public services
in a local, State, Federal and Global context. They require new labor
and employment rules that support this vision and they need a collective
agreement that protects the employees and the Postal Service alike.

Currently the Postal Reform Act lays out the Labor Law for the Postal
Service and the governing body to administer it. This has translated
into practices that are entrenched in the various collective agreements
and the backlog of grievances described above. Evidently this is not
working and must be replaced.

It is clear that new legislation is required and that a new collective
agreement must be negotiated. However, this cannot be a one-way street,
changes must also include important issues for the employees and the
unions. Possibly the most important labor issue today is "contracting
out" viewed by the union, and its membership, as undermining job
security and is an issue that must be addressed in any re-negotiation of
the collective agreement. Another issue that should be addressed is the
right of the employees to strike.

The Postal Service survival is contingent upon both sides of this
relationship entering into a real and meaningful partnership.
Considerable opportunity exists for this to be a win/win scenario.
Expanding their operations into the global market has the potentially
provides considerable growth opportunities. The up-coming retirement of
the baby boomers offers a unique opportunity for both sides to weather
the transformation period if they *work together.*

## Choosing the Appropriate Labor Law

Unlike its competitors in the market place the Postal Service is
controlled by the Postal Reform Act (PRA). Most UPS employees come under
the National Labor Relations Act whereas most FedEx employees are
governed by the Railway Labor Act[^11]. The PRA was passed in 1970,
after a strike by postal workers in 1968, and removed the rights of the
employees to strike, replacing it with a "binding interest arbitration"
resolution mechanism.

Four major unions have emerged:

-   The American Postal Workers Union (APWU) represents window clerks,
    workers in processing and distribution facilities and maintenance
    and motor vehicle employees.

-   The National Association of Letter Carriers (NALC) represents letter
    carriers in urban areas.

-   The National Rural Letter Carriers' Association (NRLCA) represents
    employees in rural areas and substitute, associate, auxiliary, and
    relief letter carriers.

-   The National Postal Mail Handlers Union (NPMHU) represents employees
    that move and process mail.

The grievance mechanisms developed under the PRA have been demonstrably
unsuccessful. A catastrophic backlog of grievances has developed and
wage arbitration decisions have resulted in a "wage premium" for postal
workers of as much as 40%[^12] above an equivalent private sector
worker.

In contrast, the salary cap on management staff has limited the Postal
Service's ability to recruit executives from outside its own ranks,
blocking any infusion of new progressive leaders. The President of a
Fortune 500 company[^13] would command a seven figure salary and
benefits package, while a USPS President barely makes it into the six
figure bracket.

Opening the cap for management and placing the employees under the same
labor code as the UPS seems to be the minimum requirement of any
reforms.

## Sharing the Productivity Bonus

The partnership of management and labor in the transformed Postal
Service must be ready to share with each other and the other
stakeholders the extensive productivity bonus that is available to it.
By taking advantage of the expected high attrition rate in the coming
years, and by linking pay increases to measurable efficiency gains.

## Quantifying the Productivity Bonus

Many have identified the poor productivity performance of the Postal
Service. The Mailers Council[^14] showed that since the 1991 recession,
the Postal Service's TFP (Total Factor Productivity)[^15] compares
unfavorably with all equivalent business productivity measures generated
by the Bureau of Labor Statistics (BLS). In the most recent years, USPS
productivity has turned downward and the gap between it and private
sector productivity has most likely widened.

What really is the potential for productivity improvements in the Postal
Service?

Management Consultants and Industrial Engineers use diagnostic tools to
assess the potential of a firm to achieve productivity improvements.
Typically these look at factors such as metrics, training, and the
application of a continuous improvement process, etc. The factors will
individually be broken down into sub- factors that can be readily
assessed. For example: the factor "metrics" will be assessed in terms
of: their application to the objectives of the business; whether they
are well and widely understood; whether they are sophisticated enough to
recognize the unique nature of various parts of the business such as,
operations strategy, performance management, customer integration,
capital management, etc. Other factors will be broken down in a similar
manner. Each sub-factor is then analyzed to develop an assessment of the
potential for improvement.

Any such diagnostic would reveal enormous potential for improvement in
the Postal Service. While we are not privy to any that have been
completed we are aware that many attempts have been made in the area of
metrics with little success. One of the few metrics to have been
introduced to the organization was the Value Added measurement upon
which management bonuses are paid. As was recently discovered this could
pay a bonus at a time when the Postal Service was losing large amounts
of money.

Other attempts at process metrics have not achieved national
implementation, as even the most rudimentary systems require years to
implement in an operation as large as the Postal Service.

Let us assume the enterprise or network operates at 80% efficiency. In
general we have only a few excess plants, that the network of transfers
from one plant to another is largely optimized, that mail gets where it
needs to be when it needs to be there most of the time. Let us further
assume that local management, supervisors, superintendents, managers,
etc. also achieve 80% efficiency. This means that they only occasionally
run out of work for their employees, they rarely use too much indirect
support labor, it is unusual for them to send letters that could be
handled by machines to manual work centers, etc. And further let us
assume that first-line postal employees work at 80% efficiency. This
means that perhaps they stretch a break, slow down when there is not
lots of work, or that (in the case of letter carriers) finish a little
early. If we look at this scenario we have (perhaps) a somewhat
optimistic view of the Postal Service.

Assuming the above then the overall efficiency is 80%x80%x80% or
51.2%[^16]. With fewer plants, organized more efficiently and with
employees working at a marginally better performance level, we could
obtain a 50% reduction in cost. If we were to substitute a 75%
efficiency rating for all of these elements we would arrive at a 41.4%
overall efficiency number. Given what we know of the poor performance of
the Postal Service in recent years, i.e. they have not yet capitalized
on this automation opportunity, given what we know of others
performance, most notably in neighboring Canada, it would not be
unreasonable to assume that there is at least a 50% productivity bonus
available to be mined with the collaborative effort of all parties.

## Taking Advantage of High Attrition Rates

The Postal Service has projected that between now and 2010 a full
one-third (33%) of its bargaining employees will be eligible for
retirement[^17]. This group comprises 91.2% of its 854,000 employees or
778,000 workers[^18]. Thus over 250,000 unionized workers will leave the
work force during the next seven years. The challenge for both
management and unions is how to avoid simply replacing them.

One can look at this situation as a problem or an opportunity.
Certainly, replacing 50,000 senior, experienced employees each years
could well be seen as a human resources crisis. We prefer to see this as
a unique opportunity for the Postal Service to achieve real productivity
improvements without having to lay off its personnel.

Similarly, management and supervisory staff will have a 50% turn over
during the same period, offering further opportunities for staff
reductions.

# Expanding Private Sector Involvement

Contracting out and work sharing are quite rightly viewed by postal
unions as backdoor privatization. The work that finds itself into the
private sector is work that either was, or could be, done by unionized
postal workers.

However, work sharing discounts have been responsible for stimulating
considerable new postal business and are likely are good indicator of
the productivity premium. They can also be viewed as competition for the
Postal Service.

## Current Situation

Two main areas exist -- work sharing and contracting out. Work sharing
is where the customer completes certain work that was previously done by
the Postal Service and receives a discount[^19]. Contracting out is
where a third part is hired to do work also previously done by the
Postal Service. Outsourcing has become a popular term in recent years
but as yet the Postal Service has not outsourced any functions.
Outsourcing is distinguished from contracting out by the manner in which
the employees that currently conduct the work are treated. In an
outsourcing situation they are transferred from the contracting firm to
the outsourcer and become employees of the outsourcer.

To determine the extent to which the Postal Service has already been
privatized through the back door we must total the work sharing
discounts and add them to the annual revenue for a total internal and
external revenue number. This can then be assessed against the total of
the work-sharing discounts and the contracted out work.

Using FY 1990, Merewitz and Zupan[^20] determined the total to be
18.1%[^21]. Elcano, German and Pickett[^22] using 1998 data determined a
level of approximately 20%[^23]. A closer review of the data presented
in their work suggests that it could be as high as 23.5%[^24].

Given the growth in this area it is not unreasonable to assume that as
much as 25% of the Postal Service has already been privatized.

## Potential for Expansion

In discussing an expansion of private sector partnerships we must look
at a slightly larger group of options. In addition to work sharing and
contracting out there is the possibility to outsource various activities
and the potential, under different rules, for the postal service to
enter into new types of business deals.

### More Work Sharing

The Postal Service has taken advantage of the obvious opportunities for
work sharing. Expansion of this area would require a refining of the
various discounts and reducing thresholds to entry.

### Contracting Out

The postal unions are very aware of the impact that this has on their
membership, as are other major industrial unions. This has been a focus
of the labor movement and further contracting out is only likely to
further aggravate the union. Clearly, any activity can be contracted out
but this will also expose the Postal Service to a greater potential for
an external labor dispute to curtail its operations.

### Outsourcing

Outsourcing has been a huge growth industry and, compared to contracting
out, is not as heavily focused on making savings simply by employing
people paid at lower wages. Outsourcing consolidates activities with
similar operating requirements so as to obtain efficiencies from better
management and technology. A good example is outsourcing the complete IT
function. In this scenario an experienced IT provider takes on the
responsibility for the Postal Service's IT operation. Employees are
transferred from one organization to another with safeguards and
grandfather clauses embedded in the outsourcing contract. In some
instances union membership may be enshrined. Efficiencies arise from the
extensive management and technical support that a specialist IT
organization is able to provide as compared to that available within a
postal organization.

In addition, the Postal Service might consider outsourcing a product to
a third party. This is certainly possible in the area of electronic
products. One could also envisage registered mail being handled by one
of the courier companies.

### New Business Arrangements

New business arrangements would encompass the proposed "negotiated
service agreements" (NSA) as well as the mega-deals [^25] and joint
ventures.

The negotiated service agreements are customer specific and will allow
the Postal Service to enter into "deals" with larger customers. These
agreements would be outside the PRC regulations and would enable the
Postal Service to effectively protect its priority customers. There is
no doubt that if the Postal Service is able to enter into these NSAs
then this would slow down electronic substitution and make the Postal
Service much more competitive than it is today. It is equally certain
that competitors will scream, "cross subsidization" and that there will
be considerable political pressure to have the contents of these
agreements opened to public scrutiny. Certainly, if the Postal Service
retains its monopoly it will be difficult to fend off these accusations.

The mega-deals and joint ventures are ones that is measured in millions
of dollars and will typically involve industry players. The nature of
the industry lends itself to these types of deals, especially if viewed
in a global context. Deals such as the one between TPG, Royal Mail and
Singapore Post to collectively handle international mail are common
place. Competitors in one environment find themselves as business
partners in another. For example, the Postal Service already contracts
with DHL to deliver its international parcels and couriers -- Deutsche
Post, who would be a major competitor in a liberalized US market,
controls DHL.

## Benefits and Disadvantages 

Current work sharing and contracting out has made the Postal Service
more and more dependent on the private sector. It is fair to say today
that the Postal Service could not operate without the private sector.
This brings the notion that the Postal Service cannot be affected by a
work stoppage into serious question. Though most of these activities
operate in a non-unionized environment, no legislation prevents them
organizing. For example a shutdown of the Remote Video Encoding
operation would very rapidly bring the postal service to a halt, as
would a strike in the area of empty equipment management, both critical
operations that are contracted out.

Customers have benefited from the movement of work from premium rate
postal workers to significantly lower cost workers in their own
organizations or in third party service providers. This has also been a
significant factor in helping to keep postal rates from even steeper and
more frequent increases.

The postal unions have been the group most heavily impacted by this
mechanism as they have lost many dues paying jobs to other sectors and
in some instances to other unions.

# Solving Problems with Technology

In addressing this subject we will look at two distinct aspects of
technology -- technology as it relates to operations and technology as
it relates to e-business. Operationally new and improved technology has
the potential to reduce operating costs and enable the Postal Service to
accelerate the handling of the mail. As an e-business tool it will
encroach further into the higher value mail stream and remove further
volume from plants already dealing with over-capacity.

## Solving Operational Problems

The Postal Service has successfully used technology to enhance its
operations, even though it may not have recovered all of the labor
savings associated with these improvements. High-speed sorting machines
that can read and verify addresses, apply a bar code and perform
destination sorting are now common place in the mail processing plants.
Letter carrier mail is now "route sequenced" by machinery, removing a
tedious task and allowing letter carriers to spend a much greater
portion of their day delivering the mail.

The potential to solve other operational problems with technology exists
and is being explored by the Postal Service. Track and trace associated
with individual mail piece identification would, potentially, allow
lower value mail to be tracked through the network. Implementing
improved handling of flats will also improve operations.

However, perhaps the two areas with the greatest potential for
technological improvement are: network work optimization and management
information systems.

In addition the Postal Service must have adequate access to capital
funds.

### Network Optimization

The current structure of mail processing plants and post offices was
created in a time when most mail was hand sorted. One need only look at
how FedEx handles its packages to understand that many different network
structures are possible. The key factors that should drive a postal
network are: time, resources, cost and flexibility. Whether mail should
be sent directly from the originating plant to the destination plant or
via one or more intermediate plants dictates the sorting strategies that
a plant employs. Using sophisticated computer models allows various
structures to be evaluated and the most appropriate selected. It will
also enable the network to continuously refined in the future.

### Management Information System

To manage any labor-intense process it is essential to have meaningful
management information that measures performance and allows changes to
be monitored. The systems employed by the Postal Service are antiquated
and must be upgraded if any meaningful progress is to be made.

### Access to funding

Implementing any change in the Postal Service requires extensive
resources and, typically, a large level of funding. Currently these
investments are funded from cash flow and consume money in the balance
sheet for depreciation. This means that often investments follow a
stuttering implementations as cash flow surpluses dry up.

To implement these much-needed improvements that have a significant
payback if properly managed requires that capital funds are made
available outside of the operating cash flow surplus.

## Competing in the e-Business World

The Postal Service has not yet been hit by the substitutions of
hard-copy business mail with electronic alternatives. However, as
consumers become more comfortable with on-line transactions and business
continues to follow this conversion, it is only a matter of time before
the Postal Service receives further reductions in volumes.

This begs the question -- "Should the Postal Service be allowed to
compete in the e-business market?"

If we look at the USO that *"everyone should have reasonable access to
the postal service at an affordable price",* we must add "for what
purpose?" The Postal Service provides the cheapest form of
communication. Many would believe today that e-mail is the cheapest form
of communication. Why would the Postal Service be excluded from this
market when it is well able to provide secure, reliable e-mail
service[^26].

Similarly, e-commerce generates a considerable amount of parcel and
package traffic. Competitors to the Postal Service have tried to capture
this market by providing exclusive service to certain e-retailers.
Establishing e-services that promote traditional postal products would
seem to make good business sense.

Finally, as more and more banks and financial institutions provide
on-line options for bill receipt and payment, it would also seem like
good business sense to enter that market place as the USPS did with its
e-BillPayment service. Countries such as Ireland, Sweden, have a
comprehensive electronic post office Canada[^27]

# The Global Postal Industry

The Presidential Commission is charged with looking at the role of the
Postal Service in the 21s^t^ century and beyond. One can no longer do
this by simply looking at the domestic situation and ignoring that the
postal industry is already a global industry and that "real" global
players are evolving.

## The Domestic Situation

Currently, the problems facing the postal service are so daunting that
it has not joined the rush to buy up, manage or enter into global
alliances. It follows the dictates of the Universal Postal Union (UPU)
and operates only within its own borders.

However, many foreign posts have operations in the US designed to
capture International mail. These include Britain, Holland, Germany, and
Canada.

The USPS does not provide external consulting or support services to
other countries nor does it enter into any ABC mailings[^28].

## The Pan-American Situation

Canada Post is careful in how it competes with the USPS, however much
mail from the US destined for Canada is trucked across the border and
mailed from Canadian border towns. Canada Post also has a successful
postal consulting firm called Canada Post International Ltd.
(CPIL)[^29]. CPIL is managing the reconstruction of the post in the
Lebanon and has extensive international contracts in countries such as
South Africa, Kenya, Guatemala and a number of ex-iron curtain
countries. CPIL uses resources from Canada Post to staff its
assignments.

Canada Post owns the courier company Purolator and is currently
acquiring a series of "messenger" companies to allow it to provide a
national "message" service.

The mail services outside of North America are very weak and in
desperate need of improvement. Many countries are looking for outside
assistance to either improve their operations or to actually run the
post for them. Argentina has experimented with outsourcing the post to a
private sector company.

Many of the Central and South American countries have established the
postal service as a private corporation, with the government owning the
shares, at the direction of the World Bank.

## The European Market

Compared to North America, the European postal market is a battleground.
With European Commission intention to open the market to cross border
competition, countries and their posts have been vying for market share.

The first to recognize the potential of the postal business outside
their own borders were the Dutch and they ignored many UPU regulations
as they began to develop their pan-European business. They now have
subsidiaries or affiliates in all European countries and are expanding
into a global business.

The Dutch government has reduced its ownership to 45% with the remainder
traded on the stock market.

The response of other European countries has been dramatic. It is fair
to say that within the space of 10 years, the German post went from a
poorly organized, high cost, operator to a trim, private corporation,
with subsidiaries all around the globe. The German government still owns
75% of Deutsche Post but has talked of selling a second quarter when the
market conditions improve. Deutsche Post has been able to shrink it
workforce substantially and has used its acquisitions as a source of new
opportunities for its employees.

The British Post is somewhat behind the Dutch and the Germans in terms
of its external acquisitions those it has acquired Citimail in Sweden.

La Poste in France is active in French speaking countries and its parcel
carrier ChronoPost is making inroads into the European and African
parcel markets.

## The Rest of the World

The situation elsewhere in the world is much more related to the
situation in Europe than North America. New Zealand and Australia have
become strong regional players with New Zealand's consulting subsidiary
Transend one of the few successful postal consultants.

Japan is also considering reforms to its postal system[^30] where the
post office bank is the funding source for much of Japan's overseas
development work.

Many other countries are in a similar situation to those in Central and
South America and seeking either assistance or direct intervention.

# Universal Service Obligation and the Monopoly

In 1843 the Post Master General of the day was one of the first to link
the Monopoly and the Universal Service Obligation when describing the
influx of entrepreneurs taking advantage of loopholes in the monopoly
legislation. He stated, *"These private expresses will only be found to
operate upon the great and preferable thoroughfares between great
commercial points, whilst the extremes are left to depend upon the
operation of the United States Mail, crippled and broken down for the
want of means."* One of the first references to "cream-skimming" that
remains the predominant argument of those liking the Monopoly and the
USO, 160 years later[^31].

Almost universally, postal services respond to the question "What is it
that differentiates you from your competitors?" by citing their
comprehensive collection capability and a distribution network able to
deliver to every household in the country. Similarly, when asked, "Why
do you need the monopoly?" they respond with the need to protect
universal service to rural and remote areas. It would seem that asking
the right question in this debate is a key issue.

While the subject of Universal Service and the Monopoly have become
linked over time recent developments in other countries indicate that
privatization and the elimination of monopoly protection have not
negatively impacted Universal Service.

## The Universal Service Obligation

The Universal Service Obligation (USO) is defined in very broad terms in
the Postal Reform Act (PRA) of 1970. This is not surprising, as the USO
is in reality a flexible principal. In section 101 the PRA states in
part that, "...The Postal Service shall have as its basic function the
obligation to provide postal services to *[bind the Nation
together]{.underline}* through the Personal, educational, literary, and
business correspondence of the people..." (emphasis added). Few today
would lay the emphasis on nation building and all would agree that the
order of priorities has reversed with business correspondence being the
most significant current activity of the Postal Service.

Similarly, in section 403 the Postal Service is directed to, "...plan,
develop, promote and provide adequate and efficient postal services at
fair and reasonable rates and fees." The use of terms such as
"adequate", "fair", and "reasonable" provides flexible principles open
to different interpretations at different times and by different groups.

Problems in defining the USO are not confined to the United States. The
European Community spent a number of years in arriving at a
"definition". One, it should be noted, that would be unacceptable to the
United States as it calls for "door-to-door" delivery, which would
exclude lot-line delivery and community mailboxes.

The underlying objective of the USO is to ensure that *"everyone should
have reasonable access to the postal service at an affordable price".*
Defining what that "reasonable access" should be and what is an
"affordable price" is a public policy issue that belongs outside the
purview of the Postal Service who have a conflict of interest when
defining these terms. Is "affordable" synonymous with "uniform"? Does
"reasonable access" mean "delivery every day to everyone"? Does it mean
"a post office in every town"? All questions that should be answered by
a group other than the Postal Service and in an environment independent
of the monopoly.

## The Monopoly

Interestingly enough, the Postal Services transformation plan largely
ignores the subject of the Monopoly. It assumes the ongoing need to
protect the USO is the de facto requirement for the monopoly. The same
"cream-skimming" case postulated 160 years ago. However, many postal
specialists have looked at this issue, most notably Robert Cohen, of the
Postal Rate Commission, and have concluded that if the USO was removed
that even the remotest areas would continue to receive service. In fact,
they correctly point out, that the monopoly does not protect the
Universal Service it protects the frequency of service that remote areas
receive and that a small reduction in service (say) from six days per
week to three would make these areas as profitable as city routes[^32].

When the European Community first presented its "Green Paper" on postal
reform it included a provision to maintain a protected area*, "...in
order to ensure universal service at a price affordable to
all..."*[^33]. Every European country except Holland supported this
point of view. The Dutch pointed out that, "...*The member states with
the heaviest losses are often those with the largest monopolies. So,
exactly the opposite standpoint would seem to be the right one. There
are also member states with very small monopolies who more or less break
even or obtain a normal return by providing good quality services. In
other words, the achievement of a financial balance depends on entirely
different factors."*[^34]

In countries such as Finland, Sweden and New Zealand, which have
abolished the monopoly, there have been no reductions in service and new
entrants have struggled to gain market share. Most newcomers have
focused on large cities, such as Citimail who offered service at a lower
price only in Stockholm, and National Mail who provided service in
Auckland and Wellington. Neither organization was successful as the
incumbent took full advantage of its dominant market position offering
its clients comparable discounts and full market coverage.

As the CEO of Sweden Post, Lennart Grabe, said as recently as 2001:

*"The fear that the universal postal service would be impossible to
sustain under such circumstances \[a liberalized market\] is unfounded.
Rather, the opposite holds -- without renewal of the postal markets, the
universal service will eventually become threatened and the postal
operators run the risk of stagnation."*[^35]

The European Community is moving ahead with its plans to eliminate the
monopoly before the end of the decade.

Other industries, such as telecommunications and transportation have
successfully eliminated the monopoly without detriment to universal
service. In addition the Congress has been active in trying to prevent
the establishment of monopolies in other areas such as the Microsoft
Windows monopoly. In this environment it is difficult to see why the
postal monopoly should not be reassessed.

## Competitive Access

As postal services around the world reform, deregulate and/or privatize
they are being faced with the issue of competitive access. Typically,
the incumbent, with the comprehensive network built by taxpayers
dollars, is being asked to open its network to competitors. This is
analogous to the small telephone companies that provide local service
and use AT&T for long distance.

The largest concern here is the fees for these services and the cost
mechanisms used to determine them.

It may be said that this competitive access has already begun in the
United States, if in an unregulated manner, with the introduction of
FedEx collection boxes in USPS post offices around the country. FedEx is
paying the USPS to take advantage of the USPS's collection network and
they had originally hoped to also have the USPS deliver FedEx packages
to rural and remote areas of the US.

## Managing the USO

Most countries that have eliminated or modified the monopoly have
created a government regulator similar to those created to manage the
telecommunications industry. These agencies are typically tasked with:

-   ensuring the incumbent is providing the Universal Service coverage
    that has been agreed to,

-   the issuance of licenses to new entrants, and

-   monitoring the incumbent to protect the new entrants from unfair
    competition.

In addition they are tasked with establishing mechanisms to allow up and
downstream entry into each other's processes. Unfortunately, few have
been tasked with managing the interpretation of the USO itself.

A methodology for addressing the Universal Service Obligation can be
found in Rawnsley and Lazar's paper "Managing the Universal Service
Obligation" published in *Emerging Competition in Postal and Delivery
Services*, edited by Crew and Kleindorfer, Kluwer Academic Publishers,
1999. This provides an approach that could readily be adopted by the
United States.

Similarly, if real progress is to be made in the postal industry, the
protected area must be reduced and eliminated over time. The same
regulator tasked with managing the USO could also be tasked with
structuring an approach to reducing and eliminating the monopoly, and
implementing it.

# Learning from Others

The Postal Service has proposed three options for consideration by the
Presidential Commission -- a Government Agency, a Commercial Government
Enterprise and a Private Corporation. While the reforms overseas do not
necessarily match perfectly with the options under review, we are able
to generalize these experiences and to make some observations as to
which option is having the greatest success.

## Government Agency

To our knowledge no postal authority has chosen this route in its
reform. Many have discussed it as the "public service" option but all
have opted for an approach that seeks to, at least, make the postal
service self-sufficient. The Government Agency route is seen as a step
backward into the days when postal services around the world ran large
deficits that tax-payers were required to fund.

## Commercial Government Enterprise

Perhaps the most popular choice for governments over the last 25 years
has been the option analogous to the Commercial Government Enterprise.
In some countries the wholly government subsidiary is tasked with
returning a profit while in others it is simply acceptable to operate at
a break-even level.

### Canada Post Corporation -- Crown Corporation

Canada Post Corporation (CPC) was established as a "Crown Corporation"
in the mid-80's and as such ceased to be a government department. It has
a Board of Directors that are appointed by a government minister and
operates largely autonomously. There is no third party regulator with
the minister and the Board setting direction and the President and CEO
running the business. While many past Presidents have been career postal
employees, or business executives[^36], the current President, Mr. Andre
Ouillet, was the Minister for External Affairs before leaving
government.

Since its creation it has successfully made dramatic reductions to its
operating costs and shrunk its network substantially, without impacting
the provision of the Universal Service. Given the geography of Canada
and the low density of the population (Canada has 1/10^th^ the
population of the US with a slightly larger land mass) it is worth
noting that the cost of a stamp in Canada is CDN\$0.48, which converts
to \$0.31.

However, while CPC is no longer a drain on the public purse it has been
unsuccessful in achieving anything but 1-5% annual profit. Profits are
repaid to government.

Successive Canadian governments, who have been seeking to privatize
government run enterprises, such as AirCanada and CN Rail, have ignored
Canada Post as a candidate.

### New Zealand -- State Owned Enterprise

NZ Post is a limited liability company where the state owns all the
shares. Mandated to "be successful" it currently operates in a
completely deregulated environment[^37]. National Mail provided
competition in Auckland and Wellington but beyond that the elimination
of the monopoly has had little impact on the market place or on
universal service. NZ Post has a Board of Directors and like Canada Post
operates without a third-party regulator. NZ Post entered into a Deed of
Understanding which lays out the government's expectations of quality
and performance[^38].

NZ Post has generally been regarded as a successful transformation and
it operates at a small profit. It has established an independent
consulting arm Transend to offer services to other countries facing this
type of transition. It is currently managing such a transformation in
the Caribbean country of Trinidad and Tobago.

### Australia

Australia's liberalization followed that of New Zealand though they did
not abandon the monopoly. This currently covers letters of less than 250
grams. There remains a strong inclination to completely eliminate the
monopoly being driven by the National Competition Council.

The Australian Postal Corporation (APC) was established in 1989. This
established a Board of Directors and set corporate objectives around:
sound commercial practices, a reasonable rate of return on assets,
payment of taxes and dividends to the government, and periodic
revaluation of assets. APC was also required to meet legislated
"Community Service Obligations" (the equivalent of the USO) which were
set by government from time to time[^39].

Like New Zealand, Australia Post has generally been regarded as
successful and they are seen as one of the most efficient operations in
the world. They have consistently returned a dividend to the Australian
government.

### United Kingdom

The Postal Services Act 2000 set out the guidelines for a more
commercially focused post off ice in the UK. They were structures as a
plc, with the government holding all the shares, in March 2001. After a
brief fling with the name Consignia, they became The Royal Mail Group in
November 2002. They operate with three business units Parcelforce
Worldwide, Post Office and Royal Mail.

A regulator was also created -- PostComm -- as well as a public watchdog
-- Postwatch. The regulator is aggressively trying to promote
competition resulting in the recent issuing of operating licenses to
Deutsche Post and TPG (Dutch Post Office). Current plans are to
eliminate the monopoly by April 2007, with 30% of the protected market
opened at the beginning of 2003 and a further 30% opened in April 2005.

### The Developing World -- World Bank Direction

In the less developed world post offices are following the direction
established by the World Bank. Typically this call for the separation of
the post from telecommunications and the establishment of a government
owned commercial enterprise to manage the post. In certain countries the
government has created shares which are wholly owned by the government.
This type of structure facilitates them working more closely with more
developed nations and posts e.g. joint ventures and management
contracts.

## Private Corporation

Two posts have become private corporations with traded stock. These are
TPG, the Dutch post, and Deutsche Post AG, the German Post. The Dutch
government has given up more than half of TPG while remaining the
largest shareholder with 45%, whereas the German government still owns
75% of Deutsche Post.

### Holland

TPG (The Post Group) comprises the Dutch Post Office (Royal PTT Post)
and the transport and logistics company TNT. It was the first postal
operator to list it shares on the stock exchange and in many ways was
the instigator of the major reforms that have swept Europe. It has taken
an aggressive market driven approach to business and is seen as a global
player challenging the likes of FedEx and UPS.

TPG has acquired subsidiaries in France and Italy as well as entering
into cooperation agreements with Swiss Post, China Post, and Kintetsu
World Express (Japan). In March 2000 it entered a global joint venture
with the British and Singapore post offices to handle international
mail. The new entity 51% owned by TPG is based in Belgium. At the end of
2000 it also acquired the US based logistics provider CTI LOGISTX.

TPG has seen steady growth and its stock price has been as high as 30
euros. It is currently hovering around 15 euros.

### Germany

Deutsche Post AG was floated on the Frankfurt stock exchange in November
2000. It was the single largest European IPO and was very successful.
The German government received 4.3 billion euros, at the time about \$4
billion. Of note with regard to the USPS situation was the fact that the
government forgave Deutsche Post the legacy costs of employee pensions.
Shares were initially issues at 20 euros and are currently trading at
half that amount.

The Regulatory Authority for Telecommunications and Post regulates the
German market. The Postal Universal Service Ordinance defines the scope
and content of universal service[^40]. The market place is being slowly
opened to competition -- in 2000 this accounted for 25% of the market.
It is likely that it will fall into line with the EU deregulation
process. Of note is the fact that the opening of the market to
competition seems to operate independently of the privatization process
due to the presence of the regulator.

Deutsche Post AG has been very aggressive in acquiring subsidiaries and
it has funded these acquisitions by selling high value downtown real
estate. It has been following a pan-European strategy and was recently
issued an operating license in Great Britain. It has subsidiaries in
Holland, France, Italy, Poland, Austria, Switzerland, the United
Kingdom, Spain, as well as owning nearly 50% of DHL. DHL recently
acquired the Canadian courier company Loomis. Deutsche Post also has a
US subsidiary -- Global Mail.

## Which Model Works Best?

In assessing who is being most successful one must decide whether to
look at this on a national or global basis. Clearly the mail industry is
rapidly becoming a global business and, given the importance of the
United States to the global industry, it would seem most appropriate to
look globally.

Companies such as Deutsche Post and TPG are positioning themselves to be
Global Postal Provider. In this their main competitors are the likes of
FedEx and UPS that already have global networks. The USPS cannot ignore
the global market place while focusing on the domestic front or it will
discover that the world has passed it by.

Similarly, monopolies are disappearing and over the next 10 years it
seems likely that all the major postal operators outside of North
America will have eliminated or drastically reduced their monopoly. Can
the United States ignore this trend and continue to support the
monopoly. Certainly hungry European competitors will be seeking access
to the US mail market.

The global winners will be those that structure in a way that supports
their customer-base both domestically and internationally. Business
customers, as they themselves globalize, will be seeking a Postal
Service that can satisfy all their requirements.

# Drawing Conclusions

From the preceding document we draw the following conclusions many of
which are inter-related.

-   No successful restructuring can occur without the buy-in of both
    management and labor and that further contracting out will
    jeopardize this.

```{=html}
<!-- -->
```
-   This is not a short-term exercise. This transformation could take up
    to ten years to successfully complete and must be structured to
    survive changes in government.

-   Considerable scope for improvement exists together with a unique
    opportunity to implement it without widespread layoffs. However, all
    stakeholders must share in the benefits. An annual target of 8% is
    certainly achievable, yielding +50% over ten years.

```{=html}
<!-- -->
```
-   Technological change can assist the Postal Service in better
    managing its business provided adequate funding is available to
    enable it to implement change within a reasonable time frame.

```{=html}
<!-- -->
```
-   As e-Business erodes its revenues the Postal Service should be
    allowed to compete for this electronic business like any other
    corporation.

```{=html}
<!-- -->
```
-   The Postal Service should be structured to compete in the global
    postal market.

```{=html}
<!-- -->
```
-   Most of the above conclusions are difficult to support if a monopoly
    is maintained.

```{=html}
<!-- -->
```
-   The most successful, international postal operators are the ones
    that have been privatized and operate in the same manner as any
    other corporation.

# A Business Model to Match the Conclusions

The business model that the Commission adopts must match the conclusions
drawn above.

The market place must be defined as it is no longer just the United
States. The business structure should be that of a private corporation
with the attendant labor and commercial law. The corporate ownership to
rest initially with the government together with the responsibility for
the unfunded liabilities[^41]. A government regulator be appointed to
establish the criteria around the USO, develop a plan for reducing and
subsequently eliminating the monopoly, set the base-level price of a
first-class stamp, and to monitor all activities in the market
place[^42].

As a private corporation the new Postal Service would be structured with
a Board of Directors. The directors would have the same responsibilities
as in any other business. Directors would be appointed by the
shareholders. The corporation would be required to make a return on
investment, be allowed to raise capital in a similar manner to other
businesses, file all the necessary government returns, and offer its
executives the appropriate benefits package. It would be able to enter
into lawful agreements and alliances with other businesses. It would
also be required to provide the USO as determined by the regulator.
Potentially it could be structured with subsidiary business units --
profit centers focused on Retail, Transport, Processing, Distribution
and Electronic Products.

The employees would be governed by the same law applicable to their main
competitor UPS and, as such, have the right to strike. As a new
corporation, operating in a new business environment, the current
collective agreements would cease to operate and it would be necessary
to negotiate new agreements.

[^1]: The authors of this submission are Peter Johnson and David
    Rawnsley. Both are ex Vice Presidents of A.T.Kearney's postal
    division. Both have extensive experience working in the USPS and
    other postal operators. Johnson was also a Partner with KPMG,
    specializing in the postal industry. Rawnsley has written a number
    of papers on the postal industry including "Managing the USO" (with
    Lazar) and "USPS Finances: Is there a financially viable future?"
    (with Robinson).

[^2]: Source -- RPW reports

[^3]: Source -- 2000 Rate Case (USPS-T-6 page 27)

[^4]: Source -- RPW Reports

[^5]: *See:* Direct Communications Group, "Competition Within the United
    States Parcel Delivery Market, 2002,
    <http://postcom.org/public/articles/2003articles/parcel_competition.htm>.

[^6]: *See:* Robinson & Rawnsley. 2001. "USPS Finances: Is there a
    financially viable future?" In *Postal & Delivery Services: Pricing,
    Productivity, Regulation and Strategy,* edited by Crew and
    Kleindorfer. Boston, MA: Kluwer Academic Publishers.

[^7]: *See:* Schuyler. 2002. "The Postal Service's Productivity
    Problem." In *IRET Congressional Advisory No 137,* The Institute for
    Research on the Economics of Taxation, Washington DC, October 2002.

[^8]: *See:* Robinson & Rawnsley. 2001. "USPS Finances: Is there a
    financially viable future?" In *Postal & Delivery Services: Pricing,
    Productivity, Regulation and Strategy,* edited by Crew and
    Kleindorfer. Boston, MA: Kluwer Academic Publishers.

[^9]: *See:* "Report of the United States Postal Service Commission on a
    Safe and Secure WorkPlace." National Center on Addiction and
    Substance Abuse at Columbia University, New York, NY. August 2000.

[^10]: Ibid.

[^11]: See: Robinson and Stanley. 2003. " Who Has the Advantage?
    Evaluating the Playing Field/Facing Parcel Competitors in the United
    States", published by The Association for Postal Commerce, Rosslyn,
    Virginia.

[^12]: *See:* Schuyler. 2002. "Postal Wage Premium: No Wonder the Postal
    Service Loses Money." In *IRET Congressional Advisory No.131*, The
    Institute for Research on the Economics of Taxation, Washington DC,
    July 2002.

[^13]: The USPS would rank in the top 15 on all measurement criteria.

[^14]: *See:* "Postal Service Productivity: Real Improvement Needed
    Now." Mailers Council, Arlington, Virginia, March 2000.

[^15]: *See:* Christensen, Christensen, Guy & O'Hara. 1992. "U.S. Postal
    Service Productivity: Measurement & Performance." In *Regulation and
    the Nature of Postal and Delivery Services,* edited by Crew and
    Kleindorfer. Boston, MA: Kluwer Academic Publishers.

[^16]: The Postal Service itself has noted, in its transformation plan,
    that Germany, New Zealand and Sweden, all posts that have been
    restructured, have achieved productivity gains of 30-40%.

[^17]: *See:* GAO-03-118 US Postal Service, page 26.

[^18]: Ibid

[^19]: *See:* Mitchell. 1998. "Postal Worksharing: Welfare, Technical
    Efficiency, and Parento Optimality." In *Emerging Competition in
    Postal and Delivery Services,* edited by Crew and Kleindorfer.
    Boston, MA: Kluwer Academic Publishers.

[^20]: *See:* Merewitz & Zupan. 1993. "Franchise Bidding, Contracting
    Out, and Work Sharing in Production of Postal Services: Can they
    Collect, Sort, and Deliver?" In *Regulation and the Nature of Postal
    and Delivery Services,* edited by Crew and Kleindorfer. Boston, MA:
    Kluwer Academic Publishers

[^21]: This is potentially overstated as Merewitz & Zupan assume that
    all purchases equate to contracting out.

[^22]: *See:* Elcano, German & Pickett. 1999. "Hiding in Plain Sight:
    The Quiet Liberalization of the United States Postal System." In
    *Current Directions in Postal Reform,* edited by Crew and
    Kleindorfer. Boston, MA: Kluwer Academic Publishers

[^23]: Calculated based on \$62 billion revenue, plus \$11.7 billion
    discounts equals total internal and external revenue of \$73.7
    billion, and transportation contracts (only) of \$3.4 billion.
    (11.7+3.4)/73.7 = 20%

[^24]: Notes to the paper indicated that a \$0.5 discrepancy between the
    authors and Robert Cohen on the estimates for First Class work
    sharing. It is conservatively estimated that a further \$2.0 billion
    in contracts can be attributed to the other activities noted in the
    paper. Thus total internal and external revenue increases to \$74.2
    billion, discounts \$12.2 billion, and contracts to \$5.4 billion.
    (12.2+5.4)/74.2 = 23.5%

[^25]: In 2000 the Postal Service was in negotiations with FedEx for the
    delivery of FedEx packages in rural and remote areas by the USPS and
    the placing of FedEx collection boxes in post offices. After an
    industry outcry only the second part was instituted with FedEx
    paying to position the boxes.

[^26]: In France, La Poste has provided every person with an e-mail
    address. In the West-African country of Burkina Faso the post office
    is implementing a electronic post office -- SkyPost.

[^27]: You may visit Canada's e-post office at
    [www.epost.ca](http://www.epost.ca/). Also see Canada Post's
    "GoShopping" e-retail site.

[^28]: Mail originating in country A destined to country C that is
    mailed from country B.

[^29]: Previously known as Canada Post Systems Management Ltd. (CPSML).

[^30]: After the US, the second largest post in the world.

[^31]: *See:* Rawnsley & Lazar. 1997. "Managing the Universal Service
    Obligation." In *Emerging Competition in Postal and Delivery
    Services,* edited by Crew and Kleindorfer. Boston, MA: Kluwer
    Academic Publishers

[^32]: *See:* Cohen, Ferguson, Waller & Xenakis. 1999. "Universal
    Service without a Monopoly." In *Current Directions in Postal
    Reform*, edited by Crew and Kleindorfer. Boston, MA: Kluwer Academic
    Publishers.

[^33]: *See:* Campbell Jr. 1994. "A Review of Efforts to Develop a New
    Policy Framework for Postal Services in the European Union." In
    *Commercialization of Postal and delivery Services: National and
    International Perspectives,* edited by Crew and Kleindorfer. Boston,
    MA: Kluwer Academic Publishers.

[^34]: Ibid

[^35]: Lundgren. 2001. "Sustainbility of USO in a Liberalized Postal
    Market -- Some Emperical Insights." In *Postal and Delivery Services
    -- Pricing, Productivity, Regulation and Strategy*, edited by Crew
    and Kleindorfer. Boston, MA: Kluwer Academic Publishers.

[^36]: Don Lander, ex-VP of Chrysler Corporation, was one of the most
    successful Presidents and was responsible for changing the
    predominantly "government mentality" into a more business and
    customer focused one.

[^37]: *See*: Allen. 1995. "Competitor Access to Postal Pipeline: The
    New Zealand Experience." In *Managing Change in the Postal and
    Delivery Industries,* edited by Crew and Kleindorfer. Boston, MA:
    Kluwer Academic Publishers.

[^38]: *See:* Campbell. 2000. "Regulatory and Governance Changes in
    Liberalized, Commercial Postal Environments: A Comparative
    Assessment." In *Future Directions in Postal Reform,* edited by Crew
    and Kleindorfer. Boston, MA: Kluwer Academic Publishers.

[^39]: *See:* Castro. 1994. "Deregulation of Australia's Postal
    Service." In *Commercialization of Postal and Delivery Services:
    National & International Perspectives,* edited by Crew and
    Kleindorfer. Boston, MA: Kluwer Academic Publishers.

[^40]: *See:*Schwarz-Schilling. 2000. "The Regulatory Framework for
    Postal Markets in Germany." In *Future Directions in Postal Reform,*
    edited by Crew and Kleindorfer. Boston, MA: Kluwer Academic
    Publishers.

[^41]: This might take the form of government guarantees rather than
    actual cash.

[^42]: This might be a new role for the PRC. Other activities would
    include: issuing operating licenses, monitoring compliance with USO
    and investigating unfair business practices.