THE HOUSE OF REPRESENTATIVES 

TESTIMONY OF EDWARD J. GLEIMAN 

CHAIRMAN, POSTAL RATE COMMISSION 

BEFORE TH OMMITTEE ON POST 

/ IL SERVICE 

May 24,1994 

Thank you Mr. Chairman. It is an honor and a pleasure 

to be before you and the Committee to provide the 

annual update of the activities of the Postal Rate 

Commission. I am the new chairman of the 

Commission, Ed Gleiman, and accompanying me today 

are my fellow Commissioners: Mr. W. H. “Trey” 

LeBlanc 111, vice chairman; Mr. George W. Haley, Mr.. 

Edward Quick, Jr., and Mr. Wayne A. Schley. 
2 

Following my testimony, Commissioner LeBlanc 

will also be addressing the Committee with some 

observations on current Postal Service finances. While 

Mr. LeBlanc’s views are his own, he is the senior 

Commissioner in terms of service and brings a broad 

perspective to this subject. 

However, I speak for all five of us when I say that 

the Commission’s primary commitment is to a strong 

and viable Postal Service that provides quality service at 

fair and equitable rates. 
3 

Today the focus of my remarks will be to respond 

to the Committee’s request to provide an assessment of 

the Commission’s view of the future of the Postal 

Service. My complete testimony, which I have 

submitted for the record, contains information about the 

Rate Commission’s recent reorganization, the status of 

the Joint Task Force on Postal Ratemaking Report, and 

some remarks about the Bulk Small Parcel Service case. 

It also contains more information about the procedural 

issues of the current omnibus rate case, which I have 

deleted from my oral testimony in the interests of time. 

This morning I will quickly address the omnibus rate 

case and then look at the future of the Postal Service. 
4 

At the moment the Commission’s resources are 

fully occupied with the rate request. The rate increase 

case was filed in March, and by law the Commission 

must issue its decision within 10 months. In fact, we are 

committed to completing our analysis in less than 10 

months, if at all possible. This schedule will allow 

sufficient time, following the Commission’s 

recommendation, for the Governors of the Postal 

Service to deliberate, give the required public notice and 

implement new rates at the earliest possible time 

consistent with the public pronouncements of the 

Postmaster General that there will be no rate increases 

until 1995. 
5 

The exparte rules applicable to the Commission 

and similar administrative agencies prevent us from 

discussing the merits or substance of the Postal Service’s 

rate request. But I can report a bit more about where 

we stand in the process. 

The unique aspect of the case now before the 

Commission is that the Postal Service and 

approximately half of the 60 intervenors have joined to 

submit a settlement proposal. On May 16 the 

Commission issued an order which established the 

procedural mechanisms for considering the settlement 

proposal, but which did not address the substance of the 

proposal. 
6 

While no previous omnibus rate case has been resolved 

by settlement, the Commission has implemented 

procedures to enable it to evaluate this proposal in a 

manner consistent with the statutory requirement that 

our decisions be based on a public record. 

On June 27, the due date for intervenors’ 

testimony, any participants wishing to oppose the 

proposed settlement must file Notices of Opposition that 

detail material issues in controversy. Subsequent steps 

concerning the handling of the settlement proposal will 

depend on the contents of any Notices of Opposition 

which we receive. 
7 

This is a complex proceeding, but I look forward to 

seeing the Commission develop a sound, comprehensive, 

and timely decision for the Postal Service and the 

American public. 

I now will discuss what you specifically asked the 

Commission to testify on today--the Commission’s view 

about the future of the U.S. Postal Service. 

The following comments by the new Chairman of 

the Postal Rate Commission, Edward J. Gleiman, have 

been excerpted from testimony Mr. Gleiman made 

before Congress May 24 and a speech he made May 10 

to the Direct Marketing Association. 
8 

Today’s conventional wisdom appears to be that 

the Postal Service is near the precipice and will soon lose 

substantial volume to many competitive, high-tech forms 

of communication. Some have gone so far as to tell you 

that the Postal Service is in a race with technology it is 

ultimately going to lose. I am not about to suggest that 

this is an unlikely scenario. 

There is no doubt about the competition. On the 

other hand, the telephone was going to kill mail service; 

radio was going to kill newspapers, and so on. 

Computers may be just the latest threat. Both the Postal 

Service and newspapers are still very much with us. 

Many newspapers are still profitable enterprises, and 
9 

Postal Service volume overall is at an all-time high. 

What this shows, I think, is that as communication 

opportunities grow, old forms may change but they 

don’t necessarily die away. 

Since 1970 overall First Class volume has grown at 

an average rate of 2.7 percent annually. Not 

surprisingly, this rate slowed during the most recent 

recession. First Class volume growth, as a result, was 

only 1.5 percent in FY 1993, but thus far in FY 1994 the 

growth rate is 2.7 percent, right on the 20-year average. 

When we look more closely at First Class and view 

its two major constituent parts--single-piece and presort 

letters, we see that presort volume growth is a very 

healthy 8 percent for the first two quarters of FY 1994. 

By contrast, single-piece volume is flat. 
10 

On the whole, though, First Class, statistically, is 

weathering the storm. Could it be that modern 

technology might end up generating more volume? 

Certainly, those of us with cable TV get one more bill 

and make one more payment--usually by mail--each 

month. 

Now, let us look at Third Class regular volume. 

Historically, and one can assume even in the near future, 

Third Class volume has been and will be closely 

associated with total, nationwide advertising 

expenditures. In the early eighties, discounts for 

presorted mail lowered its real cost, resulting in 

advertising mail’s share of total advertising 

expenditures increasing from under 14 percent to about 

17 percent. 
11 

Advertising mail’s share of total advertising 

expenditures has continued to rise and now stands at 

about 20 percent. 

Thus, among the competition for advertising 

dollars, the Postal Service has done exceedingly well. 

Provided the Postal Service keeps its costs in line with 

inflation, volumes should grow in line with the growth 

of advertising expenditures. 

For the intermediate term--five to seven years out-- 

I think the greatest threat to postal volumes is the Postal 

Service itself. Service must be maintained, and costs 

must be controlled or all mailers will actively seek 

cheaper and more reliable alternatives to the mail. 

The Postal Service has rightly been concerned that 

alternative delivery of Third Class could have a 
12 

significant impact on its financial situation, but it now 

seems that First Class volume is also threatened. 

In the future, First Class letters may, in the face of 

electronic funds transfer, electronic banking and bill 

paying technological advances, be as sensitive to price 

pressure as Second or Third Classes. 

A significant diversion of First Class, of course, 

would have a far greater impact on the Postal Service 

than would a diversion of Third Class, since First Class 

currently provides most of the Service’s revenue and 

pays roughly 80 percent of the Postal Service’s $17 

billion overhead. 

The fundamental problem is the common costs of 

the system, which are about 33 percent of total costs. 
13 

They are largely comparable to what we call overhead 

or institutional costs. 

If volume falls, the Postal Service should be able to 

shed volume variable costs (roughly what we call 

attributable costs). The common costs will remain and 

so unit per piece costs will rise. If costs rise only 

because common costs must be shared by fewer pieces, 

that rise should be manageable. 

Moreover, if there is a decline in volume, the Postal 

Service may be able to rein in overhead costs, providing 

further for rate stability. 

We must remember, though, that ratepayers are 

only one of the three major groups that have a stake in 

the Postal Service. The others--postal labor and the 

government--have other interests. 
14 

Let’s look at their stake in the future. 

Of paramount concern to postal labor is job 

security and wage levels. A decline in volume could 

translate into a loss of jobs. 

As for the government, the owner of this system, 

insofar as the Service has debts and future obligations, 

the Service may not realistically be in a position to 

honor all of them if it faces large volume declines. The 

taxpayer may then have to pick up some debt 

obligations. Thus, the Postal Service’s equity and its 

future obligations should be monitored to ensure that 

taxpayers are not put at excessive risk. 

How will the Postal Service evolve? 
15 

It has been suggested that the Postal Service must 

pursue new businesses--perhaps participating in 

electronic communications. Some have suggested that 

the Postal Service might have to be privatized. 

Let me suggest that any changes of policy should 

not be premised on “the conventional wisdom” that 

traditional mail products are about to become obsolete 

or that the often-times thankless task of nationwide mail 

delivery could be better done by a private entity. I 

would submit that changes of policy should be 

undertaken only after a careful evaluation of the risks 

and a consensus as to which course is likely to benefit a 

majority of the various stakeholders. 
16 

Let us suppose the Postal Service attempts to 

become a significant player in electronic 

communications. 

Who is put at risk? 

Who would supply the capital? If working capital 

is used, the monopoly ratepayer supplies the capital; if 

debt is used, the government will be the implicit 

obligator--although mailers will pay the debt service. 

Let us further suppose the Postal Service is 

successful in this highly-competitive arena and manages 

to earn a profit. Who benefits? 

To affect ratepayers materially, profits must be 

used to offset postal rates rather than being reinvested 

in the competitive electronic enterprise. 
17 

In today’s Postal Service, $1 billion in profit would 

reduce rates by about 2 percent a year. 

What about the workforce? Modern electronic 

communications are not labor intensive, and current 

postal workers likely would enjoy few job opportunities 

in the new electronic ventures. 

And what about the government’s interest? The 

government potentially could benefit if the Service’s 

electronic ventures were successful and provided 

another source of revenue. Conversely, if unsuccessful, 

taxpayers could be called upon for a substantial bailout. 

Aside from these considerations, there are other 

obstacles to a successful postal diversification. 
18 

The Postal Service’s basic business is regulated, 

and, I would suggest, its occasional forays into 

unregulated areas have not proven particularly 

successful. 

It is not clear that the Postal Service has the legal 

authority to purchase existing businesses or to operate 

non-postal enterprises. 

And most problematic, U.S. political tradition 

frowns on government competition with the commercial 

sector, outside of traditional postal service. 

To summarize, there may be no real reason for the 

Postal Service to seek business opportunities much 

beyond the margins of its traditional business. 
19 

In essence what is expected of the U.S. Postal Service-- 

or any postal operation for that matter--is consistent 

and reliable service at a reasonable price. The Postal 

Service’s greatest challenge, and the focus of its 

managerial resources, should be directed to achieving 

that goal, while controlling costs and positioning its 

product line to best withstand future competition. 

At the Rate Commission we have no crystal ball. 

What we do have is a commitment to the future of the 

Postal Service in America, regardless of what the future 

might be. In that vein we will continue to work with the 

Service in pursuing actions which will enable it to serve 

ever more effectively and efficiently the needs of the 

American people. 
20 

Along those lines, shortly after my arrival at the 

Commission I had occasion to discuss with the 

Postmaster General and several of the Postal Governors 

the need to move forward, particularly to revisit some of 

the recommendations of the Joint Task Force on Postal 

Ratemaking Report. 

There has been a subsequent exchange of 

correspondence which attempts to prioritize the 

Commission’s and the Service’s efforts in that arena. 

As I mentioned at the outset, some additional issues 

are addressed in the testimony I submitted for the 

record. I believe you all have copies of the full 

testimony, and I would be happy to answer questions on 

anything I have said here this morning or anything 

addressed in my prepared text. Thank you.