the purpose of today's hearing is to examine what steps the postal service has taken and plans to take since congress passed the postal accountability and enhancement act i'll try to keep the acronyms too to a minimum  to use its increased flexibility to grow revenue furthermore we are here to discuss barriers or limitations to the postal services innovations and what lessons can be learned from foreign posts in this area the chair ranking member on the subcommittee each will have five minutes to make an opening statement and all members will have three days to submit statements for the record ladies and gentlemen i will myself such time well five minutes from my opening statement in the series of hearings the subcommittee has held on the postal service does father's year the discussion has tended to focus on the postal service is bottom line are its cost cutting and consolidation apis and rightfully so as the past two fiscal years have presented some significant financial challenges for the nation's mail system however today the subcommittee convenes not to discuss what the postal service has been doing to reduce expenditures but more so to learn about the organization what the organization is doing to grow revenue and the overall value of mail as part of an on going effort to bring about fiscal turnaround today almost three years since the passage in an accident of the landmark postal accountability enhancement act we look forward to hearing what exactly has been done to grow the business on of the new price flexibilities and product innovations afforded to the postal service in two thousand six first however i must briefly acknowledge the financial reality before us the postal service expects a net loss of approximately seven billion dollars for fiscal year two thousand and nine prior to accounting for the recent legislation in the form of a four billion dollar deferred payment to the retiree's health benefits on i'm pleased congress was able to grant the postal service authority to defer share of its retire we health benefits prepayment which allow the organization to meet its financial obligations and improve its cash position however as my friends from both sides of the aisle acknowledged last month the relief measure was only a temporary solution to a host of long term problems moreover i would like to note that this was not a bailout many americans think the postal service is largely supported by far the federal government dollars it is not this is an important point i want to stress the postal service is over ninety nine percent self supporting with less than one percent of its funds are provided by the federal government to support important things like mail for the blind in overseas voting again that's less than one percent additionally up until postal reform the postal service operated out of the so called break even mandate preventing the organization from even making a profit post piii the let me  like a business in terms of profit earning and product investigation to that end i look forward to hear and hearing from today's witnesses on the extent to which the postal service has attempted to grow its business from the novel summer sale to the offering  flat rate boxes and holiday greeting cards today's hearing is intended to examine the steps that the postal service has taken and the results achieved so far in the area and looking to the future post a postmaster general jack potter recently described several initiatives the postal service is potentially interested in to does russia fi and grow revenue he observed that the postal service has more retail outlets in the united states than mcdonald's starbucks and wal mart combined perhaps surprisingly to some he propose the postal service should be permitted to offer its customers alternate services such as banking insurance and telecommunications given past experiences and the extreme caution required when an enterprising a business i'm interested in hearing the extent to which these newly propose ideas have been vetted as well as what risks have been evaluated further i have asked today's witnesses to address what lessons can be learned from foreign posts in the area of product and service development and diversification i know this some foreign posts such as those in japan and france offer banking services and sell mobile phones for example however i also know the several countries have privatized their postal services while the u s postal service remains an independent federal establishment of the united states government in the coming months are subcommittee will continue to provide close oversight of the postal service including an in depth examination of the postal services business model to help determine which longer term changes are necessary to help the postal service return to financial viability the postal service undoubtedly needs to move forward with its efforts to grow its revenue and increase the value of mail perhaps even more so than focusing on cutting costs or reduces exactly right we will obviously spend time and attention talking about cost cutting measures but at the end of the day we need to increase the relevancy of the united states postal service in order for it to thrive and to serve the the the citizens of the united states of america we need to increase its relevancy at the same time i think there needs to be caution in making sure that not we're not tripping on top of the private sector and maybe with good intentions maybe some unintended consequences  competing in a space that is probably best left to the private sector yet the united states postal service under our constitution has a unique place in this country and i'd like to see us do more one of the things in particular that i think we should pay attention to what is the cross functionality that we can take advantage of with other segments within government and one for instance that i would like to see us continue to pursue is in the conducting of the united states census something we do every ten years as a given fourteen billion dollars in order to execute it we have real estate we have a very able people again something that i think we should continue to pursue what are the things that we can do with female what are the things we can do with other government agencies that need the types of resources that are uniquely provided by the united states postal service so i look forward to your comments i appreciate the chairman's approach on this so as well and i hope this is the start of a series of dialogues about the potential impact of the potential new openings and increased relevancy for the united states postal service and with that mr chairman i'll yield back the balance of my time thank you thank you i know the gentleman is very recently is precisely the type of process we should be conducting in order to determine the the changes that will enable the postal service to thrive in the future in general we should be wary of short term cost cutting measures that could reduce postal service market share and revenue in the future such as a shift for example the five day mail delivery and said it would be preferable from my point of view to examine changes that enable the postal service to augment its existing sources of revenue and please the postal service is examining fifteen new revenue sources that could complement mail service these changes should not be limited to marginal changes for example perhaps it would be possible for the postal service to work in partnership with community banks to integrate banks and post offices in a manner that would help both existing community banks and the postal service itself the goal of exploring these new revenue options should be to preserve the outstanding services offered by the postal service we all benefit from affordable and convenient mail delivery the ability of the postal service to deliver mail quickly in six days of the week not only protects our constituents quality of life but also creates opportunity for businesses that rely on mail for advertising a product distribution is a postal service did not exist there is little doubt that the mailing market would have stick like an oligopoly characteristics with negative implications for affordability and consumer choice the postal service continues to play an important role limiting the prices of sending mail packages which helps all consumers postal service also makes an important kind of use to our economy approximately six hundred fifteen thousand people work for the postal service generally earning high union wages or fairly high union wages during the bush administration for the first time in history median wages for american families actually fell during an echo a full economic cycle of expansion recession and recovery protecting a high paying blue collar job such as those provided by the postal service must be part of our broader effort now the economy recover thanks to thank you for holding this critically important hearing on adapting the postal service to our changing world the united states postal service is the second largest civilian employer with approximately six hundred twenty three thousand career employees although consumers rank the post office is one of the most trusted government agencies and it continues to excel post office has not been immune to the downward economic trends currently facing our nation while final numbers are not available yet it is estimated that the post office will experience a six point two billion dollars loss which is over two times more than last year's launch this loss can be a privilege a large each of two factors number one the unprecedented decline in mail volume due to increase use of electronic communications and other factors into the economic recession that is affecting all sectors postal service has been making a number of aggressive cost cutting measures but i'm interested in hearing about the new innovative ideas our panelists will present today the postal accountability and hasim and that was signed into law in december of two thousand and six allowing for flexibility and how services are designed priced and marketed because of that flexibility the post office has been able to great new innovative programs such as a standard mail volume incentive pricing program this past summer the summer sale provide added a thirty percent rebate to eligible mailers on letters volume above a specific question this program estimated to have generated at least fifty million dollars in sales the postal service is also really structured its web site and created mobile device functionality for its customers this allows greater accessibility and added convenience for postal users forty four cents we can send a letter anywhere in the united states we have all would have to met that's a pretty good bargain post office is and continues to be reliable and a great value i look forward to the discussion today about expanding services and non postal products directly or in partnership with private sector entities and what congress can do to help united states postal service and with that mr chairman i yield back i thank you chair now recognizes a distinguished gentleman from illinois mr davis for five minutes thank you very much mr chairman and let me just echo the sentiments that have already been expressed by my colleagues in thanking you for calling this hearing i think that the postal service is one of those critical elements of our communication system that must be seriously addressed and eager to hear an analysis of the impact of the efforts that have been put forth by postmaster general potter and his staff and the instances associated with trying to make sure that we maintain the viability of our postal operations what i think of what we are facing with the impact of electronic communication and all of the  economic indicators that are upon us we recognize that it is no easy task in that there are no simple solutions to very complex issues but i wan commend you for your leadership as chairman of this committee and how you have been moving things along to try and help sure that our postal operations will continue as viable instruments of our communication system so i want to thank you very much and look forward to the witnesses i thank the gentleman for his kind words what i like to do is is the custom of this subcommittee to swear it's what mrs before i provide testimony i invite you to stand in please raise your right hand do soundly swear that the testimony you will give before the subcommittee will be the truth the whole truth and nothing but the truth let the record show that all of the witnesses each of the witnesses has answered in the affirmative what i'd like to do now is just offer brief introductions of our panel of witnesses mr robert burnstock was named president of mailing and shipping services a new division at the u s postal service in june two thousand and eight he is responsible for development and management of all retail and commercial products for the postal service including commercial sales and services extensive senior leadership experience with campbell's soup company scotts miracle gro and classic foods among others with expertise in citizens to such patients consumer issues urban planning issues as well as the mailing industry a recent retiree from accenture a global consulting technology and outsourcing firm where he helped to manage senior level relationships with postal clients around the world mr kaufman also spent thirty two years with the united states postal service serving  o of transformation strategies and has been a management consultant for more than twenty years specializing in strategic market transformation he has previously served in the executive positions at the postal service including vice president for planning top all right here we go see what happens with the microphone on good morning mr chairman and members of the subcommittee i appreciate your interest in the revenue generation activities of the postal service as that is a primary focus of my work i would like to begin by recognizing congress active support of the postal service this year especially your understanding of the urgency behind changing the retiree health benefit payments structure for fiscal year two thousand and nine the postal service continues to face severe financial challenges our auditors are currently reviewing our fiscal year two thousand and financials and while i cannot give you the precise figures i can say that despite heroic cost reductions of over six billion dollars we expect our mel volume to decline by approximately twenty six billion pieces with a net loss of over seven billion dollars prior to accounting for recent legislation there is no certainty that mail volume levels will recover or if they will continue to decline to be replaced with other forms of communication but we are certain that without significant changes the potential exists for similarly large financial losses in the foreseeable future we are actively engaged in a four pronged effort to correct postal service finances the first and most obvious approach is to continue to aggressively bring down our costs the postal service has had very aggressive cost reduction targets the change in delivery frequency from six days to five days and modification of retiree health benefits on payments are both integral elements of the second strategy the third and fourth has are the subject of today's hearings to be equally aggressive aggressive in our efforts to grow revenue within the law and to change the law to provide greater product and pricing flexibility an example of how we utilize our pricing freedoms enabled by the postal act is a standard mail summer sale working with the p r c we develop the summer sale offering a thirty percent price to scratch a discount on incremental volume on advertising mail for three months or over the summer we are still evaluating this program for preliminary information suggests but over four hundred of our largest customers participated and mailed a significant number of incremental pieces of standard mail to help stimulate the economy i would like to give special thanks to the p r c for its quick and thorough review of this proposal the summer sale along with other revenue generating initiatives that i described in some detail in my written testimony like the priority mail advertising campaign priority mail contract pricing and consumer products at retail including greeting cards are all underway already taking advantage of the flexibility avoided afforded by the postal act some of already generated incremental revenue and others are just hitting the marketplace there are additional initiatives described in my testimony that are still in the planning stages designed to extend or transform the business expanding the core capabilities into new business areas three examples are first renewed approaches to the distribution of product samples second the extension of passport processing enrollment services to secure credentials and third the exploration of hybrid mail that is either sent delivered or both in digital form one of the purposes of today's hearings is to examine the constraints of hold the postal service back i outlined specific requests for changes in the post a law in my written testimony including the authority to provide services to state local authorities in addition to federal agencies to revive explicit authority for purely electronic equivalents of the traditional physical services and to provide more freedom to leverage our existing assets especially our retail assets while i'm excited about our revenue generating projects and the potential for greater freedoms i want to be clear that revenue alone is not sufficient to close the earnings gap even a fifteen percent pre tax profit margin it would take profit generated by almost forty five billion dollars in new revenue to feel that earnings gap before prongs together are necessary to provide a framework for the postal service to be self sustaining while fulfilling our universal service obligation the service levels the country has come to expect we're very proud of our accomplishments in meeting the communication commerce needs of the country but we recognize that without the help of congress we cannot close our significant profitability gap and adequately meet  universal service obligation i would like to thank the celebrities for holding this hearing and to reaffirm my personal commitment to working with you to ensure a postal service that meets a million shipping needs of the american public or be pleased to respond to any questions you may have thank you ms go away we welcome you and now recognize the five minutes from opening statement thank you good morning chairman lynch ranking member chaffetz congressman davis commons i'm pleased to be here today the subcommittee has a critical role to play in preserving a treasured american asset the postal service is a government agency that connects together every american household business and institution through it universal service network it is a part of our daily life taken for granted until taken away part of the fabric of the nation supporting its educational political and charitable institutions congress has played an ongoing rol the postal system mostly truth recently through the p a the law was designed to preserve the services historic attributes while providing change for the twenty first century but it was enacted a time when both the economy and the postal service appeared strong now the landscape has changed i think the p a is working but it's hard to see how well given the recession there have been clear successes first the commission of the postal service has worked together to take advantage of competitive flexibilities in the law through our ra process the postal service hasn't used its pricing power to significantly increase the rate of return on its overall competitive product line mr burnstock provided the details second this year the commission approved the postal service's first ever request to test season price incentive programs for standard first class mail as well as the first and only experimental product submitted under the p a third the postal service n s a proposals have accelerated under the new law rising nine hundred percent less than three years preliminary data on revenue generation activities indicate that overall results have been potus positive but modest since the majority of these efforts involve price discounts they result in limited additional revenue and provide significantly less contribution to overhead so while the commission would like to see more progress being made particularly in the experimental area there has been a reasonable effort expended to use the new law the truth is that the powerful downturn in the economy which is cause a sharp contraction in key mailing industries like housing finance and automobiles would have overwhelmed even the most ambitious of these efforts there's a tremendous difference between a gradual annual decline of one or two percent in first class mail which was the trend addressed by the p a and a thirteen percent drop in volume experienced this year as a result the postal service could not make its payment to the retirees health care benefit fund the r h b f and received four billion of relief this year from congress and for the immediate future and perhaps some time to come the seat situation appears likely to continue the postal service has suggested that it needs additional freedoms modeled on the examples of foreign posts the commission is open to considering new perspectives however we believe they need to reflect american experience and tradition my written testimony includes several examples from foreign posts there may be some activities that fit the american model but there is no magic bullet any new business activity should meet a set of reasonable but specific criteria based on the core mission of the postal service the needs of society and the expectation of a positive outcome for both the rationales that others are doing it does not satisfy the criteria honestly the postal service has directed me most of its management resources toward reducing its cost this year by more than six million billion dollars cuts continue from adjusting mail routes and renegotiating purchase agreements to removing collection boxes consolidating plants and closing post offices now the postmaster general is asked to lift a statutory language requiring six day delivery the commission has proposals to reduce service with caution service cuts made to address near term financial difficulties may have harmful long term consequences for universal service and from a market perspective the postal service could harm its greatest strategic advantage its ubiquity i suggest a better alternative the congress may wish to amend the provisions of the p a that set the r h b f payments the annual average payment of five point five billion dollars is an enormous burden the commission study of alternate r h b f values found that significantly lower payments by the postal service could still meet the original funding objectives of the law recalculation would be timely as it would capture the postal services side civil workforce reduction further it would provide breathing room resources for new initiatives and some capital investment to enable better long term planning for the services future looking forward the postal service cousinly currently provides a number of non postal services that could generate new revenue for example the postal service now prospect processes passports for the state department other federal and state agencies that issue licenses and permits  initiatives could partner with the service as well the america the beautiful access passes sold by the national park service is a partnership i've been advocating in particular considering our nation's new energy efficient prio postal service has the nation's largest civilian vehicle fleet which could provide the critical mass needed to develop the transformational technologies and infrastructure to be international energy goals research indicates that postal delivery routes are especially well suited to electric vehicles a national investment and a new flu for the postal service would speed transformation add green jobs and reduce the postal service is operational overhead for the forseeable future those of us in the mailing community have confidence in the value of the mail and it's important to our economy and society we believe that mail letter carriers and post offices serve a rival role in our community how well the mail comes back however may well depend on how deeply service is cut now did earlier just introduce me i am michael kaufman a law to make clear i am here not representing any particular organization or group but i have spent over forty years in the postal industry i did spend thirty two here but let me get right to what i think are the common success factors that some of these posts of have had and raves raising alternative revenues and some of the lessons we might glean from them when i look at at something like fifteen different postal organizations around the world and their revenue generation efforts i see for kind of common management characteristics among the more successful of  those at least in their revenue raising efforts those four characteristics include real clarity around strategic direction and a narrow focus on the markets and segments that they want to target they know what they want to do and they do it there's a strong innovation agenda in these organizations and a forward looking culture that embraces change in those organizations innovation is an expectation posts these posts generally have the ability to recruit top talent many of the key players particularly on the revenue generation side come from outside their traditional postal experience and one other common factor among them is they tend to focus when they undertake these initiatives on the customer experience and making that as positive as possible whatever these the successful post set out to do they strive to do it better than the competition now these are the four kind of common characteristics and these are largely created by the management themselves and for the most part there are some exceptions but for the most part i think these are generally within the current capability of u s p s but every bit as important to their success is the set of conditions that the governments of these posts have put in place as as they've looked at their at their posts and their futures there are three critically important conditions that they have they tend to have in common the legal framework within which they operate provides complete commercial freedom of action to operate in a competitive market they operate very much like private entities do in their country and in this country as well the regulator in these countries usually has a light and a supporting hand and their primary focus is generally on your universal service issues the reserved areas and the generation of competition in their local postal markets third there is little political interference in the basic business decisions that these posts make provided the post operates within the legal framework they've been given in my judgment these are the fundamental success factors for these put for those posts virtually all aspects of their operations and of course they generally have very solid leadership and a very effective governance structure at those posts so what does this mean for us p s mr chairman and members of subcommittee i think there are two other important factors to keep in mind in the discussion of revenue initiatives and the authority and the flexibility of u s p that u s p s has under the law the first of these issues is scale i do not want to discourage anyone but the problem u s p s faces today is measured in billions of dollars finding new sources of revenue for us b s is important but think about it a thousand projects worth a million dollars each will generate one billion dollars or make it ten projects where the hundred million dollars and that may not be enough while the recent reform law provided some additional flexibility to the postal service i frankly have not heard of any initiatives approaching anything like that and i don't say that to denigrate in any way what the what the postal service and its colleagues have tried to do but to have a real impact in this area it's going to take some different and some very big thinking the second issue is every bit as challenging unlike most of the posts i have discussed today here in the u s there is a very strong philosophical a version to a government entity competing in private markets with goods and services that are already available from private sources in the past when u s p s has attempted to offer such services there's been very strong and noisy resistance and eventually u s p s hears from some of you i have personally experienced that i do not see that situation changing simply because the postal revenue problem is bigger today now given this latter challenge whatever revenue initiatives the u s p s undertakes outside the traditional postal arena will probably have to involve partnerships and alliances with private entities where both parties can leverage the strengths of the other in the case of u s p s it has enormous geographic reach in its retail network and they touch virtually every home in the country through their delivery network some of the opportunities might include expanded financial services availability expanded delivery options government and agency services or a link between the physical presence of the u s p s and emerging communications technologies and services after hearing the postmaster general october eighth speech at the national press club i could imagine that some of the bankers in this country were bristling when the postal postmaster general answered a hypothetical question at his national press club speech about what new business he'd like to be in by saying they'd like to be a bank well instead of immediately thinking of mr kopper you need to wrap up well way over on your time thank you dan instead of thinking defensively perhaps the bankers ought to put their innovation hats on and try to imagine how they could capitalize on what u s p s has to offer the same goes for other organizations looking for really new ways of engaging their customers so update on the postal services financial condition second discuss revenue related changes made by the post what countability and hanson act of two thousand and six or pie a third outline actions the postal service has taken to increase revenues since two thousand six and for discussion issues related to generating new postal revenues turning first to the postal services preliminary financial results in fiscal year two thousand and nine and going forward mail volume declined about twenty eight billion pieces and revenue decline f about seventy five billion to sixty eight billion dollars congressional action was required to reduce the postal service is mandated retiree health payment by four billion dollars outstanding debt increased by three billion to ten point two billion dollars at this pace the postal service will reach its fifteen billion dollars statutory debt limit in fiscal year two thousand and eleven further deficits over seven billion are predicted in fiscal years two thousand and ten and two thousand and eleven with regard to revenue generation and key postal products piaa gave the service greater pricing flexibility including for market dominant products to generate eighty eight percent of its revenues market dominant male is generally subject to an inflationary price cap competitive products are not subject to a price cap but each competitive product must cover its costs by apprehended the postal service from offering new non postal products and services turning to actions that the postal service has taken since pi it was enacted the service increased average rates for market dominant male in two thousand and eight and two thousand and eight virtually the maximum allowed well under the price cap this year three targeted right incentives were provided to stimulate mail volume as summer sa was introduced for standard mail and there is an ongoing fall sale for first class mail and an incentive program for saturation mail for competitive products their annual rate increases for priority and express mail in two thousand and eight and two thousand and nine and the service introduce volume discounts for these types of mail as well as a priority flat rate box the postal service has entered into about ninety contracts with large mailers for other competitive products that are generally volume days with provisions intended to lower its costs with regard to generating increased revenues the postal service is ask congress to change the pyre restriction on offering new postal products so that it could move into areas such as banking insurance and non postal retail services we previously analyze past postal service forays in the non postal area reporting that are lost nearly eighty five million in the mid ninety's on one thousand new products including electronic commerce services and a remittance processing business in two thousand and one we reported that none of it electronic commerce initiatives were profitable and the management of these efforts was fragmented the postal service is interested in moving into new business lines raises several fundamental questions should the postal service compete in areas where there are already private sector providers should antitrust and consumer protection laws apply equally to the postal service and its competitors if the postal service were to compete in banking insurance and retail services should it be subject to the same regulatory entities as its competitors if the postal service used its thirty seven thousand retail facilities to offer nunan postal services with this provide an unfair competitive advantage and how would non  activities the finance given the services current debt levels would be allowed to borrow a treasury rates in conclusion we added the still service to our high risk list this past july noting that it urgently needs to restructure to remain financially viable although it has used its pricing and product flexibility results today have been limited in part linked to the economy at this point the postal service has no business plan that clearly details its proposals for entering new non postal markets and what legislative changes would be needed in generating new revenues from postal products and services appears more promising than venturing into potentially risky non postal areas at the same time much work remains to reduce postal operational costs mr my statement on pleased to answer any questions thank you thank you sir mr reason and welcome you now recognize the five minutes can we ask you to put your microphone on in just a little bit morning mr chairman and ranking little up a little bit perfect thank you has that i in my statement i believe explain why i believe the postal service and the mailing community can become a source of source of innovation and new repost of revenue through public private partnerships that were encouraged by congress in section ten zero four of the postal accountability enhancement act today there is a broad consensus that bold action must be taken to reinvigorate the postal system and fortunately there are some real and tangible opportunities to create new value for postal customers to be clear let me offer a few examples that might be called enabling the last mile extending democracy's reach and promoting green routes by enabling the last mile i refer to the many opportunities that exist for putting technology in the hands of the letter carrier in other words on the doorstep of the postal consumer one of the areas of greatest interest to mailers has been wanting to know where their mail is while it's on route to its destination  was seen as a black hole compared with fed ex and u p s who've invested billions to enable their higher end services to track and trace mail products this is going to change imminently because the postal service is on the verge of creating a smart grid of intelligent mail services now we can go beyond the barcode and offer tracking technologies that have exciting possibilities for adding new value for customers what's more we can download applications to the scanner technology that's finally within the last six months in the hands of the letter carriers customers can realize new tangible benefits crew and new postal revenue can be created but to make this happen we need to collectively create an innovative enterprise of tests and trials and partnerships a second broad theme that chairman ruth gold way in particular has championed has been vote by mail the postal service can do this and can provide many other government services as well to be practical and secure it will require connecting hardcopy services to internet services and that will necessitate partnerships but the opportunity to expand the capacity of the postal service to continue to service democracies agent is here and third there are opportunities for the postal service to again serve the nation by carrying parcels that today cause three and four trucks to travel the same route we can reduce carbon emissions by creating green postal routes this will take some reengineering and perhaps some recognition under cap and trade but there are new opportunities here if we seize them in conclusion i didn't vent these ideas they came from the community from the mailing community from letter carriers who have said why not they come from creative mailers who said why can't we have a smart and below and from suppliers who have shown how to do it to tap this creativity min established when the internet was still a future vision have to be changed to home grown governmental internet services it's time to say that was then this is now in the future innovation is going to come through collaboration and partnership where the postal service does what it does best and where the private sector through partnerships provides internet services and makes mail relevant to the consumer  future if we make some modern postal services relevant by connecting them to this multi channel internet marketplace they'll generate more mail this is the real revenue opportunity in  entailed in what we're talking about here today coming years could be an exciting time of transformation or they could be a train wreck the difference will be whether there is clear public policy guidance that can define the difference between the creative balance what should be public and postal and what the private sector can do best thank you very much mr chairman i look forward to answering any questions thank you you know myself  five minutes for four questions mr burnstock i do appreciate your honesty and your statement that we're not going to solve this on the revenue side alone i think that that's apparent just by the numbers we in two thousand and eight we saw mail volume go down nine point five billion pieces and then in the fiscal year ending october one two thousand and nine we dropped twenty six billion there's no way in the near term that we could turn the system around and and solve that problem by selling more green cards or are any other service that we might be capable of doing right now and at the same time we're a little bit disappointed up here what the consolidation effort and the cost saving  to below four hundred now and it won't nearly capture the savings that we thought were possible as well the early retirement incentives the well not not great incentives but the programs themselves have not gleaned the type of utilization on the part of the employees so we still have a lot of people that are resisting an early buyout we still have a large workforce  understandably so those those workers there for a while you know cut in half most of them so they don't want to retire in an environment like this yet we face a situation where we need transformational leadership we need we a truly dynamic change at the post office the way we do business and this is a sign that says there's nothing more disruptive to the human condition than the pain of a new idea and i fortunately that's that's what facing and i look i love my postal workers and i'll be the first one to admit it and i will i don't want to see layoffs i don't want to see any of that so i'm trying all these other measures to the employees because quite frankly when we grade the consumer satisfaction the customer satisfaction among the federal agencies the post office because of the work of their clerks because of the work  their mail handlers because of the work of their letter carriers that go to every home and business in america six days a week by far they are the highest rated federal agency that we have in america today they do the best job so i think it would be a missed targeting of our problems to look at the at the backs of our employees to try to solve this problem so we need to we need to change our structure and i was wondering you know there have been a few things mentioned here today about allowing the post office through the postal accountability enhancement act to branch out into these other areas and i know that there's some apprehension in competing with the private sector but the some some areas specifically my colleague mr chavis came up came up with an idea about the postal service  taking over major responsibilities from from the census now the post office already you know through the mail handlers and the letter carriers they go into every home and business in america already and that's basically what the census does it tracks the population most effectively through those those home visits have you looked at any of that so it would be government taking over government work but just doing it more efficiently for the taxpayer have we looked at any of that or have we looked at you know this go away has mentioned the vote by mail and we looked at any of those i know that disrupt i know  bureaucracies are not going to be satisfied with that but i think we have very limited choices have you looked at any of those type of an issue that is that might really transform what we're doing at the post office i will master this venture chevron we've looked at everything you've said we've looked at the fact that we have six billion dollars in cost savings that came in this year and we're looking to lose seven billion dollars we're looking at the fact that mail has declined and we're looking at both huge transformational revenue issues as i said forty five billion is what it would take to close the gap we have some initiatives underway and we've also looked very specifically at the initiatives you've identified on the census piece my understanding is through the mail eighty or ninety percent of census responses come in and while it's not within my area of responsibility i do understand that there was a report by our operations team meeting with the census bureau which said that for going back and knocking on door six or seven or eight times to get that last five percent we may not be the best suited agency but we are willing to to relook at that vote by mail we are very actively looking at a range of ways we can do that and have a series of initiatives underway ok i have exhausted my time so i'm going to yield to the ranking member for five minutes thank you i mr her has there been any sort of analysis or any of you actually can answer this is there you know the one the one area we can point to where  cross functionality within the government is the passport is that a revenue generator does that just a break even type of operations or even any sort of analysis that says boy that was a good idea would we have not done that analysis on mr b them from the commission has done the analysis and there it is it provides not only breaks even but it provides a contribution to overhead so it is in fact it would make a profit for the postal service it does it is a successful rank revenue generation to write so i want to hear some ideas here so i like the one about the you mentioned about the national park passes and that sort of thing that's that's not going to get us out of the financial hole that we're in but what are the big ideas that are floating out there and i just want to express again this and siri locks and to get into areas where the private sector is already competing in the financial services the telecom stuff i can't imagine being supportive of that just i'm just being as candid as i can because there have those services in the marketplace but if we look at state and local governments we look at federal government if you look at our constitutional duties roles and responsibilities it seems to me there are a number of agencies that would benefit by this year structure and magnitude of the workforce above and beyond what we've created really thought up today congressman i agree with that statement and we do have the authority to provide credentialing enrollment services to federal agencies if we extended that authority to state and local agencies i think we could do even more and how many can do and at the at the federal level give me a better sense of well the passport enrollment process right asport is one active business we're engaged in we feel that we could partner with a whole range of federal agencies be t s a or social security or agriculture there's a number of ways we can do credentialing and  there like a list of these out there we proceed we're actually aged with several federal can you give me some more specifics about which ones you're pursuing i don't have the data with me but i can get it get it for you for the record did you i'm sorry did you want to  something to that let's go i think i'm very gratified that the postal service is now beginning to look at this area because it is potentially a great resource and a great source of stability for the local post offices in the community one of the issues that came up in a hearing we had recently is that while the post office itself may not generate a lot of revenue having a post office in a local community shopping center creates revenue and economic development activity for the rest of the community around it so it's important i think for the overall for the well being of the economy overall to continue to serve you know we're just looking at a real the cities their abilities to connect with local government will provide at least enough revenue to continue to justify this service if not solve the entire problem you if you had to come up with a list of the best three four ideas that you've seen or heard out there what would be on that list spoiled if the biggest thing of all and i think that mr bernstein just talked for a minimum minute ago about the credentialing services the idea that government to government services or something that the postal service can do and is encouraged to do under the law offers a platform for coming up with other creative ideas i think the most important thing is that the marketplace bring the postal service the ideas but that the postal service has as mr kaufman just talked about become an innovative place where people have the sense that they can come and plug and play and try ideas and test their ideas in the marketplace to the benefit of postal customers we have a chairman i would definitely echo that of i would like to put out a call to the private sector to say please come to our rescue here we need the creative innovation that's going to come from the  populace across this country with creative innovative ideas that are going to be those big ideas that that the postal service can participate in at the same time making sure we don't overly step into the private sector where we're rightfully the private sector should be leading the charge but there are credentialing services and we need to continue to explore those ideas i tend to think that the private sector is going to help come up with those ideas bigger broader so please if you have those ideas minutes thank you very much mr chairman you know i try to be as optimistic as possible and as i listen to the witnesses i thought of the baseball game that i was watching last night especially when the school got to be seven the one and i was wondering if there was any way that philadelphia was going to get back and i thought you know if you but get a guy on first base want again get another one on second base that is you come up with a number of different ideas but they all kind of small in terms of  generating the big runs that you really need and so when i think of change in prices for shipping services bring down the cost reorganize sales  become more competitive i guess i'm thinkin reorganize sales to sleep you know other than stamps and ship and well if you've got some of the other services is there any way that you can really be competitive or as competitive as you need to be and so it's go away i'm thinking that eventually you get down to this last resort business and i want to ask what would you consider to be last resort in terms of being forced to cut services when would last resort  if you're that the commission has a process for making these decisions and that involves hearing from the public and getting a whole range of information about costs and benefits before we would make such a decision certainly the postal service has brought forward to us an end case where we are looking at the pile of possibility of closing some post post offices and they've suggested that they may bring another case about reducing service from six to five day delivery there is not agreement yet on what the cost savings would be to close post offices and there is certainly no agreement yet on what the cost savings would be to reduce service from six to five days and the tradeoff between reducing service and reduction in potential volume is something that needs to be looked at if you cut service do you reduce demand more than you would if you maintain service i think it's a very complicated matter and and what i think our commission's responsibility to do is to focus on what the p a tells us which is to assure an efficient and effective postal service that provides universal service so we would have to look at the those trade offs i may be more of an optimist than you i'm a dodger a brooklyn dodger fan i know and i've survived i think that incremental support can make a difference and that there are many surprising things that develop in the postal service netflix for instance  it is one that at least for a time is bringing us in a significant amount of revenue and there may be others that develop as well i certainly hope so well thank you very much and you know i appreciate the efforts and the creative thinking that the postal service has put forth i just don't want casey at the bat wisconsin let me ask you because i listen closely to your what more do you have a prognosis under which we can really pull this out and pull it off well that's the sixty eight billion dollar question i think it is going to continue to slide i think the short term relatively short term options the postal service has on the cost side are fairly evident they pretty much been talked about i think they need to reduce the number of  delivery days i think we're one of the few countries in the world that still has six day delivery i think they need to reduce the size of their processing network from around three hundred processing facilities to perhaps half of that  size and i think they need to reduce the size of their retail network those are i think some obvious moves and i know that they're difficult and they're not changes that are going to go down easily and they have some costs associated with them as well as some savings  i think the postal service itself needs to think in terms of what would a four hundred thousand person postal service look like and how would you operate and still deliver on the universal service obligation because i think that's in my judgment that's probably where it's going to go you need to continue to work on on the revenue issues that have been discussed the ranking member m talked about the ideas that are generated from here what i would really encourage encourage on the one hand the postal service to get out there and sell the obvious benefits of the postal service in terms of its ubiquity and its geographic reach to potential partners out there but i would also i mean i see new bank branches going up constantly growing neighborhoods out there new brick and mortar and i'd have to ask myself as a banker is there a possibility the partnership to partner with an organization like the postal service to provide financial services agency services all kinds of opportunities are out there it gets complicated i think partly by the way that the federal government is organized in the way its funding processes work in terms of the sub parts of agencies so that makes it complicated to  kind of get an overall view of how agency deliver services and how it might tap into the postal service but there are a lot of opportunities out there i hope i'm wrong but i think that's the direction  search as we move forward of this century for a new viable business model for the u s postal service and on the one hand i think we in congress maybe want to have a both ways on the one hand we recognize the iconic value of the post office in a given community is centrally in specially smaller rural parts of our country and we don't want that to change we don't want you closing offices we don't want you changing routes we don't want your clothes cutting back on service or the numbers of days of service and on the other and oh by the way we don't want to unnecessarily competing with the private sector for anything on the other hand we want a viable wireless a money want to make money why do you like your competitors and we in congress can't have it both ways we're going to have to work with you to recognize that by statute as mr hero i'd be interested listen your testimony i think one of the things we have to talk about you know should the post office be subject to the same regulation the private sector as well but by statute we put some requirements on the postal service don't we that we don't put in the private sector that i think significantly circumscribes the ability the post office to to sort of break out here and just just be a rational actor in the in the private market i agree with that i think that part of it is we're just simply trying to pose some questions that folks in your situation should be considering as you take a look at this is a large enterprise that touches everyone's life saw six days a week i mean it was as chairman lynch mentioned in the opening you know no other institution does that six days a week and but as you proceed with thinking about this some of those trade offs those does get raised and i think it's boring to keep them on the table as folks consider them because if we don't raise them now they'll come up later on that point we have ongoing work looking at the postal service business model and as part of that we're factoring those kind of things into it as well so thank you how could the postal service  a second ago that i think that there has to be a process that creates some kind of partnership in which the private sector gets to do what it does best this is the marketplace that we live in today i just one quick point that i'd make to that that i think jack potter the other day in his speech at the national press club created this framework and embraced something that was called way and indorse which was looking out to the future ten years and trying to imagine what kind of a postal service should we have to serve the public purposes that we see ten years from now and i can't look out ten years and not imagine that the internet isn't a part of the marketplace at that time now is it appropriate for the postal service to provide those services probably not and so finding partnerships where the public sector can be compensated for its retail present and its ubiquity and the private sector can provide what it provides best it seems to me is part of that ten year vision what do we know about anyone else but what do we know about the last to see the a demand for the price of stamps i mean is  of following the trial i'm sorry i cannot hear you we have about four in the commission we have about forty years of following what we called elasticity a price of first class mail and for pretty much all that time we could say it was in elastic you raise the price in price sales might drop off a little but they'd come back up and that stamp usage followed the rate of population growth and to some degree the economy all through that time but things really seem to have changed in the last four or five years and there was a slow but steady decrease in the first class mail and has been greatly  increased by the by this recession and the dilemma for all of us is to see whether the recession was an unusual event because after there was a great drop off in mail after nine eleven but it picked right back up again or this you know a lasting phenomenon i think all of us feel that the the growth of the internet makes the role of mail very different from what it may have been in the past and that we're all trying to find ways to make the mail relevant and valuable so it may not be that we have sell as many stamps but what we sell is more valuable people are willing to pay for more for it or there is some other way in which the community supports it  some of the european post have subsidies for their mail or specific subsidies for post offices it and in fact even those that have had great profits in the last few years are having real problems under this recession as well so  just assuming that you can follow a european model where there's privatization will get you some ongoing permanent independent post office is not assured either mr chairman my time is expired and i thank you i do think this go away answer underscores and i thank you for it underscores the fact that moving forward we can't just take over at the edges we've got to figure out a new business model that's going to work thank you i thank the gentleman i recognize the general from ohio kissinger for five minutes thank you very much mr chairman and i'm grateful that under your leadership this committee continues to look at what we can do to secure universal service and  people of united states my neighborhood in cleveland ohio i have seen over the last two years the post boxes your neighborhood and i don't take that lightly has been systematically targeting branches particularly  in areas which are economically disadvantaged think about universal service and we know they are cutting hours to try to downsize  now at the same time there is an expansion of dealings with the private sector the private sector take over more and more i think we need to look long and hard about the creeping privatization that's been going on because it's really at odds with universal service i i have and well certainly every business model need to be updated privatization is not updating the business model the postal service is destroying the polls i have a question for chairman go away welcome to this committee chairman your testimony echoes my concern that in diversifying the services the united states postal service provides plans to move forward with providing postal related services could lead to a reduction in essential services traditionally provided by the post office and could subordinate the provision of these services to the pursuit of revenue much of the united states postal service air mail is already been outsourced to fed ex can you please explain and can you expand on the postal regulatory commission is concerned regarding kutch an essential services until revenue generation plans have been successfully implemented and is that is the commission concerned that moving away from traditional so we share this focus on the local impact of the postal service i think i'm i don't think the commission is opposed to the postal service providing non postal services we our litmus test is that we we expect the services to be in support of the mail function so greeting cards are fine money orders at the postal service has provided and even electronic money orders internationally are fine copying services are fine with there's a range of services that are that are fine and and we are certainly open to the postal service coming up with any number of experimental  products that are related to the postal services that we could define as postal service where we actively support and and look forward to the postal service coming forward with those new ideas and i think our record is that we we accept almost all of them the problem is if you look at the postal service and its network the retail clerks that are there are paid very high wages and i think they should be but look at the bank next door in the wages that are paid to the bank next door it's not likely that a bank is going to want to partner with the postal service unless there's some real change in structure which may provide solutions for government services we're probably looking at a run place i thank the gentleman just briefly i want to give myself to fifteen seconds i think what's happening here is always is that now we see a model out there a competitive model when i go to the stop and shop you go to the piggly wiggly center to do your shopping there's a bank there there's all kinds of different things offered so i think the postal service is under that similar pressure as well but i'll wait till i have five minutes to expound on that a little further but i deeply appreciate the gentleman's comments and i agree with the threat that he's identified at this point i'd like to also welcome former representative william clay thank you very much sir we appreciate your attendance just in time to hear from your son and the gentleman from missouri mr clay for five minutes thank you mr chairman and thank you for conducting this hearing today go towards innovation in new markets is there any expanding existing postal services to increase revenues customer loyalty attention starts with the fact that once again this year we had six billion dollars in cost savings and we didn't know bit of research we think that's the single largest cost savings by any company in this country possibly ever yet we lost seven billion dollars so on all the revenue generating initiatives that we're pursuing within the law clearly contribute when you have a loss of that mega magnitude you can't get back to a stable post office or postal in the current time we're running a first class incentive program and the impact of that we estimate will be fifty million dollars one hundred million dollars in incremental revenue in that  ballpark once again in comparison to a seven billion dollar loss it's relatives relatively modest in the impact so there are things we're doing to city as chairman go way point out is increasing both from consumers and commercial mailers differentiate itself from the mail service well as as many of the panelists have said and as we've heard we have an enormous number of strengths did our infrastructure our retail infrastructure our delivery capabilities our low just six capability the fact that we're number one and trust all of the strengths that we have should be leveraged what we need to do is have more freedom to expand our model as this country changes and  written statement some of the results i've had some of these posts have generated as much as seventy five percent of their total revenues from non postal sources suppose for example in germany as an example the dutch postal service t n t is generating sixty percent but they have undertaken major major diversification the germans for example have bought heavily into the the logistics business they've made several billion multibillion euro acquisitions to get into that business they've had to be perfectly honest although they their revenues from the sources but they're getting fifty percent or more of their profits from a deal so they'll still a pretty good business for those of those people so to call him a success yeah there are some success you know that old adage that just like our military we tend to fight the last war and now now the things that we're looking at as mr connelly has described as being nibbling around the edges i look it you know the pamphlets a brochure or whatever the come in your house you can click on what do you want to have a delivered on not you know and that's a great environmental benefit i think in the long run but it's going to drop the volume of mail but i think that's that's really the future and so i don't want to get caught up in addressing the things that we see now but i'd rather try to anticipate as a as a commercial business would what's coming down the line and also see some of the even our domestic models like you know earth class mail and zoom box where it's a similar internet based internet centered system and i just think we have to really really think think long term here there was a book out it's an old book the world is flat by tom friedman and he has one chapter there on you p s i know my friends from would they would fix it and send it back to you within a certain amount of days and well u p s as it describes in the story turned out all around to the fact where instead of the user just sending their laptop to atlanta and then off to japan to be fixed u p s put their own people to work repairing those computers and that is totally outside of the delivery business they now became computer fixes and they would save the shiba company a ton of money and make their customers happier so you know it's that type of innovation and you know just transformative change that that we need in the postal service and i know it's frightening and i know that bureaucracies are even more resistant to change but i just see what the drop off in volume what we see coming down the line i see the number of retirees we have in our political system we have to have a business model that allows us to continue to provide those benefits to retirees so we're to fall off a cliff here if we don't get our business that business model matched up with the realities that we have here so we've really really i know that may still be some short term disruption here but you know we just encourage you to  take that chance to think big think big this is a big problem so the you know the response here has to be as i say transformative we have to look at this in a different way than just you know nibbling around the edges and trying to bring in a you know a few more million in revenues so again you know do you have anything like that that you know some some big moves that would would help us take a bite out of the the chairmanship that we share in lynch i speak for the postal service and we fully agree with what you're saying we are five percent of the world's population and forty percent of the world's mail we have been the world's innovator in hardcopy mail and what's frustrating is we believe we have the same kind of role to play within digital communications it's hard for us to look at sweden leading the u s we believe we should be out in front of the the the technology changes that are occurring not for any other reason than to foster commerce and to be a market maker and to have the result be that the united states is a leader in this transformation to digital products and that we offer hybrid products so i think without these kinds of transformational moves in concert with you know the cost savings we've talked about we can have a thriving growing postal service add that the postal service has presented a hybrid mail products to us in the past and we've approved them mailing on line and post d c s for both approved by the postal regulatory commission postal rate commission is that  was the postal service that found that they could not implement those programs they weren't up to the task now if if there is some partnership that they can develop i think the postal regulatory commission would certainly review that i'm not sure that there's any need for new legislation we'd be interested in looking at those issues yeah i'm just thinking of it this way you know you see what wal mart and these stop and shop and pig wiggly and harris teeter you know these big big box stores have done is they didn't try to recreate their own bank they didn't try to recreate their own mail facility they brought the post office and they brought you know they brought the banks in they've used the i mean think when you think about a scale as mr kaplan has that's also an advantage if we use it the right way use that as leverage and  we have thirty seven thousand post offices out there and so we own the footprint and what we put in there and it may be you know i'm not suggesting go out there and stop the u s postal bank but can we bring in other services within the footprint of the the postal facility to offer more than what we're offering right now and have that entity that private entity you know pay some of the freight since we are already we already own a lot of these facilities although i'm surprised to see how much we're still leasing but i don't know i'm just trying to multiply our competitive advantage where w jeremy lynch the greeting card test we're running now is a very good indicator of what you're talking about before we went out and launch that we went to consumers in the feedback was that yes they would be very pleased to have greeting cards offered in the postal service i thought was appropriate and i would expect to purchase them there so there's a whole range of other products that we could sell that we actually think would grow the market and our customers would want  beyond passports we think there's a whole series of transactional activities we can be involved and so i would agree there's a lot more we can do with the facilities that we have yeah i guess and i appreciate that and i know change is difficult  mr davis thank you mr chairman and i certainly agree that we've got to think i think part of the problem though is we don't think we'll like the answers that we get it's kind like everybody want to go to heaven but nobody wants to do that and when i think of cost i mean we generate at one location but then we add another one i mean we generate as people come in to purchase whatever it is that they're purchased and but the output is as we maintain a try to maintain the concept of universal service like i used to live you know whether the carrier would go five miles before delivering another piece of mail me that we've had some experiences and continue to have some experiences with bailout we've put resorts in  places i think we have to do some serious thinking in relationship to what it is that we expect i really don't want to have t always have been always will be i believe that people should get the maximum of what can be received in terms of quality of life and expectation but i also believe that there has to be realistic thinking and in relationship to how do we manage the way to do that i know i have a just signal votes they have what i'd like to do is recognize the gentleman from virginia mr comic for five minutes i thank the chair mr kaufman i wonder do you believe that the u s p s has a culture of innovation and if not why not i think it has pockets of innovation mr know that again i don't ask everyone please speak into the microphone it's i cannot hear you believe it or not up here i believe there are pockets of innovation within the postal service i do believe that there are some conditions that exist  t i will say i don't think it's unique to the postal service i think it's it's a characteristic of government generally that discourage risk taking and discourage innovation and and  rewarded but i mean i spent thirty two years there i think it's a greatest work force in the world there are some enormously creative people there and they're going to need all of that creativity as a go forward  i do believe that jack potter and his team have done a terrific job in terms of generating an environment that encourages people to come forward with with new ideas and the just the the the move of bringing in people like bob burnstock and some of his colleagues to help support the traditional postal thinking has got to help in the long run and i would to go back to some of the the chairman's comments earlier about the future i wish i had an answer to what that business model ought to be i don't right now i do think that these things evolve over time one of the things i mentioned in my testimony was i'd believe one of the possibilities is for the postal service down the road is in this nexus between their their geographic physical presence and the communications technologies that are out there and i think that some of what for example the swedish example you mentioned gets to  one of the largest in the country and that in some ways given the route structure it's tailor made for electrification and sort of talk about innovation cutting edge green technology being  into just in january of this year and i've discovered that there's a whole range of expertise far greater than mine i do have many studies that i can forward to you about this it appears that the postal service is ideally suited for transition to an electric vehicle fleet its current vehicles get about eight to twelve miles to the gallon and they're all at at least eighteen years old unfortunately given the financial reality of the postal service they don't have the capital to buy new vehicles and i think it would be worthwhile to find funds in some of the other subsidies that are provided through the government and have those directed to the postal service so that they could invest in new vehicles reduce some of their overhead and and lead the country and in a national transformation let me ask you because i think we're on to something here how many how many one hundred fifty thousand although i think there may be redone maybe one hundred forty thousand now they've reduced them a bit and any idea of what it would cost to replace them with electric vehicles well what we're what i think the thinking is and i believe that congressman serrano is working on some legislation is to to develop a program so that you phase in over three to five years anough vehicles with enough tech testing that you know exactly what  buy but it's billions of dollars that that are needed my time is about to expire but i i just want to pick up on your thoughts it seems to me mr chairman again both mr koppel and where he was pointing us to we legislatively can look at how we can try to help foster a more innovative culture we may be part of the problem secondly with respect to what your woman go away is talking about we were willing to put a lot billions of dollars in cash for clunkers are we willing to invest in our own postal service to give it that cutting edge innovative delivery of services to help make it more competitive to give it the capital it lacks right now and to do a good thing for the environment and for the auto industry while we're at it i think all of us on the table would support that effort and work with you to to make sure that happens thank you so much i thank the gentleman i think this panel has suffered enough  we've actually got votes on the floor but i did want to thank you for your willingness to come before the subcommittee and offer your your thoughts and suggestions we we appreciate that you are on the ground level where you can offer a unique perspective i will hold the record open for i know there were several hearings going on the small running so that my republican colleagues could not all attend so i'll leave the record open for their comments as well but i want to thank you for your willingness to come forward and to help the committee with its work thank you very much i bid you good day