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POSTAL REFORM: SUSTAINING THE NINE MILLION

JOBS IN THE $900 BILLION MAILING INDUSTRY

HEARINGS

BEFORE THE

COMMITTEE ON 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

MARCH 9 AND 11, 2004

Printed for the use of the Committee on Governmental Affairs

(

(II)

COMMITTEE ON GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

ARLEN SPECTER, Pennsylvania 

ROBERT F. BENNETT, Utah 

PETER G. FITZGERALD, Illinois 

JOHN E. SUNUNU, New Hampshire 

RICHARD C. SHELBY, Alabama 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

RICHARD J. DURBIN, Illinois 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

ANN C. FISHER, Deputy Staff Director 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Counsel 

SUSAN E. PROPPER, Minority Counsel 

AMY B. NEWHOUSE, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Collins ................................................................................................. 1, 33

Senator Durbin ................................................................................................. 5

Senator Carper ................................................................................................. 6, 39

Senator Voinovich ............................................................................................. 36

Senator Stevens ................................................................................................ 47

Prepared statement: 

Senator Lautenberg .......................................................................................... 67

WITNESSES 

TUESDAY, MARCH 9, 2004

Ann S. Moore, Chairman and Chief Executive Officer, Time Inc. ....................... 3

Mark Angelson, Chairman, President, and Chief Executive Officer, RR 

Donnelley .............................................................................................................. 6

Christopher W. Bradley, President and Chief Executive Officer, Cuddledown, 

Inc. ......................................................................................................................... 17

Max Heath, Vice President, Landmark Community Newspapers, Inc., on behalf of the National Newspaper Association ...................................................... 19

William J. Ihle, Senior Vice President, Corporate Relations, Bear Creek Corporation ................................................................................................................. 22

Shelley Dreifuss, Director, Office of the Consumer Advocate, Postal Rate 

Commission ........................................................................................................... 24

THURSDAY, MARCH 11, 2004

Michael L. Eskew, Chairman and Chief Executive Officer, United Parcel 

Service ................................................................................................................... 34

Frederick W. Smith, Chairman, President, and Chief Executive Officer, FedEx 

Corporation ........................................................................................................... 37

Gary M. Mulloy, Chairman and Chief Executive Officer, ADVO, Inc. ................ 48

Gary B. Pruitt, Chairman, President, and Chief Executive Officer, The 

McClatchy Company, on behalf of the Newspaper Association of America .... 51

H. Robert Wientzen, President and Chief Executive Officer, Direct Marketing 

Association ............................................................................................................ 54

ALPHABETICAL LIST OF WITNESSES

Angelson, Mark: 

Testimony .......................................................................................................... 6

Prepared Statement ......................................................................................... 75

Bradley, Christopher W.: 

Testimony .......................................................................................................... 17

Prepared Statement ......................................................................................... 81

Dreifuss, Shelley: 

Testimony .......................................................................................................... 24

Prepared Statement ......................................................................................... 107

Eskew, Michael L.: 

Testimony .......................................................................................................... 34

Prepared Statement ......................................................................................... 129

Heath, Max: 

Testimony .......................................................................................................... 19

Prepared Statement with an attachment ....................................................... 85

Page

IV

Ihle, William J.: 

Testimony .......................................................................................................... 22

Prepared Statement ......................................................................................... 97

Moore, Ann S.: 

Testimony .......................................................................................................... 3

Prepared Statement ......................................................................................... 69

Mulloy, Gary M.: 

Testimony .......................................................................................................... 48

Prepared Statement ......................................................................................... 161

Pruitt, Gary B.: 

Testimony .......................................................................................................... 51

Prepared Statement ......................................................................................... 169

Smith, Frederick W.: 

Testimony .......................................................................................................... 37

Prepared Statement ......................................................................................... 138

Wientzen, H. Robert: 

Testimony .......................................................................................................... 54

Prepared Statement ......................................................................................... 183

APPENDIX 

James N. Andersen, President and CEO, The Instant Web Companies, prepared statement ................................................................................................... 192

American Forest & Paper Association, prepared statement ................................ 198

Christopher McCormack, President and CEO, LL Bean, prepared statement ... 202

(1)

POSTAL REFORM: SUSTAINING THE NINE 

MILLION JOBS IN THE $900 BILLION 

MAILING INDUSTRY 

TUESDAY, MARCH 9, 2004

U.S. SENATE, 

COMMITTEE ON GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:04 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Susan M. Collins, 

Chairman of the Committee, presiding. 

Present: Senators Collins, Durbin, and Carper. 

OPENING STATEMENT OF CHAIRMAN COLLINS 

Chairman COLLINS. Good morning. The Committee will please 

come to order. 

Today marks the fifth in a series of hearings that the Committee 

is holding to review the recommendations made by the Presidential 

Commission on the Postal Service. Under the effective leadership 

of Co-Chairmen Harry Pierce and James Johnson, the Commission 

put together a comprehensive report on an extremely complex 

issue, identifying the operational, structural, and financial challenges facing the U.S. Postal Service. The Commission’s recommendations are designed to help this 225-year-old Postal Service 

remain viable over the long term. 

So much depends upon the Postal Service’s continued viability. 

The Postal Service itself has more than 730,000 career employees. 

Less well known is the fact that it is also the linchpin of a $900 

billion mailing industry that employs nine million Americans in 

fields as diverse as direct mailing, printing, catalog production, 

publishing, and paper manufacturing. The health of the Postal 

Service is essential to thousands of companies and the millions 

that they employ. 

One of the greatest challenges facing the Postal Service is the decrease in mail volume as business communications, bills, and payments move more and more to the Internet. The Postal Service has 

faced declining volumes of First Class Mail for each of the past 4 

years. This is highly significant, given the fact that First Class 

Mail accounts for 48 percent of total mail volume and the revenue 

it generates pays for more than two-thirds of the Postal Service’s 

institutional costs. 

At our first hearing last September, the Committee heard from 

President’s Commission on the U.S. Postal Service Co-Chair Jim 

Johnson. Mr. Johnson made the very important point that the 

2

Postal Service’s short-term fiscal health is illusory and that Congress must not ignore the fundamental reality that the Postal Service, as an institution, is in serious jeopardy. 

The Presidential Commission presented its assessment of this 

crisis in frank terms, concluding, ‘‘An incremental approach to the 

Postal Service reform will yield too little too late, given the enterprise’s bleak fiscal outlook, the depth of current debt and unfunded 

obligations, the downward trend of First Class Mail volumes, and 

the limited potential of its legacy postal network that was built for 

a bygone era.’’ This is a very strong statement and it is one that 

challenges both the Postal Service and the Congress to embrace 

far-reaching reforms. 

At the Committee’s second hearing in November, we heard from 

the Postmaster General and the Comptroller General. The Postmaster General described transformation efforts already underway 

at the Postal Service, many of which are consistent with the Commission’s recommendations. He also testified, however, that legislation was required in order to accomplish many of the other recommendations. 

In his testimony, Comptroller General David Walker of the General Accounting Office shared the Commission’s concerns about the 

Postal Service’s $92 billion in unfunded liabilities and other obligations. He pointed to the need for, ‘‘fundamental reforms to minimize the risk of a significant taxpayer bailout or dramatic postal 

rate increases.’’ In fact, since April 2001, the Postal Service has 

been listed on the General Accounting Office’s high-risk list. 

More recently, the Committee heard from representatives of the 

four largest postal unions, the Postmaster and Supervisor Associations, the former Director of the Federal Mediation and Conciliation Service, plus two experts on the issue of postal pay comparability. The Commission’s workforce-related recommendations 

were discussed at length during those hearings. 

Today, we will focus not only on the workforce and financial recommendations, but also on the Postal Service’s monopoly and mission, the rate setting process, and corporate governance issues. 

Among these recommendations are proposals to grant a new Postal 

Regulatory Board the authority to refine the scope of the monopoly 

and also to issue standards defining the scope of the universal 

service application. I would note that it is my judgment that many 

of those issues are best reserved to Congress rather than being 

vested in a new regulatory board. The Postal Regulatory Board 

would also be granted the authority to transfer the existing rate 

setting process into an incentive-based rate ceiling system. 

As a Senator representing a largely rural State whose citizens 

depend heavily on the Postal Service, I very much appreciate the 

Postal Commission’s strong endorsement of the basic features of 

universal service—affordable rates, frequent delivery, and convenient community access to retail postal services. It is important to 

me that Mainers living near our borders in Northern or Western 

Maine or on islands or in our many small rural communities have 

the same access to the Postal Service as the people in our large cities. 

If the Postal Service were no longer to provide universal service 

and deliver mail to every customer, the affordable communications 

3

1The prepared statement of Ms. Moore appears in the Appendix on page 69. 

link upon which many Americans rely would be jeopardized. Many 

commercial enterprises, indeed, most of them, would find it uneconomical if not impossible to deliver mail and packages to rural 

Americans at the rates charged by the Postal Service. 

We must save and strengthen this vital institution upon which 

so many Americans rely for communication and for their jobs. The 

Postal Service has reached a critical juncture. It is time for action, 

both by the Postal Service itself and by Congress. 

Senator Carper and I have committed to working together with 

many other Members of this Committee to draft a bipartisan postal 

reform bill. Now, given the history of previous attempts at legislative reforms, I know that this will be a daunting challenge. It is 

not coincidence that the last reform was done more than 30 years 

ago. But it is essential if we are to preserve the Postal Service into 

the 21st Century that we seize the opportunity presented by the 

Commission’s excellent work. 

I welcome our witnesses today who are from the mailing community. We will hear a variety of views and insights on the recommendations of the Presidential Commission and I am pleased to 

welcome our first panel of witnesses today. 

Ann Moore is the Chairman and the Chief Executive Officer of 

Time Inc. In this position, Ms. Moore oversees all of the businesses 

of Time Inc., which is the world’s leading magazine company and 

a leading direct marketer of music and videos. Her work at Time, 

Inc. has earned her numerous awards and honors, including her 

appearance on Fortune magazine’s list of the 50 most powerful 

women in American business. 

Mark Angelson is the Chief Executive Officer of RR Donnelley. 

I would note that he has held that position for all of 9 days, but 

we are very pleased that he could be with us today. Mr. Angelson 

assumed his new position when RR Donnelley and Moore-Wallace 

Corporation combined, creating the new RR Donnelley, which is the 

largest printer in North America. Prior to this position, Mr. 

Angelson was the Chief Executive Officer of Moore-Wallace, Incorporated, the third-largest printing company in North America and 

was the principal architect of the merger. 

We are very pleased to welcome both of you here today. We know 

you are both extremely busy individuals and I think it demonstrates just how important postal reform is that both of you, as 

CEOs of major corporations, would take the time to be here today. 

Ms. Moore, we will start with your testimony. 

TESTIMONY OF ANN S. MOORE,1 CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, TIME INC. 

Ms. MOORE. Thank you very much, Chairman Collins, for this 

opportunity to discuss the crucial issue of reforming the U.S. Postal 

Service. As you said, I am Ann Moore, the Chairman and CEO of 

Time Inc. We are the world’s largest magazine publisher with 134 

magazines, including Time, People, and Sports Illustrated. 

I have been involved in postal reform for a long time. I actually 

volunteered to work on this back when I was President of People

magazine because there is no issue that is more crucial to the magVerDate 0ct 09 2002 13:34 Jul 12, 2004 Jkt 093479 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\93479.TXT SAFFAIRS PsN: PHOGAN
4

azine business and to magazine readers than the future viability 

of the Postal System. The great majority of our readers depend 

upon the postal system to deliver their magazines, so we need to 

work together to ensure that this can continue over the long term. 

It affects everyone, from the mom who reads Parenting to the 

sports fan who reads Sports Illustrated. 

The core value of the Post Office has always been reliable, affordable delivery of the mail to every American home and business. We 

know that Congress wants to maintain this goal and we have this 

wonderful opportunity to pass a meaningful, comprehensive reform 

bill and we are committed very much to getting this done. 

The current Postal Service business model is not sustainable, as 

we all know, in a climate of expanding addresses and declining 

mail volume, and we applaud the efforts of Jack Potter to reduce 

Postal Service costs. But reducing costs alone won’t solve the problem. Broad and sweeping reform is required. 

President Bush and the Treasury deserve thanks for creating the 

Presidential Commission to help address these issues and we completely support the report’s five core principles. 

We also support the Commission’s recommendations on revisions 

to the collective bargaining process. Negotiators on both sides must 

know that today’s system of binding arbitration does not always 

provide an optimal solution and we feel that mediation arbitration 

might bring parties closer to an equitable resolution while protecting the interests of the employees and the Postal Service. 

However, it is also crucial that a rational rate cap system be put 

in place by Congress. The dramatic rate increases we have seen are 

simply not acceptable. As a result of rate increases in recent years, 

postage expenses have become our single biggest line item at Time 

Inc. This often surprises people, but this year, we will spend more 

than $500 million on postage. We actually spend more on postage 

than we do on paper or printing. We spend more on postage than 

any other company in America, so we are acutely aware that postage costs have been going up at a rate that far exceeds the rate 

of inflation. 

These statistics are documented in our written testimony. In 

2001 and 2002, we experienced three rate increases within an 18-

month period. If you go back to 1986, magazine postage costs have 

gone up by 220 percent. This is nearly double the rate of inflation. 

From our own experience, we know that these rising postal costs 

drive mail volume out of the system, which compounds the problem. That is why Congress needs to institute a rational rate cap 

system. 

Today’s rate system fails to provide the Postal Service with 

strong incentives to hold down costs, too. It also fails to provide 

mailers with predictable rates. Give us predictable rates and we 

will give the Postal System more volume, from our current magazines to all the new ones I would really like to launch. 

We have a lot of creative ideas on the drawing board, magazines 

that consumers tell us they want, but if I cannot predict the future 

costs of mail and the long-term costs of a new launch, the risk of 

building a new magazine is too great. I don’t need to tell you that 

ventures like new magazines create jobs at Time Inc. and beyond. 

While I have 15,000 employees at Time Inc., you could count all the 

5

suppliers that depend upon us, from the paper mills in Maine to 

the printers to the mail houses. There are many jobs at stake. So 

for all of these reasons, it is crucial that rates be capped to an inflation benchmark. 

Now, of course, rate caps must not be met at the expense of good 

service, so any reform bill must also include service measurement 

systems and delivery standards for all classes of mail. In addition, 

rates need to be based upon cost and include the proper incentives 

for mailer work sharing. This concept provides the Postal Service 

and the mailing community an incentive to seek the lowest possible 

cost and the highest quality service. 

Before I conclude, I want to comment on last year’s CSRS legislation. This bill provided much needed relief for the mailing industry. 

Thank you for getting it passed. That said, the bill has two problem 

items that need to be addressed. 

First, the bill’s escrow provision will force mailers to pay an additional $4 billion to the Postal Service in 2006. This item alone will 

add another 5.4 percent increase to postage rates. 

Second, the CSRS bill also shifted $27 billion in military retirement costs from the Treasury to the Postal Service. Since approximately 90 percent of these costs date back to before the establishment of the Postal Service in 1971, these military costs are not 

really the responsibility of the people who rely on the Post Office. 

So in summary, Time Inc. believes that the issues challenging 

the Postal Service are urgent and demand action by Congress and 

the Postal Service. We need three things: Predictable rate increases 

that do not exceed the rate of inflation, resolution of the CSRS escrow and retirement issues, and service standards for all classes of 

mail. 

I am personally committed to working with you and all interested parties to help implement urgently needed Postal reform. 

Thank you again, Madam Chairman, for this opportunity to share 

the views of Time Inc. with this Committee. 

Chairman COLLINS. Thank you for your testimony. 

Before hearing from Mr. Angelson, I would like to give my two 

colleagues a chance for any brief opening comments that they 

might want to make. Senator Durbin. 

OPENING STATEMENT OF SENATOR DURBIN 

Senator DURBIN. Thanks a lot, Madam Chairman, and I will take 

your advice to make it brief. I want to welcome both of our witnesses, Ms. Moore as well as Mr. Angelson. Of course, he is with 

RR Donnelley, which is a major employer in Chicago, a city that 

I am honored to represent, new to the job a few days, and happy 

to have you here. 

Ms. Moore indicated that Time Inc. is one of the largest customers of the Postal Service, and I know that RR Donnelley is the 

company that is the largest private user of the U.S. Postal Service. 

I think that is why this particular hearing is so important, so we 

can understand not only the reform of the Postal Service, on which 

the Chair has been our leader, but also its impact on private business and how we can try to develop some synergies and try to 

make it more efficient. 

6

1The prepared statement of Mr. Angelson appears in the Appendix on page 75. 

So I thank both of the witnesses for coming. Particularly, Mr. 

Angelson, thank you for the great work that RR Donnelley does in 

the Chicagoland area, all around the United States, and the world. 

Thank you, Madam Chairman. 

Chairman COLLINS. Thank you. Senator Carper. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Just a quick note to say welcome. Thank you 

very much for making time out of your day and week to join us and 

to share your testimony with us. 

We are attempting to undertake here something that hasn’t been 

undertaken for over three decades, and that is to try to figure out 

what our Postal Service should look like going forward. As we attempt to design and develop and build a consensus around the 

Postal Service in the 21st Century, your input is welcome. 

I just want to say to the Chairman, this is not the last but one 

of many in a very helpful series of hearings that enable us to learn 

and hopefully will bring us a step closer to consensus. We will find 

out just how successful we have been in that in a month or two, 

so thanks very much. 

Chairman COLLINS. Thank you. Mr. Angelson. 

TESTIMONY OF MARK ANGELSON,1 CHIEF EXECUTIVE 

OFFICER, RR DONNELLEY 

Mr. ANGELSON. Madam Chairman, thank you for inviting RR 

Donnelley to testify this morning and good morning to you. Thank 

you, Senator Durbin from the great State of Illinois, where we live 

and are headquartered. Senator Carper, from the great State of 

Delaware where we are incorporated, thank you for having us this 

morning. 

Chairman COLLINS. And so what are you doing for Maine? 

[Laughter.] 

Mr. ANGELSON. We are buying more paper than you can possibly 

imagine. 

Chairman COLLINS. I thought that might be the answer. [Laughter.] 

Senator CARPER. I think that covers all the bases here. [Laughter.] 

Mr. ANGELSON. I am Mark Angelson, Chief Executive Officer of 

RR Donnelley. Thank you for the slack that I hope you will cut me 

for the fact that this is day nine on the job. Thank you very much. 

And while I have always known that a healthy, viable, and most 

important, affordable Postal Service is essential to our country and 

to our economy, when I found out 9 days ago that it costs our customers more to mail a catalog or a magazine than it does for us 

to manufacture it, I knew it was important that I be here with you 

and with our fine customer, Ms. Moore, this morning. 

As you may know, RR Donnelley is the largest commercial printer in North America and perhaps in the world. As a result, that 

makes us one of the largest, if not the largest, users of the U.S. 

Postal Service. 

7

In addition to being a printer, we also enter nearly nine billion 

pieces of printed material into the mail each year, including magazines, catalogs, direct mail, telephone bills, and other highly personalized statements on behalf of customers, customers like Ms. 

Moore, who sits beside me this morning. 

Our employees and our customers see, feel, and experience every 

single day the consequences of a Postal Service in bad need of reform. RR Donnelley fundamentally supports the recommendations 

of the President’s Commission and we urge Congress to push ahead 

now with the necessary changes. If we continue to put off reform, 

we will no longer be in the advantageous position of passing 

thoughtful, comprehensive reform, but may, in fact, be in a position 

where we have to respond to a crisis. 

Change is essential to the health of the U.S. mailing industry as 

a whole. I know that you have heard these numbers before, but I 

find them so compelling that I feel impelled to say them again. 

This is a $900 billion industry which accounts for 9 percent of the 

gross domestic product and nine million jobs. 

Just a short word, if I may, about jobs. At a time when many 

manufacturing jobs are at high risk of moving abroad, I am as sure 

as I am that it will be dark tonight and light tomorrow morning 

that your local letter carrier’s job will never move overseas. Reforming the Postal Service, therefore, is also an opportunity to 

strengthen a sector of American jobs that stay in America. 

This hearing today, therefore, is about much more than reforming the Postal Service. It is about the economy, it is about jobs, and 

it is about the future. 

The postal distribution system as it stands today is inefficient. 

The President’s Commission recognized these inefficiencies and 

now recommends changes. I hope that you will agree with the 

Commission and with RR Donnelley and our fine customer that 

there is substantial potential for improvement here and that the 

time to do it is now. 

Any piece of legislation, though, that protects the status quo will 

not be sufficient and will not be acceptable under the circumstances. At its heart, the Postal Service must change. Respectfully, it must change to allow, to encourage, and better yet, to demand ongoing improvement. In doing so, the Postal Service can 

function more like a business to the benefit of everyone involved. 

When I say more like a business, let me hasten to add we are not 

talking about losing jobs for people. We are just talking about 

using common sense. 

With my limited time, I would like to focus on just three areas, 

work sharing, network optimization, and the civil service retirement issue. 

In today’s world where technology is constantly changing to allow 

for new improvements, no company can do everything. As a result, 

we have all learned to focus on our core competencies and to rely 

on others and their expertise in order to maximize our performance. The Postal Service should do this, too. Delivering the mail to 

and from every address in the United States 6 days a week, otherwise known as universal service, is the USPS’ core competency. It 

is simply what they do best. All of the rest, I suggest respectfully, 

8

should be left to those who can do it better, and this combination 

is what we call work sharing, as you know. 

Work sharing frees up the Postal Service to focus on its core competency while having others, such as RR Donnelley, focus on the 

non-core competencies. This highly effective combination drives 

down cost. In fact, according to the General Accounting Office, in 

1999 alone, work sharing saved the USPS an estimated $15 to $17 

billion. Yet, and this is a very important point, even though there 

is proof that this works, it is as difficult today to enter into a work 

sharing agreement with the Postal Service as ever before. It is simply not a widely accepted practice. 

Let me give an example. RR Donnelley and others recently 

reached an agreement with the USPS on co-palletization. The deal 

took 18 months to reach, and in the end, all we were granted was 

a 3-year trial. That same deal, if I were to try to make it with a 

typical private sector partner, would have taken 4 weeks, 6 weeks, 

or 8 weeks. We shouldn’t have to work this hard to persuade our 

partner at the Postal Service to reach a result that benefits customers, that benefits the U.S. Treasury, the Postal Service, and, 

therefore, all users of the system. 

The second subject that I would like to address is network optimization. It is inconceivable to me that there have not been ongoing adjustments in the USPS network, but there haven’t been. The 

Postal Service’s current distribution network was established over 

30 years ago and it has remained virtually unchanged ever since. 

That is astonishing when one thinks about the changes that have 

occurred in that same period, changes that have had a direct impact on how we use and how we would like to use the USPS. From 

major trends like population shifts to the invention of E-mail, the 

country is different now, but the USPS remains the same, and respectfully, I would urge you that that has to change. 

The USPS must be allowed and incentivized to keep pace with 

change. Facility locations, size, and transportation routes should be 

changing constantly to keep up with demand, to eliminate redundancy and overcapacity, and to achieve productivity gains. All successful businesses constantly adjust to changes in customer traffic, 

demographics, and other factors, especially service businesses like 

the USPS. 

Put simply, the USPS must be allowed constantly to realign its 

network to reflect current realities, free of emotion, and respectfully, Senators, free of politics. If changes of this nature are not an 

ongoing, unencumbered process, all the legislation in the world will 

not make the Postal Service run better, nor more smoothly, nor 

more efficiently. 

Work sharing coupled with network optimization makes it possible to achieve what we call the lowest total cost. This concept is 

at the core of what RR Donnelley and our fine customers hope to 

have from the USPS. 

And a final word on the civil service retirement problem. First, 

I ask respectfully that Congress consider removing the CSRS savings escrow requirements that were created last year. Doing this 

will free up approximately $73.3 billion that the Postal Service can 

use to pay down its debt to the U.S. Treasury and to hold postage 

rates steady, among other things. 

9

Second, there is no good reason for the Postal Service to bear the 

financial burden of the civil service military retirement benefits. No 

other Federal agency is required to do this. If the Treasury doesn’t 

assume these costs, the result is simply that the costs will immediately be imbedded in the price of a stamp. In other words, mailers, not just RR Donnelley and Time Inc., but many small businesses and American families inappropriately will be paying these 

retirement costs. Let us not make the job of the Postal Service even 

more difficult by keeping this financial burden on its back, please. 

We have a chance right now, a real opportunity, to make the necessary changes to assure that the U.S. Postal Service and the mailing industry as a whole remain healthy and viable. Several more 

years of business as usual could bring us to a point of dangerous 

disrepair. 

I thank you for the honor and privilege of appearing before you 

this morning. Thank you very much. 

Chairman COLLINS. Thank you very much, Mr. Angelson. 

I am very pleased that you reiterated the startling statistics 

about the impact of the Postal Service on our Nation’s economy and 

on some nine million jobs. One of the witnesses on our second 

panel, a catalog owner from Maine, was the one who first told me 

about that impact and I think most people are startled to realize 

that the Postal Service has such an economic impact. 

When I look at both of you, you really represent that impact. 

Time magazine buys paper from a mill in Bucksport, Maine. You 

print on that paper. The interrelationship between the paper manufacturers, the printers, the publishers, and the ability for you to 

buy lots of paper from a Maine mill depends directly on affordable, 

reliable, and predictable postal rates, and I think in the debate 

that we can’t lose sight of the fact that if the Postal Service’s rates 

soar or become completely unpredictable, that it is going to have 

a negative impact on both of your operations and on those paper 

mills back home in Maine. 

Could you comment, Ms. Moore, on the economic impact of unpredictable and high postal rates on Time magazine? 

Ms. MOORE. Whenever we have had an unpredictable postage increase, we first scramble to do everything we can within our own 

business formula. That might mean reducing the size of the magazine. We have had wonderful paper suppliers who have done a miraculous job of lowering the weight of paper. The technology improvements out of the paper industry have been really just fabulous. But those things we can do internally to our physical products 

only can go so far. 

With three price increases, we really had to scramble to cut back 

on mailings, on volume. It prevents us from launching new magazines, and then ultimately, we have to pass that price on to our 

reader, and it has not been a welcome increase over the last 3 

years. 

Chairman COLLINS. Mr. Angelson. 

Mr. ANGELSON. I would add very briefly, Madam Chairman, that 

when Time Inc.—when postage rates go up and Time Inc., and others mail less, we print less and the impact on jobs that we are trying to avoid is, in fact, compounded in the other direction. 

10

Chairman COLLINS. Thank you. Some of the most controversial 

recommendations made by the Commission have to do with the 

Postal Service’s workforce. Now, I don’t support personally all of 

those recommendations, but I do believe that we cannot ignore the 

workforce issues given that 75 percent of the Postal Service’s costs 

are directly related to its workforce. 

You have both stressed in your statement the need to deal with 

the escrow account and the military pension issues, which I completely agree with. Senator Carper and my bill last year did not 

have the escrow account in it. That was added on the House side 

and I, for one, am committed to reversing that provision. 

But those are only two of the issues that affect the workforce. 

Ms. Moore, if we are going to be serious about tackling postal reform, can we ignore those workforce recommendations? 

Ms. MOORE. It is not possible to have meaningful postal reform 

without addressing the labor issues, and I view labor, however, as 

a key partner in reform. We have to do everything in our power 

to address their concerns, but when you have labor representing almost 80 percent of the costs, they have got to be willing to do their 

share to provide for the future of the Postal Service. 

That number, by the way, is astounding. I did go back to my own 

company because I believe I am a labor-intensive industry. I buy 

paper from your State and I use his presses, so I have a labor-intensive business. I only employ people, talented writers and reporters, but labor only represents 35 percent of my cost base. So that 

75 to 80 percent cannot be ignored, and I think I saw a quote from 

Senator Durbin recently which I think says it all, and that was 

that we all should be willing to give a little to pass meaningful reform. 

Chairman COLLINS. Mr. Angelson. 

Mr. ANGELSON. Thank you, Madam Chairman. I would add that 

we are talking about predictions for adding 1.7 million addresses 

in the United States every year going out for 10 years, as far as 

we can see at this point. During that period of time, there will be 

natural attrition in the workforce of the U.S. Postal Service and we 

think that those are two statistics that, when worked together, will 

allow us to address this difficult issue in partnership, if you will, 

with our colleagues on the labor side so that we can get this done 

without inappropriately breaking anyone’s rice bowl, if you will. 

So we think, yes, it needs to be addressed, the labor issue, but 

we think it can be addressed in a way that suits the needs of all 

the constituencies. 

Chairman COLLINS. You raise a very important point. Addressing 

the workforce issues does not mean laying off thousands of postal 

workers. In fact, 47 percent of the current workforce will be eligible 

for retirement within the next 10 years. So there is an opportunity 

to right-size the force without resorting to widespread layoffs. 

But there are obviously many other issues involving workers’ 

compensation, the collective bargaining system, where I think we 

can make some reforms that will be beneficial to the workforce as 

well as in holding rates down. 

Senator Durbin. 

Senator DURBIN. Thank you, Madam Chairman. 

11

Illinois is a wonderful State and it is pretty flat. As you travel 

downstate, where my home is, cornfields and soybean fields in 

every direction as far as the eye can see. About 100 miles south of 

Chicago on Interstate 55, the old Route 66, there appears a mountain range. It startles you. You can’t imagine, what is this all 

about? Well, it is because within a quarter mile of the interstate 

is a landfill and the landfill is huge, and I look at it every time I 

go by and it is growing. Maybe someday we will have a ski resort 

there, I don’t know. It is not likely, but possible. 

But it points to a real serious issue which I would like to address 

for a moment here because I can’t think of two more important witnesses. Most of that bulk in that landfill is paper, and it strikes 

me as odd that in this conversation about looking to the future, 

which the reform of the Postal Service is all about, there is very 

little conversation about paper other than making certain that you 

do business in Maine, which is important to our Chairman. [Laughter.] 

Senator DURBIN. A few years ago, I had a notion that perhaps 

we should encourage the use of more recycled fiber and perhaps 

even offer incentives in postal rates for those who would have a 

certain percentage of their product in recycled fiber and a concomitant penalty for those that didn’t, creating an incentive that some 

of the catalogs and magazines that I receive would have at least 

some recycled fiber content. 

I couldn’t have ever anticipated the firestorm of opposition to 

that wildly radical idea. Everybody was against it, everybody, the 

unions, the Postal Service, those who print the magazines and 

those who write them. Everybody thought this was a completely irresponsible notion. 

I am going to revisit that for a moment here, because I can’t 

think of two better witnesses. Ms. Moore, of all the publications out 

of Time Inc., what would you say is the percentage of recycled fiber 

and paper that you use in your publications? 

Ms. MOORE. I don’t know the percentage. I know that we certainly have been very aware of the whole environmental issue. We 

have done wonderful work, actually, with our paper suppliers on 

the subject of chemicals and working hard to get recycled. I know 

that currently, 100 percent of our newsstand unsold copies are recycled and we are working right now on a recycle pilot project, I 

think in Boston, the City of Boston. 

So it is something—I get this question at the annual meeting 

every year. It is something that we have been very aware of and 

that we are working hard on. But currently, we don’t have a high 

percentage of recycled fiber in our current printing plants. I think 

a lot of the work done in the last couple years by the paper industry to lower the weight of our paper has done a lot of good in keeping that landfill down. 

Senator DURBIN. Is it beyond the realm of possibility that some 

percentage of your publications would be recycled fiber? I understand that perhaps the covers and some of the features and the 

color pages and such, maybe recycled fiber isn’t always appropriate. 

But is it beyond the realm of possibility to say that a certain percentage of your publication would be recycled fiber? 

12

Ms. MOORE. To make that mandatory? At the moment, it is not 

economically viable. 

Senator DURBIN. It is too expensive? Recycled fiber is too expensive? 

Ms. MOORE. Yes, sir. 

Senator DURBIN. Dramatically? I mean, is it marginal or——

Ms. MOORE. Dramatically. 

Senator DURBIN [continuing]. Dramatically more expensive. Of 

course, you don’t have to factor in the cost of the landfill nor the 

impact on what that means to a community which becomes a social 

cost which a lot of places around the world have decided is an important part of the equation. 

Mr. Angelson, I know you are new to the job and I don’t want 

to put you on the spot, but could you comment on that issue? 

Mr. ANGELSON. I can speak personally and I can speak a little 

bit on behalf of RR Donnelley and would ask that we be allowed 

to respond more formally in due course. 

Senator I agree with you that our children and our grandchildren 

and their grandchildren need to live on this planet and I applaud 

the spirit which moves you in the direction in which you are moving. We at RR Donnelley have long recycled the scrap paper that 

comes off the cutting, etc., as we prepare our products for our customers. To a very significant extent, though, our customers do the 

paper buying, if you will, and we do the printing on it. I would be 

grateful, in light of my 8 or 9 days on the job, if you will let me 

duck on this one. 

Senator DURBIN. I want to revisit it, and I hope I can find some 

common ground with our Chairman. I know this is a delicate issue 

for her and it is an important industry in her State, but I know 

she is also sensitive to the environment that we live in and I thank 

her for her leadership and I thank you both for your testimony. 

Thanks, Madam Chairman. 

Chairman COLLINS. Thank you. Senator Carper. 

Senator CARPER. It is kind of ironic that my colleague, Senator 

Durbin, raised that issue, because last night when I brought my 

boys home from the Troop 67 Scout meeting, we did our recycling. 

We recycle twice a week. It is picked up at our curb in front of our 

house in Wilmington, Delaware, by a firm that we actually pay to 

pick it up because we don’t have curbside recycling. I am proud to 

report I think we now may actually recycle more than we put out 

in our trash can once a week, which is no small achievement. 

I certainly share his interest in recycling and that is not the reason for our hearing today. One of the things that I learned, I 

learned as a Governor when we were trying to reduce the amount 

of land that we had to set aside for landfills, one of the things that 

I learned is that in order to make recycling pay, we have to find 

folks who are willing to buy the recycled products. 

I would just ask Mr. Angelson, you are new in your job. Ms. 

Moore, you are not so new. I would ask that you take to heart the 

comments that Senator Durbin made. Those are ones that I share, 

as well. 

In terms of what in the magazines might lend itself to being recycled, maybe not the cover, maybe not the pages inside. But you 

13

know those little inserts, like those little postcards you have to 

mail? Those really get in the way, and—— [Laughter.] 

Ms. MOORE. Senator Carper, all insert cards are 100 percent recycled paper, you will be happy to know. 

Senator CARPER. I should have guessed. I will feel more kindly 

toward those postcards in the future, armed with that knowledge. 

Mr. Angelson, have you testified previously before a Congressional Committee? 

Mr. ANGELSON. I have not, Senator. 

Senator CARPER. What was it like? 

Mr. ANGELSON. It feels just like home. I have three intelligent, 

I hope, and active and interested daughters and it feels like the 

dinner table, so——

Senator CARPER. That is good. I think you did a nice job, and Ms. 

Moore, you certainly did, as well. I knew you would. 

Ms. Moore, would you go back and just share with us those three 

points? You closed your testimony with three points. I just want to 

revisit those for a moment, if we could. 

Ms. MOORE. What are the three things that are kind of ‘‘must 

haves’’ in the reform bill? We would like you to resolve the escrow 

provision in military retirement. We would really like you to implement, Congress to implement, a CPI cap for rate increases. And finally, we really would like service standards for all mail classes. 

It is not enough just to have the low-cost provider. We need reliable service standards for all classes of mail. 

Senator CARPER. We have had some discussion here amongst 

ourselves and with the Commission appointed by the President as 

to who might be responsible for establishing those service standards and what kind of reward or punishment might be meted out 

for failure of the ability to meet those service standards. Would either of you care to give us some advice on those points? 

Ms. MOORE. Well, I think you want to implement—I think you 

want to follow best practices as you do in the business community. 

You want to first start with cost-based rates. Please make us pay 

for what we use. If I am inefficient in giving you a direct mail piece 

that can’t be scanned, you should punish me with higher rates for 

that piece of mail. You can incent the users of the Post Office to 

help drive costs out. And I also think you want to do things like 

pay for performance. You should incent the management of the 

Postal System to be rewarded for running a low-cost, affordable 

service. 

Mr. ANGELSON. I would agree with Ms. Moore, Senator. I would 

add that it is very important that in maintaining universal service, 

that Congress reserve to itself ultimately the right to regulate that 

monopoly for the benefit of all American citizens with the idea of 

having corporate governance in place for the Postal Service, which, 

as you know, if it were a Fortune 500 company, based on 2003 statistics, it would be number 11 in the Fortune 500. Governing it like 

a business, subject, of course, to reserving the right of Congress to 

maintain its most fundamental oversight, we think would be a very 

good thing. 

Senator CARPER. With respect to governance, let us talk just a 

little bit about the makeup of the Board of Governors. As you 

know, there is no requirement in the law that they have to have 

14

background experience consistent with the work that the Postal 

Service does. I think they serve fairly long terms, I want to say 

maybe 9-year terms. I believe for the most part they are selected 

by the President, nominated by the President, confirmed by the 

Senate. 

The Commission has made some recommendations in this area. 

Several people would be appointed, nominated by the President, 

confirmed by the Senate. The rest would be independent Board 

members. There would be a requirement that these folks would 

have to generally have some experience that is consistent with the 

nature of the work of the Postal Service does. And rather than 

serving maybe 9-year terms, they would serve much shorter terms. 

Now, each of you have experience with corporate boards of your 

own and I just ask you to reflect on your own experience. Think 

about what we are contemplating with regards to the structuring 

of the Postal Service Board and tell us how you think we ought to 

proceed. 

Ms. MOORE. I was absolutely thrilled with the President’s Commission and how you could attract two bipartisan chairs as experienced as Mr. Johnson and Mr. Pierce, and I wonder why you 

couldn’t attract the same kind of experienced talent to the Postal 

Board, because here it has an enormous impact on the economy, on 

jobs, and I see no reason why you shouldn’t recruit to the Postal 

Board this same thing we would do in manning a Fortune 500 

board. I think there are a lot of able people with experience who 

would be willing to serve a limited term to get the job done in the 

future. That has not been done in the past, and I see no reason 

why you couldn’t call on a lot of able people in the business community to fill some of those seats. 

Mr. ANGELSON. Senator, I agree completely with Ms. Moore’s remarks. In manning or womanning a private company board, we 

have had great success in choosing people—and again, these aren’t 

the people who are going to actually be on the ground executing 

the decisions. These are people who follow the adage that when one 

has a symphony orchestra, one needs 100 people and there is somebody to play the triangle and somebody to play the drums and 

somebody to play the French horn, etc. We find that a broad crosssection of views from people with a broad and diverse cross-section 

of backgrounds most help in doing this. 

It is a business, Senator, as you know, the Postal Service, and 

we think it ought to be run like a business, again, subject to preserving jobs where we can do so. 

Senator CARPER. I realize my time has run out. Could I just ask 

one other quick one? 

Chairman COLLINS. Certainly. 

Senator CARPER. It relates to the line of questioning on the 

board. Do you recall what your board members are paid, just 

roughly, or your directors’ fees? I presume that is public knowledge. 

Ms. MOORE. I would say, typically—I think there is a broad 

range—I would say typically a board member of a Fortune 500 

probably makes around $50,000 a year, often paid in stock, not in 

cash. That is a guess, but I think that is what I recall. I am on 

the nominating committee of a Fortune 500 company. 

15

Mr. ANGELSON. I think that Ms. Moore’s guess is very close to 

right. There is—in governance, and you might not have this advantage when you put together a governance body for the Postal Service, because paying them in stock is something that I am not sure 

would induce them to necessarily perform to their utmost. I would 

have said, if we were in an all-cash compensation system, that 

something around $50,000 would probably be right. 

Ms. MOORE. But I would also add to that that I think you could 

probably, because of the importance of this, most sitting CEOs 

don’t sit on the boards of companies any more for the compensation. It is a lot of hard work and it is vital to the health of our businesses. I think it would not be money that would attract us to the 

board, but helping the Postal Service stay strong. 

Senator CARPER. Amen. Thank you. Thanks, Madam Chairman. 

Chairman COLLINS. Thank you, Senator. 

Ms. Moore, you indicated that one of your top three priorities is 

the establishment of an inflation-linked rate cap for the Postal 

Service. Under the Commission’s recommendation for such a cap, 

the Postal Service would have the ability to set rates below that 

cap. 

That leads me to ask you two questions. One, do you have any 

concern that the Postal Service would immediately jump to the cap, 

and second, should there be some sort of after-the-fact review of 

the rate structure to make sure that the Postal Service is not taking undue advantage of that latitude? 

I understand the need to have more flexibility, more predictability, and to get away from the current adversarial process, 

which can take as long as 18 months. But there are also risks with 

just allowing the Postal Service to set its own rates without review. 

Could you comment further on that? 

Ms. MOORE. Well, it is one of the reasons I would love Congress 

to set the inflationary cap guidelines. I could live with the Post Office having such a system and having the flexibility to raise rates 

up to that cap because it gives me predictability. I could budget for 

up to inflation every year or what the cap is. 

I think that what you want to counter with is a pay for performance. Remember, we want to incent the management of the Post 

Office to run a low-cost efficient business. Not only does it take 18 

months whenever the current system requires a rate hearing, but 

I have to tell you, I spend almost $1 million in providing reports 

every time there is a rate increase. The sheer waste of the current 

system is just intolerable. 

So I think we would all be very happy to live with a rate cap 

system. I don’t fear that the management would automatically go 

to the top cap if we incented them properly to run the Post Office 

as a business. 

Chairman COLLINS. Thank you. Mr. Angelson, do you have anything you would like to add? 

Mr. ANGELSON. I would support Ms. Moore’s comments yet again. 

For us, it is about stability and predictability. 

Chairman COLLINS. I want to thank you both very much for your 

testimony. We look forward to working with you. 

Senator CARPER. Madam Chairman, could I ask just one last 

question? 

16

Chairman COLLINS. Certainly. 

Senator CARPER. Mr. Angelson, I think it was you who spoke 

about how difficult it is to get the Postal Service to enter into a 

work sharing agreement. Would you just go back and briefly revisit 

that for us and maybe tell us what you think causes that difficulty 

and whether you believe that we ought to be doing something legislatively to make it easier to do work sharing? 

Mr. ANGELSON. Senator, it is about bureaucracy and it is about, 

if I may, concern about or fear of change. It is about entrenched 

ways of doing things. And yes, we would welcome any contribution 

that this Committee and ultimately the Congress of the United 

States could make to easing the way toward making the U.S. Postal Service a more business-like partner. 

Senator CARPER. Thanks very much. My thanks to both of you. 

Mr. ANGELSON. Thank you. 

Ms. MOORE. Thank you. 

Chairman COLLINS. Thank you. I want to thank both of our witnesses. Your testimony was extremely helpful and we look forward 

to working with you as we go forward and as Senator Carper and 

I draft our bill, so we would welcome any future advice that you 

might have for us. Thank you. 

Ms. MOORE. Thank you. 

Mr. ANGELSON. Thank you very much. 

Chairman COLLINS. I would now like to call forth our second 

panel of witnesses. Chris Bradley is the President and Chief Executive Officer of Cuddledown, Inc., a manufacturer and catalog retailer of fine home furnishings based in Portland, Maine. Mr. Bradley also serves as the Vice President of the New England Mail 

Order Association of America. 

Max Heath is the Vice President of Circulation, Postal and Acquisitions for Landmark Community Newspapers, Inc., of Shelbyville, Kentucky. Landmark Community Newspapers has 53 

weekly and daily newspapers in 13 States and Mr. Heath is in his 

18th year as Chair of the Postal Committee of the National Newspaper Association. 

William Ihle is the Senior Vice President of Corporate Relations 

for the Bear Creek Corporation of Medford, Oregon. Bear Creek 

owns the well-known catalogers Harry & David and Jackson & Perkins. Mr. Ihle supervises all public relations, community relations, 

and government relations for the family of companies in this country and overseas. 

And finally we are going to be pleased to hear from Shelley 

Dreifuss, who is the Director of the Postal Rate Commission’s Office of Consumer Advocate. She was appointed to this position in 

April 2002 and has 25 years of litigation experience representing 

consumer issues in the Office of Consumer Advocate. I would note 

that her primary duties are the protection of consumer and small 

business interests in rate and classification cases before the Postal 

Rate Commission. 

Mr. Bradley, we are going to start with you, not only because you 

are my constituent—— [Laughter.] 

But also because you were the first person to educate me on the 

broader economic impact of the Postal Service. You organized a 

meeting of some 22 businesses in Maine, ranging from printers to 

17

1The prepared statement of Mr. Bradley appears in the Appendix on page 81. 

paper manufacturers to LL Bean and everything in between and it 

really was an eye-opener for me about the link between affordable, 

reliable postal rates and the jobs that we have in our State and nationwide. So thank you for that education and I am pleased to ask 

you to proceed with your testimony. 

TESTIMONY OF CHRISTOPHER W. BRADLEY,1 PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, CUDDLEDOWN, INC. 

Mr. BRADLEY. Thank you, Chairman Collins. Cuddledown is a 

small company located in Portland, Maine. We manufacture down 

comforters and pillows with most of our marketing done through a 

catalog we mail throughout the United States. We currently have 

86 employees. Over the past 15 years, we have grown our sales 

from less than $1 million to more than $20 million. The engine for 

this growth has been our catalog and the U.S. Postal Service has 

been an essential partner in getting our message to our customers. 

I am here before you representing a small business that is dependent on a functional and affordable Postal Service. 

Cuddledown prints and mails more than ten million catalogs 

each year. Our annual postage bill is roughly $3 million, but the 

impact of our business extends beyond that. We print our catalog 

in Mississippi and we use about 2,000 tons of paper each year, also 

manufactured in this country. The total value last year of our payroll, FICA tax, workers’ compensation insurance, life insurance, 

long-term disability insurance, short-term disability insurance, 

health insurance contribution, and 401(k) contribution was $3 million. And like so many mail order companies, Cuddledown is located in a rural part of the country where good jobs are highly valued. 

Mail order and the Internet allows small companies to spring up 

all over the country to grow, create jobs, be successful, and to realize the American dream. But the future of this dream now depends 

on the legislation this Committee crafts to reform the Postal Service. Without substantial reform, it is expected that we will once 

again see rate increases far in excess of inflation. 

The last rate increase in June 2002 raised standard mail an average of 8 percent. For Cuddledown, that meant an increase in our 

postage bill of $240,000. That is eight good jobs at $30,000 per job 

that we would need to cut just to stay even. Given the weak economy and the job cuts that we have already seen, to cope with declining sales, large increases in postal rates will result in small 

business failures in my industry. 

Reform is clearly needed and the President’s Commission has 

outlined the reforms that need to be put in place. In reading the 

Commission’s report and published comments from other involved 

parties, it seems clear to me that reform would include the following: Elimination of the escrow account for overpayments into 

the Federal Civil Service Retirement Fund; shifting the obligation 

to pay for military service retirement from the Postal Service to the 

Treasury Department; giving the Postal Service the ability to open 

and close processing plants and post offices to meet their business 

18

demands; and enabling the Postal Service to use pricing and other 

services as tools to grow their business. 

In my opinion, this last point will be the most important in the 

long run. You must give the Postal Service the flexibility it needs 

to compete in the current world. The biggest current threat to the 

Postal Service is the shift from physical to electronic mail delivery. 

First class and standard mail are under attack and mail volumes 

are projected to decline in future years. The Postal Service must 

grow the volume of mail, and the only way to do that is to be competitive in today’s business world. 

The current structure of the Postal Service represents the competitive forces of the era when man first set foot on the moon. The 

structure has been successful for 30 years, but the world has 

changed and the Postal Service must change to survive. 

So what does it mean to be flexible and competitive in today’s 

world? I can think of one example that dramatically illustrates how 

the Postal Service is stuck in another era and how they can change 

to increase their mail volume. Cuddledown buys goods and services 

from hundreds of suppliers, yet the only supplier that does not extend us open credit terms is the U.S. Postal Service. 

Trade credit is the lubrication that keeps the business world running and growing. The Postal Service needs to compete in the modern business world, and yet their terms are cash in advance as if 

their customer had no other choice. This policy is straight out of 

the 1960’s, at a time when EZ–PASS was science fiction and trying 

to use your BankAmericard at the grocery store would have been 

met with polite refusals, at best. 

Cuddledown mails catalogs 18 times each year. The postage is removed electronically from our corporate checking account on Friday. The catalogs begin to move on Monday and begin arriving in 

our customers’ homes the following Monday. Our average catalog 

is delivered 12 days after payment has been made. The only competitive part of this process is the electronic debit to our bank account, and that is ironic because it saves us the postage cost of 

mailing our check. [Laughter.] 

UPS, FedEx, and Parcel Direct all give us open terms. Our printer, color separator, photographers, and models all give us trade 

credit. When we buy down or fabric to make our down comforters, 

we have standard payment terms. When we sell our comforters, 

pillows, and sheets to other retail stores, we extend them standard 

credit terms. I can even think of a guy from China who sells us 

down-filled booties. We meet with him in Germany. He has never 

been to Maine, much less visited us at our factory, and yet he is 

willing to give us trade credit. Trade credit is reasonable, it is controllable, and it is expected in today’s world, yet the Postal Service 

still requires their customers to pay in advance. 

So why should you give the Postal Service the ability to extend 

normal trade credit? Because they could use it to grow their volume. Paying in advance and waiting 12 days for your first results 

is a roadblock for any business and especially a small business. 

Cash flow is critical for a business, and many decisions, especially 

the question of how many pieces to mail, revolve around the impact 

on cash flow. If commercial mailers could match the timing of their 

19

1The prepared statement of Mr. Heath with an attachment appears in the Appendix on page 

85. 

postage payments with the delivery of their mail, they could mail 

more volume and they would. 

Would trade credit result in significant bad debt expense for the 

Postal Service? I don’t think so. The last supplier that a mailer 

would fail to pay would be the Postal Service because they would 

cut off its source of cash. It would be like failing to pay your phone 

bill. It is just not done by a mail order company. 

The Postal Service could easily control their expense and the 

marginal cost of mail delivery is low, so the risk of bad debt is low. 

The risk is low, the reward is great, and the very survival of the 

Postal Service depends on new ideas that will reverse its declining 

mail volume. 

Extending trade credit is just one idea that will help the Postal 

Service compete and thrive in today’s world. There are probably 

many others out there, and the important thing is that new legislation is passed that will enable the Postal Service to take advantage 

of the opportunities that are available to it. The business climate 

in the United States requires constant creativity and innovation 

just to survive. The legislation that formed the Postal Service in 

1960 served it well for many years, but now that same structure 

is a threat to its very survival. Electronic communication has irreversibly changed the postal world and it is up to Congress to create 

new structure that will allow the Postal Service to serve its mission 

for the next 30 years. 

Thank you. I appreciate being invited today and having the time 

to talk. 

Chairman COLLINS. Thank you. Mr. Heath. 

TESTIMONY OF MAX HEATH,1 VICE PRESIDENT, LANDMARK 

COMMUNITY NEWSPAPERS, INC., ON BEHALF OF THE NATIONAL NEWSPAPER ASSOCIATION 

Mr. HEATH. Thank you, Madam Chairman and Members of the 

Committee. My name is Max Heath. If I may, I will speak briefly 

today and submit a longer statement for your record. 

Chairman COLLINS. Without objection. 

Mr. HEATH. I am Chairman of the National Newspaper Association’s Postal Committee and I am a Vice President of Landmark 

Community Newspapers, Inc., a private company operated out of 

Shelbyville, Kentucky. As the Chairman said, we own 53 small 

newspapers, 34 related shoppers, about 25 related specialty publications, and 19 printing plants which both print on newsprint and 

mail publications for other people, including our own newspapers, 

and these are all across the country. I also serve as one of two 

NNA representatives on the Mailers Technical Advisory Committee 

formed by the Postmaster General about 35 years ago now, I believe, and have been on that since 1989. 

NNA supports postal reform and has worked for the past decade 

to help craft legislation that will provide the Postal Service with 

new tools to remain viable in this century while protecting the interest of small newspapers. NNA has about 2,500 member newspapers in America. I bring greetings from many of the publishers 

20

in your State, including, Madam Chairman, the publisher of the 

Ellsworth American, Alan Baker, who you know well, who is a 

member of NNA’s Board of Directors and who is a firm supporter 

of NNA’s excellent relationship with the Postal Service. Also in 

Senator Carper’s State we have Tom Bradley, the President of the 

Chesapeake Newspaper that operates in Maryland and Delaware, 

former NNA President. 

I would also like to insert here a point about the recycled content 

on the record, since that was brought up earlier, if I may. Newspapers are about 60 percent users of recycled newsprint and all the 

mills that we operate now include post-consumer content in that 

fiber that we buy. One thing we have learned as the States have 

tried to put in local laws to govern the use of this is that you can’t 

recycle forever. You always have to have some new fiber coming in 

because the fiber does wear out, so there is not such a thing as 100 

percent newsprint recycled. 

The typical member of NNA is a family-owned weekly of about 

3,000 to 7,000 circulation. Almost all of these depend upon periodical mail for their primary circulation and often use standard 

mail to deliver advertising to non-subscribers To illustrate, my 

company in 2003 spent $3 million in standard mail postage, $2 million in periodical postage, and only four-tenths of a million in first 

class postage for our total of $5.4 million postage bill. 

The membership of NNA also includes a number of small dailies, 

most of which are under 10,000 circulation and many of which are 

heavy mail users. In fact, we even have small dailies that continue 

to depend upon the Postal Service for the primary delivery of each 

daily issue. I have consulted with some of those States, such as 

Michigan and other places. 

I have provided postal consulting services through my NNA hat 

and in my Landmark position for nearly 20 years now and have 

also visited and seen newspapers in other countries. What is remarkable to me is the wide diversity and importance of the community press in America, compared to some other countries where 

there are one or two major national newspapers and possibly some 

smaller dailies. 

I think the critical element in this country for the hometown 

newspaper has been the Postal Service. Because of it, just about 

every county seat has its own newspaper and some of them have 

two or more even. Our Nation depends upon those papers to deliver 

information on local government and politics, including many of 

your local newspaper columns, and community activities. Even in 

an Internet age, we think there is no viable substitute for these 

newspapers. Community newspapers are continuing to grow in this 

country in total circulation even as metro papers, large State papers are on somewhat of a decline in the last 10 or 15 years. 

Congress ensured that we would have a thriving community 

press in the 19th Century when it developed postal rates that were 

designed precisely to give the new frontier its own local newspapers. The large New York dailies were mailing heavily into the 

developing South and West and Congress sought to provide that a 

local publisher could successfully compete by providing favorable 

rates. 

21

Because those favorable rates had to ratchet up to cover the full 

direct and indirect cost of delivery in 1970, our publishers have experienced dramatic rate shock. Even with the largest of work sharing discounts available now, our within-county rates have gone up 

more than 850 percent since postal reorganization, and at the basic 

level rate, there is a more than 2,000 percent increase. 

In 1993, Congress put a ceiling on the contribution of our postage 

to the Postal Service’s overhead cost, pegging it to the outside county periodicals rate. In the past few years, we have exceeded the 

ceiling. For example, in the 2002 Postal Service cost and revenue 

reports, we contributed 102.2 percent of our cost while outside 

county mail contributed 90.6 percent. The report demonstrates that 

our mail is not inefficient or unprofitable to the Postal Service. It 

does show a small profit. But it does require some extra work on 

our part and on the part of you and the Postal Service to ensure 

that we remain viable. Because our costs are so small and our mail 

is such a small part of the domestic mail stream, we sometimes become lost in the shuffle. 

So that brings me to my first request of the Committee. As your 

work continues, we hope you will make sure that our newspaper 

mail remains a distinct class within the mail stream and is not 

swallowed up by larger, more costly mail class. 

My second request addresses the Postal Service’s need for more 

flexibility in managing its business. We agree with the need to provide the Postmaster General more management control. This includes more flexibility in dealing with labor and capturing automation savings. 

We have a concern with the recent trend toward negotiated service agreements, however. While we do not oppose them outright, we 

think they should be based upon work sharing partnerships, and 

if they are, we think niche classifications are a far preferred tool, 

something that can be enjoyed by a wider class of mailers and not 

just one large company. 

We have consistently stated through postal reform discussions 

that NSAs that are crafted primarily upon volume-based incentives 

are unwise and are unfair in particular to small mailers. Even 

though NSAs may be extended to other mailers that are similarly 

situated, a small mailer may find a massive NSA competitor in his 

market and be unable to qualify for precisely the same sort of NSA. 

Therefore, we have urged the Postal Service and the Postal Rate 

Commission to require these NSAs to be sufficiently specific in 

their details and sufficiently open ended that a small mailer could 

request to perform the portions of the larger NSA that it is able 

to do and to earn proportionately similar discounts. We will make 

the same request of this Committee as it drafts legislation. We believe that if you leave this portion out of postal reform, the eventual NSAs may force small volume mailers out of the mail stream 

or even out of business, and the Postal Service will be the net loser 

due to the law of unintended consequences. 

There are a number of recommendations of the President’s Commission with which we heartily agree. We certainly agree that continued reform of the Postal Service’s Civil Service Retirement System contributions is needed. We supported passage of P.L. 108–18. 

We appreciate your work on that. We were dismayed by the addiVerDate 0ct 09 2002 13:34 Jul 12, 2004 Jkt 093479 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 C:\DOCS\93479.TXT SAFFAIRS PsN: PHOGAN
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1The prepared statement of Mr. Ihle appears in the Appendix on page 97. 

tion of a burden for military pensions, like you have heard from 

many others. We can find no justification for this burden. No other 

government agency bears it and no private corporation, of course, 

has to contribute to military pensions. 

Although the Postal Service is a hybrid of government and private, one would certainly assume that its obligations in this area 

would be similar to one of those two, and in this case, it is like neither one. We strongly urge that the escrow of payments in 2006 be 

ended and a plan worked out for using the savings of lower CSRS 

payments. 

We are also agreed that the Postal Service should be permitted 

to right-size its network. It may be surprising to some to hear me, 

the champion of small rural newspapers, agree that closing some 

postal facilities may be necessary. Yet I think it is time to give the 

Postmaster General the ability to decide how many facilities he 

needs. There are some situations where very small post offices and 

even processing plants will still be needed for universal service. I 

think he understands that and that his strategic changes will be 

sensitive to the many needs of communities. 

No one likes to lose jobs or facilities in their areas, and certainly 

not newspapers. But I think we all recognize that some change is 

going to be needed to keep the Postal Service viable, and I am willing to give the Postmaster General a chance to make some adjustments. If service standards are established and observed, I think 

he has the right to figure out how to achieve them. If he guesses 

wrong, Congress always has the ability to step in, and we will certainly be there letting him know at the quarterly meetings. 

In the end, Madam Chairman, I think we all are going to have 

to make some adjustments to keep the Postal Service viable. We 

appreciate the work that you and your Committee are doing and 

we look forward to assisting you as you develop this legislation to 

provide America with a sound Postal Service in the 21st Century. 

Chairman COLLINS. Thank you, Mr. Heath. Mr. Ihle. 

TESTIMONY OF WILLIAM J. IHLE,1 SENIOR VICE PRESIDENT, 

CORPORATE RELATIONS, BEAR CREEK CORPORATION 

Mr. IHLE. Thank you, Chairman Collins and Members of the 

Committee for providing the leadership that we so desperately 

need to reform the U.S. Postal Service. I am Bill Ihle and a Senior 

Vice President of Corporate Relations. I am here today on behalf 

of our companies owned by Bear Creek Corporation, Harry & David 

and Jackson & Perkins. 

Bear Creek is an active supporter of the Postal Service. Our CEO 

is an active member of the Direct Marketing Association and appreciated the invitation to be here today. However, she is planning 

Christmas already for Harry & David and was unable to make it, 

so I am here in her stead. Our Senior Vice President and General 

Manager of Customer Operations is Vice President of the Parcel 

Shippers Association and we are active in other industry associations. 

Harry & David is recognized as America’s largest shipper of 

gourmet foods, fruits, fine chocolates, and baked goods. Hopefully 

23

you have enjoyed our Fruit of the Month Club. Maybe a Royal Riviera pear or the always wonderful ‘‘Moose Munch.’’ At this time of 

year, it is particularly popular. 

Jackson & Perkins is the Nation’s largest garden and rose company outside of Bakersfield, California. We grow 9.8 million roses, 

and I might say also, 3 years ago, Harry & David and Jackson & 

Perkins received the U.S. Conference of Mayors awards for small 

companies for their recycling efforts, something we are quite proud 

of. 

We employ more than 2,000 people year-round and 8,000 additional employees in cities such as Medford, Oregon, and in Newark, 

Ohio. We have call centers there. We have our distribution centers 

there. We have warehouses, and we have our executive offices. 

We use all classes of mail to communicate with our customers, 

but our success ultimately depends on accurate, on-time, affordable 

package delivery, and the U.S. Postal Service is our primary resource for this task. Frankly, our companies would likely perish 

without affordable U.S. Postal Service that offers universal service 

and stands ready to deliver our packages to every city, every village, every hamlet, and yes, that includes Caribou, Maine. 

We agree with the President’s Commission that the service models will not work in the future and we agree with many of its recommendations. We are pleased that the bills your Committee and 

the House Committee has considered before, S. 1285 and H.R. 

4970, are consistent with those recommendations and we believe 

that they would largely get the job done. We must emphasize how 

important it is that both bills confirm the mission of the Postal 

Service, the physical delivery of letters, printed matter, and packages, and we hope a lot of Harry & David packages along the way. 

We believe that both bills will also support the principles the administration says should govern reform, best government practices, 

transparencies, flexibility, accountability, and self-financing. 

Consistent with those principles, we think that there are more 

specific criteria that reform should guarantee—continuance of universal service; greater flexibility in the Postal Service’s ability to fix 

prices and services; the deregulation of competitive products, such 

as parcel post, Priority Mail, Express Mail, so that the market will 

govern the prices and services; right-sizing the Postal Service infrastructure, redefining the regulatory regime to ensure that the Postal Service is performing its mission and that it ensures transparent 

operation, financial controls, and the fair and equitable rate structure; adequate compensation for postal employees at all levels in 

order to attract top-level employees and to give them the proper incentives; and end escrow of the CSRS savings and correct the military service credit situation. 

I would like to address two of these principles more specifically, 

the core service and increased competition for package delivery. 

We agree with the President’s Commission that the Postal Service continue as a public service with a universal service obligation 

that package delivery should continue to be the core function of the 

U.S. Postal Service. For more than a century, package delivery has 

been an essential and integral part of what the Postal Service does. 

The fact that private sector companies have been successful in the 

parcel delivery business in no way alters the necessity of keeping 

24

1The prepared statement of Ms. Dreifuss appears in the Appendix on page 107. 

the Postal Service in that business to ensure that there will be 

competition. 

We could not support any reform that would cut the Postal Service from the package delivery business because we believe that 

would end the universal service that our companies have come to 

depend upon. I repeat, of particular importance to us is 6-day affordable, universal, reliable package delivery service. There is no 

reason given the existence of competition for package delivery service to require the Postal Service to seek advance approval from regulators of its rates and practices as long as those rates and practices do not amount to unfair competition and cross-subsidy. Without the Postal Service, there simply would not be competition. 

Moreover, the Postal Service provides a unique service. Only the 

U.S. Postal Service provides truly universal parcel delivery service—post office boxes, A.P.O., F.P.O., Alaska, and Saturday delivery to just name a few examples. It does not impose a surcharge 

on residential delivery and does not compel the ordinary citizen to 

pay hefty charges or go to a franchisee in order to send a single 

package. In fact, the Postal Service’s competitors hand packages 

over to the Postal Service for delivery that they find inconvenient, 

difficult, or too costly. The USPS does not do that. It is the carrier 

of last resort. It goes the final mile virtually every time. 

Naturally, we want as many competitors for our delivery service 

as possible. At the same time, we understand the need for a level 

playing field. It is not in our long-term interest for any of the vendors who provide our transportation service to have an unfair advantage over others because that will soon end in a recentralization 

and monopolization of that service. We are pleased that S. 1285 

and H.R. 4970 protect against cross-subsidization and competitive 

products and strike the right balance. 

The Postal Service is living on borrowed time. Were it not for the 

efficiencies the current Postmaster General and his dedicated staff 

have been able to achieve and the one-time savings from the temporary fix of the CSRS, the Postal Service would already be in crisis. A few nay-sayers should not be allowed to stand in the way of 

the perseverance of this indisputable public service, a universal 

Postal Service. 

I thank you for your consideration and would welcome further 

questions on how our companies are so dependent upon the Postal 

Service and our further thoughts on how to reform the future of the 

postal companies. 

Chairman COLLINS. Thank you. Ms. Dreifuss. 

TESTIMONY OF SHELLEY DREIFUSS,1 DIRECTOR, OFFICE OF 

THE CONSUMER ADVOCATE, POSTAL RATE COMMISSION 

Ms. DREIFUSS. Chairman Collins, thank you very much for allowing me to testify today on behalf of consumers and small businesses. It is an honor and privilege to share my views with you 

today. 

Postal legislation of 1970 explicitly provided for a representative 

to protect the interests of consumers and small businesses when 

postal rates were to be changed and new classes and services esVerDate 0ct 09 2002 13:34 Jul 12, 2004 Jkt 093479 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 C:\DOCS\93479.TXT SAFFAIRS PsN: PHOGAN
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tablished. This continues to be a vital need today. I ask that you 

and your Committee explicitly provide for a Consumer Advocate in 

postal reform legislation that is presently under consideration. 

Mail to and from consumers and small businesses comprises the 

vast majority of the postal mail stream, approximately 80 percent 

of postal volume. Yet the individual usage of mail is relatively 

small on a per household basis. Individual mailers spend an average of $7 per month on postage. This amount is too small a percentage of a typical household budget to spur individual mailers to 

intervene in postal rate and classification proceedings. This holds 

true for small businesses, as well, those that spend a fairly small 

percentage of their budgets on postage. 

Without an independent Consumer Advocate to litigate on behalf 

of small volume mailers, the needs and concerns of small volume 

mailers will rarely come to the attention of a postal regulator. 

Large businesses, particularly those that regularly spend a sizeable percentage of their budgets on postage, find it in their economic interest to intervene on an individual company basis or as 

part of an association. They direct their energies and resources toward developing an evidentiary record that shows the effect of rate 

increases on their businesses. Without a consumer/small business 

advocate, the evidentiary record is unbalanced and incomplete. Evidence of the impact of rate increases on consumers and small businesses must also be brought to the attention of the postal regulator 

through the intercession of a Consumer Advocate. 

My office has represented consumer and small business interests 

for 34 years and has achieved a long string of victories on their behalf. I would like these protections and successes to be carried forward in the new era of postal legislative reform. 

The two main objectives of consumers and small business mailers 

are the same today as they were 34 years ago. They need high 

quality, reliable services at low prices. I must caution that the 

mechanisms that are intended to produce downward pressure on 

costs may have a corresponding tendency to produce downward 

pressure on service quality. For that reason, I endorse new mechanisms that will establish and maintain high levels of service performance at the same time costs are being controlled. 

A high level of postal services can be established by giving the 

Postal Regulatory Board the duty and power to establish service 

standards for every postal product and service. The consumer representative should be explicitly designated by statute to intervene 

in such proceedings. 

High quality postal services will be maintained by giving the 

Postal Regulatory Board the power to order the collection and reporting of detailed information on how well the Postal Service is 

meeting the service standards established by the Board. The Consumer Advocate should be given the power to file complaints when 

service falls below minimum standards. 

To protect consumers and small businesses from a disproportionate share of increases in postage, I ask this distinguished group 

to explicitly provide for a consumer representative in the baseline 

postage rate increase case that is planned to launch the new system of price controls. I also ask that the consumer representative 

be designated to participate in future postal rate and classification 

26

proceedings so that no changes can be made without specific consideration of consumer impact. 

Consumers and small businesses will be one of the major sources 

of funding for universal service. I do not think it advisable to 

shrink over time the base of mailers who fund universal service. I 

am concerned about a recommendation that would produce this situation by shrinking the postal monopoly. As the captive customer 

base shrinks, there will be fewer and fewer mailers contributing to 

the expenses of universal service and the fixed costs of the Postal 

Service. The prices that they pay will necessarily grow larger and 

larger over time because their share of fixed costs will grow larger. 

It is a mathematical law that cannot be escaped. Therefore, I recommend against a narrowing of the monopoly in proposed legislation. 

Again, many thanks for the great privilege of allowing me to testify this morning and I would be very happy to answer any questions you may have. 

Chairman COLLINS. Thank you for your testimony. 

Mr. Bradley, you mentioned in your testimony that the 8 percent 

rate increase that occurred in June 2002 meant for your company 

an increase in your postal bill of $240,000 and you equated that to 

being equal to eight good-paying jobs in Maine. Is there a particular problem for catalog companies when postal rates go up unexpectedly in view of your inability to adjust costs? In other words, 

I assume a catalog company sets the prices in advance. You are 

printing catalogs way in advance, and if you have to endure a postal rate increase in the interim, you can’t adjust your prices to recover those costs. Is that part of the problem? 

Mr. BRADLEY. That is certainly part of the problem. The inability 

to adjust quickly is always inherent in the catalog industry because 

right now, we are working on the holidays and we are actually 

working on probably 2005 right now. We don’t set our prices that 

far in advance, but we are very inflexible once we get close to a 

date. So it is very difficult to adjust. 

Also, we are not charging for the catalog. It is sent out free as 

a form of advertising. So we have to raise the prices of our products 

if we are going to cope with an increase in postage, and we are in 

competition with every other form of commerce in the United 

States. So for us to just increase prices because we have an increase of cost doesn’t really work. 

I mentioned eight jobs just to give a benchmark of what that 

would mean. You are really looking at cutting costs too, all things 

being equal, so you try to raise a little bit, cut a little bit, and try 

to survive. In an environment like we had, when we had three 

postage increases in less than 2 years, I think more like 18 months, 

that was a very difficult time because your costs are going up and 

there is just really no way to pass that on effectively and efficiently 

and competitively to your customers. 

Chairman COLLINS. So if anything, the current system forces you 

to look at reducing jobs because if you are coping with three price 

increases from the Postal Service in an 18-month period, you cannot recoup those costs through adjustments in your product prices, 

both because catalogs may already be printed, but also because you 

are in a competitive market, is that correct? 

27

Mr. BRADLEY. Right. You can’t raise the price of your products 

just because one of your costs has gone up unless that applies to 

everybody out in the retail world. Catalog and Internet, home shopping all combined, they are probably only about 15 percent of sales 

for our product categories in the United States. So you have got 85 

percent of the sales occurring in retail stores and that is where 

your competition is. You have to pay attention to the competitive 

environment for pricing your product. 

Chairman COLLINS. Mr. Heath, many mailers have criticized the 

current 18-month rate setting process as being too adversarial, too 

expensive, too time consuming. We heard Ms. Moore from Time

magazine say that she spends $1 million in intervening in the average rate proceeding. 

Consequently, the Commission and many other experts have recommended streamlining that whole process. Are you concerned 

that that would limit your ability as a stakeholder, as someone who 

is very affected by the outcome of the rate proceedings, if we move 

to the kind of system recommended by the Commission? Is there 

a trade-off for you that is worth it? 

Mr. HEATH. I don’t think we object to that because we don’t have 

$1 million to spend, so we don’t spend it, but $100,000 or so for 

our association to defend the situation. It is so drawn out and there 

are so many economic discovery issues that have to come up that 

if there could be ways to implement a shorter process and look at 

rate bands that are held below the cost of inflation, I think we supported some of those concepts and still will. So I think an abbreviated process is certainly in the interest of everybody in the mailing community and we don’t have any objection to that. 

Chairman COLLINS. Mr. Ihle, do you agree with that? 

Mr. IHLE. Yes. When we went through the postal increase, it cost 

us $8 million last year, not last year but the year before last when 

it went through. That had to come from somewhere. The catalogs 

are already preprinted. Our big expense is, it is not so much shipping out the catalogs, it is the parcels. If you already have your 

rate structure set in the catalog and the pricing, then all of a sudden in the middle of the year you get $8 million, that can be the 

difference between a good year and not a good year. 

It is a horrible shock to come in the middle of the year. You 

think you are on track. You think the year is going to be good. Consumers are responding. And then all of a sudden you get a bill for 

$8 million. That is a tough run. 

Chairman COLLINS. Ms. Dreifuss, the current rate setting process is adversarial in nature. It is very expensive and it takes too 

long. But you raised an interesting point this morning and that is 

that your office is able to intervene in the process to make sure 

that voices that might not otherwise be heard—small businesses, 

individual consumers—are represented. If we give the Postal Service the authority to set its own rates within a cap, how would we 

ensure that the important voices of consumers and small companies are heard in the process? 

Ms. DREIFUSS. One very important measure you could take 

would be to make sure that there is consumer representation in 

that baseline case that starts the price cap system. In that way, we 

would make sure in the baseline case that all first class rates, PriVerDate 0ct 09 2002 13:34 Jul 12, 2004 Jkt 093479 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 C:\DOCS\93479.TXT SAFFAIRS PsN: PHOGAN
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ority Mail, Express Mail, special services, that they are set in the 

proper relation to everyone else’s rates. 

Now, in the future, I think it is possible—no one would like to 

see this happen, but it may be possible even under a system of 

price caps that the Postal Service will sometimes even be unable 

to live within the price cap. I don’t know if legislation will provide 

for still further increases, but certainly if there were to be such increases, I would very much like to have a consumer representative 

there to make sure that a disproportionate share isn’t shifted onto 

the backs of the captive customer. 

Chairman COLLINS. So you see that baseline case that is going 

to be used to establish the cap as a way to ensure the involvement 

of your office on behalf of small businesses and individual consumers? 

Ms. DREIFUSS. Indeed, and I would hope to the extent that there 

will be future rate, classification, and service proceedings, even 

under our new regime of postal activity, that there would also be 

a consumer representative in those proceedings, as well. 

Chairman COLLINS. Mr. Bradley, the General Accounting Office 

has criticized the Postal Service in many reports for not having 

transparency and accountability in its financial statements, that it 

is very difficult to figure out exactly what is going on, whether 

cross-subsidization is occurring, whether or not the Postal Service 

costs are fully accounted for. If we are going to give the Postal 

Service more authority to set its own rates, does that need to be 

accompanied by new requirements to ensure that there is transparency in the financial reporting of the Postal Service? 

Mr. BRADLEY. I am not a student of the Postal Service and certainly the accounting of the Postal Service, but it would seem that 

it would be essential that you would have transparency in looking 

at the financial performance and being able to segregate different 

classes of mail and evaluating the specific costs of those classes of 

mail and being able to attach rates based on that. I think it seems 

essential. 

Chairman COLLINS. Mr. Heath, do you have any comment on 

that? 

Mr. HEATH. Well, we, too, like other associations and mailers, at 

times have had difficulty getting what we consider to be accurate 

information or sometimes information at all regarding the particular issues that we are trying to work with in a rate case. We 

cite in our testimony a problem that happened in the 1994 rate 

case where they came out with a 35 percent increase in in-county 

rates and when they got through refiguring their numbers, it was 

actually a negative 1.5 percent, so quite a big difference there. 

So especially with measurement of in-county volume and in-county costs, being the small class it is, we have a lot of concern about 

some of those issues and certainly we support any efforts that 

could be made to have better data and have that better data more 

shared and more shared on a regular basis between rate cases, not 

just in discovery and having to beg and borrow and subpoena. But 

if subpoena power needs to be there, we support that. 

Chairman COLLINS. Mr. Ihle. 

Mr. IHLE. Transparency is essential, Senator. 

Chairman COLLINS. Ms. Dreifuss. 

29

Ms. DREIFUSS. Chairman Collins, I think in order to make a 

greatly reduced rate case, a streamlined rate case work, it is absolutely essential that the Postal Regulatory Board have the power 

to require the Postal Service to collect and report the data that 

would be necessary to move forward quickly in the case. In that 

way, the public will be well informed about the Postal Service’s 

costs, revenues, and volumes before the case ever begins. 

Chairman COLLINS. Thank you. Senator Carper. 

Senator CARPER. Thanks very much. 

Ms. Dreifuss, I had to be in and out during your testimony. 

Could you just take maybe one minute and just summarize very 

briefly the heart of the thoughts that you would want me to take 

out of here that you have conveyed? 

Ms. DREIFUSS. I am delighted, Senator, to do that. What I said 

was that consumers and small businesses spend a very small percentage of their budgets, of their household or business budgets, on 

postage. Very large businesses and in particular those large businesses whose budgets have a very sizeable percentage of postage as 

being one of their expense items—Time Inc., for example—I want 

to make a contrast here that large businesses or businesses that 

have a sizeable percentage of their budgets on postage do intervene 

in proceedings. It is in their economic interest to do so. However, 

by contrast, consumers and small businesses, with their small involvement in postage, don’t. 

And that is why I think we need to have a Consumer Advocate. 

We have had one since 1970 and I would like to continue to see 

a Consumer Advocate in the future. 

Some of the other points were actually made in response to 

Chairman Collins’ question just now, and that, I think, covers it 

pretty well. 

Senator CARPER. Good. Thanks very much. 

Mr. Bradley, I think early in your comments you mentioned that 

the U.S. Postal Service was barred from extending trade credit to 

its customers. Did I hear you correctly? They are barred? 

Mr. BRADLEY. I am not aware of that policy being extended. The 

point that I was making is that out of all the vendors, hundreds 

of vendors that we deal with, and we are a fairly small company, 

they are the only one that has no ability or inclination to extend 

us simple payment terms, such as UPS, FedEx, Parcel Direct 

would do. They do the service and we pay really in conjunction 

with it being completed. 

Senator CARPER. I would ask any of the other panelists or witnesses, are you aware of a legislative constraint that keeps the 

Postal Service from negotiating trade credit? No? Let the record 

show that a shaking of heads no, indicated no. 

Mr. Heath, where are you from? 

Mr. HEATH. Kentucky. 

Senator CARPER. Whereabouts? 

Mr. HEATH. Shelbyville, just due east of Louisville. I am formerly 

from Campbellsville down south. 

Senator CARPER. Do you know my mother? [Laughter.] 

Mr. HEATH. Well, I could. Where is she from? 

30

Senator CARPER. Actually, she lives right across the line from 

Huntington in a little town called Ashland. My sister is in a place 

just to the east of Lexington, a place called Winchester. 

Mr. HEATH. Winchester, right, a beautiful little town. 

Senator CARPER. Keep an eye on them for me, if you would. 

Mr. HEATH. We will. [Laughter.] 

Senator CARPER. I want to go back to something that you talked 

about, Mr. Heath. A couple of our witnesses have come before us 

and talked about negotiating service agreements. I believe you cautioned us about large volume customers being able to negotiate 

those kinds of agreements, but smaller volume customers not being 

able to. 

In the legislation that I introduced last year, I think it allows 

small mailers—relatively small mailers—whose business is largely 

local to apply for negotiated service agreements. We tried to make 

sure in that legislation that a small newspaper, whether it is in 

Dover or Ashland or some other place, could get a negotiated service agreement with the U.S. Postal Service if a large mailer that 

they were competing with in Dover or Ashland were able to get 

one. Would that be something we ought to try to include in our 

final bill? 

Mr. HEATH. We are very sold on the concept of work sharing and 

our association was involved in some of the very early work sharing rates that went on in the early 1980’s so that if you presort 

your mail to certain levels and if you walk sequence it to certain 

levels, you get better rates, if you enter it at the office of delivery, 

like many of our publications do, both for newspapers and advertising mail. 

So we don’t quite understand why there can’t be more niche classifications that broaden the concept of work sharing to more mailers. That is what we basically advocate and we sort of stick with 

that. I suppose that if there is a way that this similarly situated 

language that has been kicked around could actually work—we 

haven’t seen it work just yet. We sort of believe in the concept, but 

we are not sure exactly how that is going to end up working in the 

final analysis. 

We just believe that if we do the same amount of work to get a 

piece of mail to an additional location than some competitor, or the 

same location as some competitor in some places, that we should 

have basically the same rates for it. We send out a lot of ad mail 

just like, for instance, Adville Systems does that serves our 

preprint customers going right down to the carrier route and we 

don’t necessarily think, or, in fact, we don’t think that just because 

they happen to enter so many billion pieces a year and we may 

enter a few hundred thousand, if we are doing the exact same level 

of work entered at that delivery office that we should have any less 

rate than they do. So that is why we feel the parity issue is very 

important. 

Senator CARPER. All right. Good. Thanks. 

I would like just to talk a little bit or ask you to talk a little bit 

about universal service, and I ask you to keep your responses brief 

so everybody can have a shot at this. What do you believe universal 

service to be? Do you think it is fully defined in current law or adeVerDate 0ct 09 2002 13:34 Jul 12, 2004 Jkt 093479 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 C:\DOCS\93479.TXT SAFFAIRS PsN: PHOGAN
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quately defined in current law? How do you envision universal 

service changing in coming years? 

So it is a three-part question. What do you believe universal 

service to be? Is it adequately defined in current law? How do you 

see it changing in coming years? I don’t care who goes first. We 

could do it in alphabetical order, though. [Laughter.] 

Mr. IHLE. I will take it first. We believe that universal service 

has to include package delivery. It has to be able to go to not only 

big towns but small communities. It has to include Saturday delivery. As we saw this year, I believe Christmas Eve was on a Saturday this year. Being a cataloger, and I suspect you feel the same 

way, that cutoff period where you have to cut off the phone orders 

and the Internet orders, for us it was, I think, December 19. That 

window in between the 19th and the 25th, the 24th for Christmas 

Eve, is a huge delta for us. If we can have that Saturday delivery 

and it happens to fall in that period of time, that is a huge incentive for us. It has to include packages and it must include Saturday. 

Senator CARPER. Thank you. Others, please? 

Mr. HEATH. We, too, in the newspaper business still feel that 6-

day delivery is important. Many of our members use Saturday for 

delivery of newspaper issues and shopping advertisement material. 

To us, universal delivery sort of increasingly seems to mean access to the full range of products and services that the Postal Service has. We are concerned, for instance, that the Postal Service had 

difficulty dealing with automation of our newspapers and we wanted to play, and we worked with a lot of work groups to play in that 

arena and make sure we are participating, and yet the machines 

too often are built maybe not to include the widest possible range 

of materials that need to go through them. So we can be part of 

this cost savings that needs to go on in automation. 

So to us, universal service means to not leave outside the best 

and most efficient part of the mail stream products that are very 

essential to local subscribers and to people all across the country, 

snowbirds and so forth. Many of our products go South for the winter and we have a lot of difficulty with that. 

So we are trying to view it a little bit as how accessible the whole 

system is and how much we want to be a part of the best, most 

efficient part of that mail stream. That is kind of an important 

issue for us. 

Senator CARPER. Thank you, sir. Ms. Dreifuss. 

Ms. DREIFUSS. I would be happy to go next. I think universal 

service means giving the public access to a Postal Service, a Governmental Postal Service, that will accept letters, packages, periodicals, and make delivery of those items to every home and business in the United States. I think it includes 6-day delivery. 

One point I want to stress that is often overlooked, everyone 

seems to accept that—and businesses in particular would like to 

have delivery made to every home and business in the United 

States. But I don’t want anyone to forget that in States like Maine, 

and I am sure many parts of Delaware, it is necessary for consumers and small business people to have ready retail access to 

these services. So I do think that should be part of the definition. 

Senator CARPER. OK. Thank you. 

32

Mr. Bradley, the last word. 

Mr. BRADLEY. Universal service, I think to me is similar to what 

Ms. Dreifuss said, access throughout the whole country. I see the 

Postal Service as being responsible for what is termed as the last 

mile, being able to go to every home and business in the country. 

I personally am not sold on 6-day delivery. I may buck the trend. 

I don’t know what the Postal Service would——

Senator CARPER. Do you want seven? [Laughter.] 

Mr. BRADLEY. No, I was thinking five, but I am not sure what 

they would do with the mail on that other day. Logistically, I don’t 

see how you could avoid Saturday delivery. I think the mail would 

logistically have to move on that day. 

But I think that the Postal Service is in that unique position and 

has that unique responsibility of going that last mile and is responsible for that and work sharing with others, such as FedEx going 

and being dropped off to the Postal Service to be delivered that last 

mile, those are all very appropriate. 

Senator CARPER. Good. Those are helpful responses and we appreciate each of them and we appreciate your being here. Thank 

you for contributing to our deliberations and we look forward to 

taking your thoughts into consideration when we try to mark this 

bill up. Thanks so much. Thank you, Madam Chairman. 

Chairman COLLINS. Thank you, Senator Carper. 

I want to end this morning by emphasizing a point that Mr. Ihle 

made, and that is that it is only the Postal Service that provides 

6-day-a-week delivery of mail to every address at a uniform rate, 

what Mr. Bradley referred to as delivery to that last mile. I think 

as we craft a postal reform bill, we need to remember that. 

At our next hearing on Thursday, we will hear from two of the 

Postal Service’s competitors, Federal Express and UPS, and I look 

forward to hearing their views on this issue, as well. 

I very much appreciate the testimony of all of our witnesses 

today. Your insights have been very valuable to us. You represent 

a real range of entities affected by the Postal Service. We are going 

to continue to work on this issue and we would welcome your advice and input as Senator Carper and I sit down at the end of these 

hearings to draft a bill. 

The hearing record will remain open for 15 days for the submission of any additional materials that our witnesses or others may 

have. 

This hearing is now adjourned. 

[Whereupon, at 11:54 a.m., the Committee was adjourned.] 

(33)

POSTAL REFORM: SUSTAINING THE 9 MILLION JOBS IN THE $900 BILLION MAILING 

INDUSTRY 

THURSDAY, MARCH 11, 2004

U.S. SENATE, 

COMMITTEE ON GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 9:30 a.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Susan M. Collins, 

Chairman of the Committee, presiding. 

Present: Senators Collins, Stevens, Voinovich, Carper, and Pryor. 

OPENING STATEMENT OF CHAIRMAN COLLINS 

Chairman COLLINS. The Committee will come to order. 

Good morning. Today marks the sixth in a series of hearings the 

Governmental Affairs Committee is holding to review the reforms 

recommended by the Presidential Commission on the Postal Service. On Tuesday, the Committee heard from representatives of the 

printing and magazine industries, small catalogue retailers, weekly 

and daily newspapers, and the Postal Rate Commission’s Consumer 

Advocate. We discussed not only the Commission’s workforce and 

financial recommendations, but also the Postal Service’s mission 

and monopoly, the rate-setting process, and corporate governance 

issues. Today we will continue our focus on the mailing industry. 

As our witnesses well know, the Postal Service is the linchpin of a $900 billion mailing industry that employs 9 million Americans 

in fields as diverse as direct mailing, printing, publishing, catalogue production, and paper manufacturing. The health of the Postal Service, therefore, is essential to thousands of companies and the 

millions that they employ. It is vital that we in Congress, the Postal Service, and the mailing industry work together to save and 

strengthen this institution upon which so many Americans rely for 

communication and for their jobs. 

I welcome our witnesses today and look forward to hearing their 

views and insights on the recommendations of the Presidential 

Commission. 

I would now like to welcome our first panel of witnesses. Mike 

Eskew serves as the Chairman and Chief Executive Officer of UPS, 

the world’s largest package delivery company. Under Mr. Eskew’s 

direction, UPS is expanding its capabilities into new lines of business that complement the company’s global package delivery operations. Prior to serving as Chairman and CEO, Mr. Eskew served 

34

1The prepared statement of Mr. Eskew appears in the Appendix on page 129. 

as both Executive Vice President and Vice Chairman. He has 

served as a member of the UPS Board of Directors since 1998. 

Our second witness this morning is Fred Smith, who is the 

Chairman, President, and Chief Executive Officer of FedEx Corporation, a $23 billion global transportation and logistics company. 

Mr. Smith provides strategic direction for all FedEx Corporation 

operating companies, including FedEx Express, FedEx Ground, 

FedEx Freight, etc. He founded FedEx in 1971. Today the company 

serves over 214 countries and handles more than 5 million shipments each day. 

We are very pleased to welcome you to the Committee. We appreciate your both taking time to come in person, and, Mr. Eskew, we 

will ask that you begin. 

TESTIMONY OF MICHAEL L. ESKEW,1 CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, UNITED PARCEL SERVICE 

Mr. ESKEW. Chairman Collins, good morning. I am Mike Eskew, 

Chairman and Chief Executive Officer of UPS, and I am pleased 

to be here today to testify on behalf of the men and women of UPS 

on this important issue of postal reform. I have a written statement that, with your permission, I would like to submit for the 

record. 

Chairman COLLINS. It will be entered. 

Mr. ESKEW. And I will summarize that statement with just some 

brief comments this morning. 

Madam Chairman and Members of the Committee, I appreciate 

your efforts on this important issue. The Postal Service is an impressive organization and has some great things going for it: Inspired leadership from Jack Potter and his team, incredible dedication of the people in the field, and an infrastructure designed to deliver core mail services that are second to none. 

In the past, UPS and the Postal Service have been at odds with 

respect to postal reform. However, more recently both organizations have made great strides in trying to find common ground on 

a number of issues. Many of our team from several functions across 

UPS have gotten to know the Postal Service, and Postmaster General Potter and his team have gotten to know us. And these efforts 

have led to relationships that we hope will continue to grow. 

We think it is a credit to both organizations that we have been 

able to meet with some level of success by working together where 

it has been mutually beneficial. UPS is in an interesting position 

with respect to the Postal Service. On the one hand, we are large 

customer of theirs. We use the Postal Service as our primary 

means of communication with our employees, our shareholders, our 

customers, our vendors, and others. UPS is responsible for over 

$230 million annually in revenue to the Postal Service, and as I 

have said before, we are now working together with them on a 

number of fronts. And, on the other hand, we are perhaps one of 

the few companies in the Fortune 500 that has the Federal Government competing in our core market, the package delivery business. 

I believe there is a path to postal reform that will enable the Postal 

Service to continue to provide high-quality core mail services to evVerDate 0ct 09 2002 13:34 Jul 12, 2004 Jkt 093479 PO 00000 Frm 00038 Fmt 6601 Sfmt 6601 C:\DOCS\93479.TXT SAFFAIRS PsN: PHOGAN
35

eryone in America. This path should include provisions that ensure 

that the monopoly is not leveraged into the competitive marketplace. Indeed, the Bush Administration highlighted this concern 

when it issued its statement that any reform measure must ensure 

that the Postal Service ‘‘operates appropriately in the competitive 

marketplace.’’

The path to postal reform should focus on the following key 

areas: A clear focus on core mail services; a strong, effective regulator; cost control, cost management, proper cost allocation, along 

with financial transparency; and, to the extent that the Postal 

Service competes with the private sector, it should be on a level 

playing field. I will elaborate on those four. 

First, reform should focus on core mail services provided by the 

Postal Service: First-Class mail, standard mail, and periodicals. 

These services provide the Postal Service with 99 percent of its annual volume, 86 percent of its annual revenue, and covers 92 percent of the overhead cost of the organization. Competitive products 

do not represent the way out of financial troubles for the Postal 

Service. Electronic alternatives to hard-copy mail pose a far greater 

threat to the Postal Service than does competition from private delivery companies like ours. 

Second, because the Postal Service retains its statutory monopoly, the public is best served by a strong, effective regulator. 

Strong, up-front regulation is simply the price for going to market 

with a statutory monopoly. I want to point out, however, that I 

agree that the current rate-setting process is in need of improvement. I do not believe, however, that effective regulation and improvements to this process are mutually exclusive. 

Third, the Postal Service and the Postal Rate Commission should 

have the tools needed to establish and maintain the clear, transparent financial picture of the Postal Service. Additionally, the 

Postal Service should continue to enhance its focus on cost control 

and set up its efforts to proper cost allocation to its various products. 

Fourth, and finally, to the extent that the Postal Service competes with the private sector, it should be on a level playing field, 

and that the Postal Service should not leverage its monopoly network into the competitive free enterprise marketplace. Because 

core mail services cover nearly all of the overhead costs of the Postal Service, competitive products essentially get a free ride on the 

postal network. Neither UPS nor any other private company has 

the benefit of a statutory monopoly to cover the lion’s share of its 

overhead cost. This clearly represents an advantage to the Postal 

Service. 

Additionally, the Postal Service enters the competitive marketplace with other benefits associated with its government status. It 

is exempt from many taxes and exempt from a number of laws that 

apply to the private sector. Just last month, the U.S. Supreme 

Court found in the case of U.S. Postal Service v. Flamingo Industries that the Postal Service is indeed part of the Federal Government and, therefore, it cannot be subject to antitrust laws. In its 

decision, the Court stated that the Postal Service has many powers 

more characteristic of government than of private enterprise, including its state-conferred monopoly on mail delivery. 

36

To be fair, the Postal Service also has its burdens placed on it 

as a result of its public mission that do not fall on private sector 

companies. This fact is recognized by the Supreme Court in the 

Flamingo case as well. These advantages and the burdens should 

be recognized and reconciled. 

I believe there is a path to reform that will accommodate the 

Postal Service, its employees, its customers, and its competitors. I 

look forward to working with you and your staff, Madam Chairman 

and Members of the Committee, to ensure the Postal Service remains strong and viable into the future. 

Thanks so much, and I will be happy to take your questions at 

the appropriate time. 

Chairman COLLINS. Thank you very much for your testimony. 

Before turning to Mr. Smith for his statement, I would like to 

call on my colleague, Senator Voinovich, to see if he has any opening statements he would like to make. 

OPENING STATEMENT OF SENATOR VOINOVICH 

Senator VOINOVICH. Thank you, Madam Chairman. It is a short 

statement. 

I want to thank you for continuing your thoughtful probe into the 

recommendations made by the Presidential Commission. I applaud 

your efforts to address this issue and for your commitment to finding solutions in a bipartisan manner. 

There is a bipartisan agreement that we need a strong, viable 

Postal Service. Whether it is delivering needed supplies to a business or a birthday card to someone’s grandmother, the Postal Service exists to serve the needs of every American. 

Ohio is the home to significant urban areas, major U.S. cities, including Cleveland, Columbus, Cincinnati, Toledo, and Dayton. 

However, much of Ohio is rural, and for people who live in rural 

areas, the Postal Service provides a vital communication and economic link to the rest of Ohio, the Nation, and, for that matter, the 

world. I know that rural Ohioans were concerned that universal 

service, guaranteeing affordable rates and frequent delivery, could 

be scaled back. I am pleased that the Commission strongly endorsed continuing this long-standing mission. 

Ohio’s business community has shared with me their support for 

postal reform including RR Donnelley, which maintains a large 

presence in Ohio, testified before this Committee on Tuesday, and 

the American Greetings, which is headquartered in Cleveland. But 

it is clear that the U.S. Postal Service faces serious challenges. 

While it is impressive that the Postal Service has reduced its level 

of indebtedness to the U.S. Treasury from $11 billion in 2002 to $7 

billion today, this is still a significant amount. In addition, the 

Postal Service carries approximately $48 billion in unfunded retiree 

health benefits and about $6.5 billion for unfunded workers’ compensation benefits. 

Furthermore, the Postal Service faces increased competition not 

just from commercial firms like the gentlemen who are here today 

and their companies, but also from rapidly expanding technologies 

such as e-commerce and online bill paying. 

In addition, we cannot ignore a new challenge facing the Postal 

Service, and that is the challenge of securing our Nation’s mail. My 

37

1The prepared statement of Mr. Smith appears in the Appendix on page 138. 

colleagues and the entire congressional community know this reality all too well after the horrific anthrax attack in October 2001. 

We are still getting our mail 2 and 3 weeks late. I have to tell people to mail items to our regional offices because of the process that 

mail must go through here. 

This tragedy was even more personal to the postal community. 

I visited with postal employees in Toledo and Cleveland after the 

anthrax attack to talk with them about their fears and assure 

them that we would do what was necessary to protect them. That 

is another burden the Postal Service carries today, and I know we 

are working to try and make sure that they are working in a secure environment. 

Madam Chairman, I thank you for calling this hearing. I thank 

the witnesses for their testimony before the Committee today, and 

I look forward to continuing to hear the views from our witnesses 

today. Thank you. 

Chairman COLLINS. Thank you. Mr. Smith, would you proceed 

with your statement? 

TESTIMONY OF FREDERICK W. SMITH,1 CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER, FEDEX CORPORATION 

Mr. SMITH. Thank you, Senator. I, too, have a written statement 

which we have submitted to you, and I am going to summarize it 

if that would be acceptable. 

Chairman COLLINS. Without objection, all written statements 

will be submitted in full. 

Mr. SMITH. Senator, on behalf of 245,000 members of the FedEx 

team, we appreciate very much the opportunity to give you our 

thoughts on this important issue. 

FedEx supports the modernization and the transformation of the 

U.S. Postal Service. We support S. 1285, which has been proposed 

by Senator Carper, with some recommended amendments. 

We urge further study in regard to developing a fundamental 

transformation plan for the Postal Service for the future to look at 

the pros and cons and the methods of turning the Postal Service 

into a corporation owned by the government or by private interests, 

and to determine the best method to unwind the monopoly that the 

Postal Service enjoys by the end of 2008, which is consistent with 

the European Union timetable, and in a manner most suitable for 

the Postal Service. 

Now, we are very familiar with the requirement to transform a 

business. FedEx itself has been dramatically transformed over the 

last few years from a largely domestic express transportation company to a major diversified transportation logistics and business 

service corporation. 

The Postal Service is likewise at the proverbial fork in the road. 

Its main income comes from letters, most of which will eventually 

disappear. And as Peter Drucker has noted, we are sort of like the 

1820’s, the same status in terms of the Information Revolution as 

the Industrial Revolution was at that time, so there is more change 

ahead. 

38

So the basic choice for the government is relatively clear. On the 

one hand, you can liquidate in an orderly manner or close down the 

USPS as technology encroaches upon its primary business. Or you 

can structure an entity that can compete. 

Now, FedEx favors allowing the USPS to compete because at the 

end of the day it is politically not feasible to simply ignore threequarters of a million U.S. citizens employed by the Postal Service. 

And the management of such a decline and liquidation would be 

extremely difficult. One only has to look at the experience of Amtrak to see how difficult that truly is. But none of that detracts 

from the issue that the Postal Service needs fundamental transformation. I think it was best summed up by David Walker, the 

Comptroller General of the United States, when he stated that the 

‘‘incremental steps toward postal transformation cannot resolve the 

fundamental and systemic issues associated with the Service’s current business model.’’

The Presidential Commission recommended making USPS into a 

world-class business, but it should be obvious that the USPS must 

first become a business before it can hope to become world-class. 

A regulated government monopoly cannot become a world-class 

business. We at FedEx certainly could not have transformed ourselves into the entity that we are today had we had a board of political appointees, regulated prices and operations, and a monopoly. 

So serious study is needed of the pros, cons, and options for transforming the USPS into a corporation. 

Likewise, the USPS cannot learn to compete unless it is required 

to compete. A monopoly is dispiriting and enervating. A serious 

quantitative plan to phase out by the end of 2008 should now be 

developed, in our opinion. Postponing repeal beyond 2008 could 

delay EU reform to the detriment of U.S. express and direct marketing companies. And I would just point out in that regard, one 

of the serious concerns I know on the part of FedEx, and I suspect 

on the part of the United Parcel Service as well, are the European 

monopoly postal services who have been allowed to come into private industry and use those funds to help them compete against 

our operations. 

FedEx would recommend an increase in USPS management 

flexibility, much more flexibility in pricing of their competitive 

products, an end of salary caps for executives to ensure the best 

possible talent. We would like to see a ceiling on the scope of the 

postal monopoly, say 12.5 ounces or 6 times the stamp price, and 

divesting the USPS of the administration of that monopoly because 

it is fundamentally unfair. 

We favor firewalls, which is the term that Congressman McHugh 

used over on the House side, to prevent unfair competition, a separation of USPS accounts into non-competitive and competitive, a required allocation of a reasonable level of overhead cost to competitive products, an end of key legal privileges for competitive products, such as the antitrust exemption, an assumed Federal income 

tax on USPS competitive product revenues. 

We recommend strengthening the Postal Rate Commission, giving it subpoena power, extension of jurisdiction to international 

mail, annual oversight of rates, and increased enforcement powers. 

39

We recommend allowing the Treasury and USPS to create a government corporation to handle the back office, transportation, and 

sorting in a truly businesslike manner. Such operations should be 

nonpolitical and performance based, and a government-owned corporation working only for the USPS would not pose competitive 

issues. 

The monopoly reforms need to be refined in minor respects, authorizing the Postal Rate Commission to adopt regulations clarifying the scope of the postal monopoly, and exempting outbound 

bulk international mail from the monopoly. 

You should consider authorizing, in our opinion, the Postal Rate 

Commission to phase in access to mailboxes in a controlled manner 

that does not hurt the USPS or households. 

And we think that you should adopt basic common-sense guidelines for international postal policy. You should not allow the USPS 

to charge less to deliver foreign mail than American mail, except 

perhaps for correspondence from the very poorest companies. And 

we recommend that you not allow the UPU’s Committee of Postal 

Officials to legislate international regulations binding on the U.S. 

Government or courts. 

And, finally, we recommend you exempt bulk business letters 

from the requirement of a uniform rate for all letters, which is 

about half of all letters. Universal service should be preserved, but 

allowed to evolve with changing times. No political or economic reason whatsoever, in our opinion, remains to require uniform rate for 

bulk business mail, and we recommend that you give the USPS 

maximum operational freedom consistent with maintaining universal service. 

That concludes my comments, Senator, and obviously I would be 

happy to answer any questions that you might have. 

Chairman COLLINS. Thank you very much. 

Before turning to questions, I would like to call on my colleague, 

Senator Carper, for any opening remarks that he may have. As 

many observers are well aware, Senator Carper and I have committed to joining together to draft a bipartisan postal reform bill. 

We hope that bill will be enthusiastically embraced by all of our 

colleagues. 

Senator CARPER. At least by George Voinovich. [Laughter.] 

Chairman COLLINS. Senator Carper. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. Thanks very much. 

Mr. Smith, I understand that when I was just about to walk into 

the room, you said some supportive things about the legislation 

that I introduced this past year, and maybe, Madam Chairman, if 

Mr. Eskew comes in and supports it as well, we could just go right 

to the markup on that bill. 

Chairman COLLINS. I don’t think so. [Laughter.] 

Senator CARPER. I didn’t think I would get you on that. 

Chairman COLLINS. Nice try. 

Senator CARPER. I have a statement for the record that I would 

like to submit, and we are just delighted that you are here. We 

have had, really, a series of excellent hearings, and I think given 

the lineup that we have here today, we are going to get a lot out 

40

of it, and I look forward to marking up the Collins-CarperVoinovich bill some time in the next couple of weeks. Thank you. 

Chairman COLLINS. That is right. 

[The prepared statement of Senator Carper follows:]

PREPARED STATEMENT OF SENATOR CARPER 

By all accounts, the Postal Service has been a success since its creation. It receives virtually no taxpayer support and the service its hundreds of thousands of 

employees provide to every American nearly every day is second to none. More than 

thirty years after its birth, the Postal Service is a key part of the nation’s economy, 

delivering to more than 200 million addresses and supporting a massive mailing industry. 

Even a casual observer, however, could see that the past few years have not been 

easy for the Postal Service. As we learned earlier this week, they have also been 

difficult for the private firms, large and small, and the millions of mailing industry 

employees who depend on stable postal rates. 

I am pleased, then, that we have a once-in-a-generation opportunity now to work 

in a bipartisan way to modernize the Postal Service and update its business model 

for the 21st Century. Congress has been at work on postal reform for nearly a decade now, mostly in the House under the leadership of Congressman John McHugh 

from New York. This year, however, I sense that we have some momentum that 

hasn’t been there in the past. 

At the end of last year, President Bush issued a set of postal reform principles 

focused on those recommendations from his postal commission aimed at improving 

transparency and accountability at the Postal Service and giving management the 

increased flexibility they need to streamline operations and seek out new mail volume. His principles touch on the main themes addresses in S. 1285, the comprehensive postal reform legislation I introduced last June. S. 1285 itself was based in 

large part on the most recent postal reform bill put forward by Congressman 

McHugh. 

I think it’s safe to say, then, as I’ve said before, that we probably have agreement 

on 90 percent of what should be in a new postal reform bill. Now that this committee’s schedule of postal hearings is nearly complete, I look forward to sitting down 

with you, Madam Chairman, and all of our colleagues to begin putting that bill together.

Chairman COLLINS. Thank you, Senator. 

Thank you both for your testimony. As competitors of the Postal 

Service, your views and experience are very important to our deliberations as we review the Commission’s recommendations and sit 

down to draft a bill. 

Mr. Eskew, during your presentation to the President’s Commission, you testified that the package delivery sector is well served 

by private companies, and some observers felt that you implied 

that the Postal Service should not compete in this area. Some observers have felt that both UPS and FedEx’s goal is to get the Postal Service out of the package delivery service. 

Earlier this week, we heard from both small and large retailers, 

for example, a small company in Maine called Cuddledown, a larger company that owns Harry & David, who testified before us that 

their companies could not exist without the Postal Service, even if 

they are customers of yours as well. 

Would you please comment on the issue of whether UPS believes 

the Postal Service should get out of the package delivery business 

altogether? 

Mr. ESKEW. Yes, Madam Chairman. My comments to the Commission was that philosophically we believe that the package business in the United States is well served by the private sector, and 

we think that this country was founded on the free enterprise system that really has made it the envy of the world in terms of the 

41

things that we do and the things that we bring to market. And to 

the extent that we do service very well, completely, the package 

business, we think philosophically that the government does not 

need to be in there, that we serve the needs of the public very well. 

Practically, they are in this business. Mr. Smith talked about the 

750,000 people. So we think to the extent that they do compete in 

this business, it needs to be on a level playing field, and that is 

what we have practically been talking about. So that is the first 

part of your question, I hope. 

The second part, just to think about—I am not sure about the 

small company in Maine or Harry & David’s comments about the 

Postal Service. But quite frankly, I would agree that the Postal 

Service is absolutely necessary to be able to ship out catalogues 

and bills and the things that we rely on them to do. Also, we could 

not exist without a strong Postal Service. So to that extent, I think 

that is real. 

To the extent that they are talking about parcels, on the other 

hand, though, we service all the State of Maine, from Calais to 

Corea to Presque Isle to Greenville, and every village, every town, 

every hamlet, every street in the United States, and we do not stop 

at the mailbox. We go to the door. We go to the porch. And there 

is an awful lot of these customers that tell us, ‘‘You’re the only one 

to come to the ranch,’’ or ‘‘You’re the only one to come to the farm,’’ 

in parts of Ohio and Maine and in Delaware and all over the 

United States. So we do service the whole country in terms of parcels. 

Harry & David’s parcels are heavy. They are pears, they are apples, they are rosebushes. They do not fit in the mailbox. And in 

those places where they do not fit in the mailbox, they go back to 

the post office. A postcard may be left in the mailbox, and the person would come to get them. We deliver them all the way to the 

door. And if for some reason there is a pricing differential, I think 

that is the whole competitive landscape that I like to talk about in 

terms of level playing field, because those heavy parcels are not 

part of the in-trace, in-sequence part of what the letter carrier 

finds on his tray with the next stop that fits nicely into the mailbox—and should not carry any overhead burden. Those things require overhead burden. 

Chairman COLLINS. Doesn’t UPS rely on the Postal Service for 

the delivery of packages in certain areas? 

Mr. ESKEW. Madam Chairman, we have two million daily pickup 

accounts in the United States, some infrequent, some every day. 

We have two accounts, two of the two million, one per million, that 

we have an experimental pilot program where we are using the 

Postal Service to deliver about less than 20 percent of the volume 

we pick up from those two accounts. Those two accounts’ packages 

fit in the mailbox, a place that we, as Mr. Smith mentioned, do not 

have access to. If we could have access to those mailboxes, that 20 

percent would be much less. 

But those two customers that we use the post office to deliver 

less than 20 percent, a very small piece, are satisfied with the 

slower services and less than—the visibility that we provide with 

the total services that we offer, and so we do use the Postal Service 

for those two accounts. 

42

Chairman COLLINS. Thank you. 

Mr. Smith, in some ways, your testimony seems to go even beyond Mr. Eskew’s when you refer to the difficulty of winding down 

an organization that employs some 750,000 individuals. I want to 

clarify what your position is since I do not think you really are endorsing the dismantling of the Postal Service, if it were practical, 

but perhaps you are. But what is your position on whether the 

Postal Service should be in the parcel delivery business? 

Mr. SMITH. Well, Senator, let me clarify the first point there. 

What I was trying to say, perhaps not as clearly as I meant to, is 

that the Congress of the United States has two choices. Technological trends are such that you can either decide to liquidate the 

Postal Service because that is what is going to happen if you don’t 

do anything. Technology is going to basically fundamentally change 

it. Or, secondarily, you can modernize it. We support the latter 

completely. And in that regard, some of the things that we have 

recommended, not dissimilar to what Mike Eskew said, are that 

the Postal Service divide its competitive and monopoly products 

into two buckets. And those competitive products have to bear an 

appropriate level of the overhead and the cost structure of the Postal Service. 

If you really look at the practicalities of the situation where the 

Postal Service shines compared to the private delivery companies 

like UPS and FedEx, both of whom serve every address in the 

United States the same way the Postal Service does, it is in those 

very small, particularly lightweight packages that can be commingled with letter mail. When the Postal Service has to have a completely separate delivery structure or an off-route delivery by letter 

carrier, that is not a marginally costed activity. And if you divided 

the Postal Service along the lines that we mention in here, into 

competitive and non-competitive products, and had the competitive 

products bear an appropriate level of the cost, my guess is the marketplace would solve all this on its own. And that is why we support the bill that Senator Carper authored and a companion bill 

over on the House side which is headed in that direction. 

So we do very much support the modernization of the Postal 

Service. 

Chairman COLLINS. Thank you. Senator Carper. 

Senator CARPER. Thanks very much. 

Just look forward, if you will for us, 10 or 15 years—and think 

about when Ted Stevens was a freshman Senator, he held hearings—I do not know that they were so much in rooms like this, but 

he actually shared with me once that he held breakfast meetings, 

I guess at his house here in the Washington area, back in 1970, 

1971, had people over for breakfast and they talked about what 

kind of changes were needed in the Postal Service. And out of those 

breakfasts—maybe we should start serving breakfast at these. I 

don’t know. But out of that series of breakfasts came sort of the 

foundation for the changes in the Postal Service that have endured 

for over three decades. 

I don’t know that anything we will come up with will have that 

kind of life span, but just look forward for us, and I am sure in 

1970 they did not know we would have an Internet, the kind of 

43

changes that we see in the delivery of information. My guess is 

that no one was even thinking about it then. 

But look forward ahead for us 10 or maybe 15 years and tell us 

what kind of postal system, delivery system, including your operations, what are we going to have? I am asking you to be futurists 

and look ahead. What do you think it will look like 10 years from 

now? Let’s go in alphabetical order. 

Mr. ESKEW. When we think about the future in our business—

and then perhaps I will come back to the Postal Service—we really 

think that it is goods and it is information and it is funds. It is all 

wrapped together. It is commerce all over the world in a much 

more global perspective than perhaps we think about it now. So it 

is going to allow companies like ours to be certainly one to one, 

each package as if it is the only one we have, each customer as if 

it is the only one, and it will be much more tailored and much more 

one to one with our—and that information about the goods moving 

through our networks allow us to do those kinds of things. So that 

is where I think that we are headed. 

Now, when you think about letters and documentation, Mr. 

Smith said it the right way, I think, that certainly the Internet and 

electronic transmissions, e-billpay, those kinds of things are going 

to go much further and much easier and much more—as younger 

generations age, it is going to be much more well received than it 

is today. And it is going to be much more practical to use it because 

it is going to be part of the process of ordering, payment. It is all 

going to be the virtual process of one touch, the bill gets cut, the 

bill gets paid, it is all electronic, it never gets reduced to paper and 

never finds its way into the Postal Service. 

Senator CARPER. All right. Mr. Smith. 

Mr. SMITH. Well, we have gone under a very simple premise for 

a long time, and that is that whatever can be moved electronically 

eventually will be moved electronically. 

Now, that threatens, if you will, a great part of the existing 

First-Class mail monopoly that the Postal Service has. I think virtually all of the invoicing that currently moves through the postal 

system will go to an electronic format simply because the cost/benefit ratio is enormously favorable. I mean, you can go online and 

find an invoice that you owe and pay it for a few cents, where the 

overall transaction cost of producing an invoice, mailing it, mailing 

back in a check is well over a couple of dollars. So just the efficiency of that will lead most institutions to go to an electronic 

invoicing system. Most of the personal communications that are 

written today have gone, of course, to E-mail. 

Now, I think on the other side of the coin, however, the Postal 

Service actually has a huge business opportunity in the future because what the Internet and cable TV are actually doing are balkanizing the broad communication systems in this country. You 

know that from the political campaign business. 

So the Postal Service has a tremendous advantage in that it is 

a product-push organization rather than a customer-pull type situation that the Internet is. If you are interested in looking at something on the Internet or buying something on the Internet, you 

have got to go on it and search it and find it. The Postal Service 

can reach out to specific slices of society like no other institution 

44

in terms of advertising, promotions, publications, catalogues, and 

then that in turn will create a tremendous amount of traffic going 

into homes and businesses, some of which the Postal Service, if it 

is reformed along the lines we suggested, can compete for and 

hopefully there is a significant amount of business there for FedEx 

and UPS and other private competitors. 

So I am quite optimistic that there is quite a good business for 

the Postal Service, but only if it is reformed and can encourage and 

incent that business, and then on the other side of the coin is required to cost account for competitive products in a way that you 

do not get this muddled situation that they have today about what 

is really costing what and what this should cost versus that. So 

that is our view. 

Senator CARPER. Thank you. Talk to us a little bit about corporate board structure. Look at your own corporate board structure. Look at that that exists in the Postal Service with the Board 

of Governors. I think in the President’s Commission they had recommended that we have a board of 12 members. I think the Postmaster General would serve along with three people, nominated by 

the President, confirmed by the Senate, and then they would go out 

and select from others in the country, eight or nine others to serve 

on the Board of Governors. They would serve 3-year terms, not 9-

year terms. There would be age restrictions; I think no one could 

serve over the age of 70. I think there would be a requirement that, 

for people to serve on the board, they would have to have had some 

experience in the enterprises that relate more or less to what the 

Postal Service does. 

Those are recommendations in the President’s Commission, and 

looking at your own operation, the way your own board operates 

the way you select your members and what we are going to be trying to figure out with the Postal Service, what advice would you 

have for us? 

Mr. ESKEW. Again, with any board in our governance, transparency is the rule of the game, and we need to make sure that 

anything that the board of our companies is fully transparent, fully 

reported, fully able to be audited and applied to all the proper commissions. And that is a big part of any part of governance for the 

Postal Service in the future. 

In terms of the board makeup, independence may be a little bit 

difficult because there are so many people that have so many contacts with the Postal Service. That may be a bit problematic. 

Senator CARPER. Everybody is a customer. 

Mr. ESKEW. That is right. That may be a little bit difficult to do, 

but certainly independence and proper oversight and transparency, 

the same type things that we do with our boards. 

Senator CARPER. Mr. Smith. 

Mr. SMITH. Well, based on my experience both at FedEx and 

serving on five other New York Stock Exchange companies over the 

years, I would say that the fundamental requirement for a good director of the USPS or any other large commercially oriented enterprise is business understanding and business knowledge. A person 

might not understand the particular details of the business, but if 

they understand how a commercial enterprise operates in general, 

they can generally provide good input to that organization. 

45

The second thing that they have to have is independence. In our 

particular case, there is only one insider on our board. All the others are independent directors and always have been. I think at one 

time we had two insiders on the board, so it is one out of 13. And 

I think that the second criteria is to have strong, independent directors. And the third, just as Mike Eskew said, is that you have 

to have a board that is willing to and insists upon a great degree 

of transparency to the various publics that oversee and depend 

upon the Postal Service. 

Senator CARPER. I might say, Madam Chairman, this issue of 

transparency that they both come to, when we talk about the issue 

of whether or not the Postal Service would have the ability in the 

future to use the profits from their monopoly operation to cover 

some of the overhead that relates to their competitive products, to 

the extent we could have good transparency, it would help ensure 

that that kind of thing does not happen. 

Chairman COLLINS. Thank you, Senator Carper. Senator 

Voinovich. 

Senator VOINOVICH. First of all, I would like to say that I do not 

have the benefit of the time that the Chairman of this Committee 

has had in studying the report of the Presidential Commission. I 

apologize if some of this may sound redundant. First, would you 

clarify if you are suggesting today that the Postal Service get out 

of those areas where they have high cost drivers and where the private sector is getting the job done. 

One of the concerns I have—and I am sure the public has—is 

that if the Postal Service withdrew from some of these competitive 

businesses, it would impact pricing. For example, if I am American 

Greetings or I am a big mail house like Donnelley or a mail order 

business like Harry & David, there is a concern that they are going 

to end up with one railroad and not have competition. As a result 

of that see their costs go up because there isn’t any competition. 

What are your comments on this? 

Mr. ESKEW. Senator, I will start. When we think about price and 

we think—the Postal Service has a number of different products, 

but I will simplify them into two. They go to market with a monopoly set of products and products that compete with the private sector. And when they go to market with that monopoly set of products, then the burden is to make sure that the cost is allocated and 

priced properly and it is managed properly and transparency is all 

there. 

The Postal Service has been able to allocate to each product 

about 60 percent of the cost. About 60 percent of the total cost is 

attributed to the product, and the other 40 percent is left over in 

overhead. 

Think about what happens with the 40 percent that is left over 

in overhead. To be able to partition those, they mark up each of 

those sets of products. In the monopoly part, if they mark those up 

by 69 percent, an extra 69 percent applied over and above the attributed cost a monopoly might——

Senator VOINOVICH. In other words, you are saying that the Postal Service uses one part of its business to subsidize other parts. 

Mr. ESKEW. Well, they do mark up the monopoly products by 69 

percent, only 28 percent in the competitive side. Two and a half 

46

times as much is marked up in the monopoly side that is protected. 

So that is something that when you do go to market and when you 

do have those kinds of markups that are two and a half to one, 

that gives us some concern. It is the price of going to market with 

the monopoly and competitive products, is proper oversight, proper 

regulation, proper reporting, proper transparency, and proper regulation up front. 

Also, if you think about who suffers because of that and you talk 

about prices, it is the captive First-Class user who, we believe, pays 

the price for the overall system. And so cost burden is shifted, and 

depending upon how that cost is cut up. 

Senator VOINOVICH. So you are saying that the First-Class customers are subsidizing the inefficient operations of other business 

lines? Are you saying the Postal Service should get out of those inefficient operations? Don’t you think that if they did, the costs of 

UPS and FedEx would go up substantially? 

Mr. ESKEW. We have a lot of great competition that we have to 

watch. We have to earn our business every day. And I did not say 

get out. I do think it just needs to be on a level playing field, and 

that attribution measurement certainly needs to be evaluated 

much more carefully, and more than 60 percent of it needs to be 

attributed to each product, and the way it is marked up beyond 

that needs to be studied. 

Senator VOINOVICH. Well, I want to say to both of you that I am 

a customer, and both outfits do a very good job, and I congratulate 

you on that. 

The other issue I would like to ask about is the issue of management. We have had the most revolutionary change in the last 25 

years in the Title 5 dealing with the Federal workforce. And both 

of you have had an opportunity to observe the postal management 

and how it is organized. 

In terms of just fundamental business practices, empowering 

people, training, giving employees the tools they need to get the job 

done, what are your candid thoughts about the management? 

Mr. SMITH. First, Senator, let me just clarify what you said to 

the question that Mike Eskew answered. We have not recommended that the Postal Service get out of anything. What we 

have said is break it into two parts, the monopoly and the competitive, and the competitive should be required to allocate appropriately the cost when it is competing with private industry, because, otherwise, you end up with someone subsidizing someone 

else. It is just that simple. And there is a great social experiment 

that has been going on for the last 10 years that shows what happens when you get oblivious to those types of fundamental business 

principles, and it is what has happened in Europe. It is incredible 

that these postal monopolies have been able to take these enormous protected monopoly cash flows and been able to diversify into 

competitive businesses, which earn a fraction of the returns of the 

noncompetitive businesses. 

Now, whose interests have been served? Only one, and that is 

the management of those regulated businesses over there. 

So we do not propose anything other than what I just mentioned, 

dividing it into two parts. 

47

Regarding the management, it is first-class, and the management of the Postal Service, particularly in the last two administrations of Postmaster General Henderson and now Postmaster General Potter, are as fine business executives in transportation and 

distribution as I have seen anyplace. And I think the common denominator there is that both of those Postmaster Generals, as opposed to the political appointees before, really understood the operations and the issues of the Postal Service as an operating entity. 

And the political appointees, while they were fine folks and some 

of them personal friends, simply did not have that level of knowledge. 

So the Postal Service is extremely well managed, in my opinion, 

and it is because of that fundamental change that took place with 

Postmaster General Henderson’s appointment. 

Chairman COLLINS. Thank you, Senator Voinovich. 

We have been joined by Senator Stevens, who probably knows 

more about the Postal Service than any Member of the Senate, and 

we are very pleased he could find the time to join us this morning. 

OPENING STATEMENT OF SENATOR STEVENS 

Senator STEVENS. Thank you very much, Madam Chairman. I 

am delighted to be here, and I am delighted that you are holding 

these hearings. With the Postal Service and the two gentlemen at 

the table, I think you are talking about three of the largest employers in my State, as a matter of fact. So the scope of this hearing 

is really, I think, most interesting to us. 

Unfortunately, I cannot stay because I have got an appropriations hearing, but I did want to come by and pay my respects to 

Mr. Smith and Mr. Eskew and the people that work for them, as 

well as the Postal Service. I think the recent changes in our economy show that we really have to find some way to bring about a 

better balance in this, and I congratulate you and the Committee 

for holding these hearings. 

There is no question that the scope of the mailing industry is 

changing, and its tasks are becoming just overwhelmingly difficult 

really to balance all the interests involved. 

I look forward to working with you and Senator Carper and the 

Members of the Committee, Senator Voinovich, in trying to find 

some answers to some of the questions that are being raised here. 

But I do not have any questions for them. I, instead, have thanks 

because I do not think we could get along very well in Alaska without the Postal Service or the services that FedEx and UPS provide 

to our citizens. I am happy to have a chance to just drop by and 

say hello. 

Thank you very much. As a matter of fact, I think FedEx is the 

largest employer in my home town, so I am glad to see you here, 

Fred. Thank you very much. [Laughter.] 

Chairman COLLINS. Thank you, Senator Stevens. 

I want to thank both of you for taking the time to come testify 

personally. You both represent outstanding companies, and I think 

we can learn a lot from your experience. So we hope you will continue to work with the Committee as we proceed down the road of 

postal reform. 

Thank you very much for your testimony. 

48

1The prepared statement of Mr. Mulloy appears in the Appendix on page 161. 

I would now like to introduce our second panel of witnesses. 

Gary Mulloy is the Chairman and Chief Executive Officer of 

ADVO, Incorporated, the Nation’s largest targeted direct mail marketing company based in Windsor, Connecticut. 

Gary Pruitt is the Chairman, President and Chief Executive Officer of the McClatchy Company, which owns the Sacramento Bee,

the Minneapolis Star-Tribune, the Raleigh News and Observer, and 

he appears today on behalf of the Newspaper Association of America, which represents 2,000 large newspapers plus a number of 

weekly newspapers. Mr. Pruitt serves as Chairman of the NAA’s 

Postal Committee. 

Robert Wientzen is the President and Chief Executive Officer of 

the Direct Marketing Association which represents 4,700 member 

companies, both commercial and nonprofit, including numerous 

catalogue companies and direct mailers. Mr. Wientzen has over 30 

years of experience in the marketing industry. In his position as 

President and CEO, he is responsible to the DMA Board of Directors and oversees all facets of the organization’s work. 

Mr. Mulloy, we will start with you. You may proceed. 

TESTIMONY OF GARY M. MULLOY,1 CHAIRMAN AND CHIEF 

EXECUTIVE OFFICER, ADVO, INC. 

Mr. MULLOY. Thank you, Madam Chairman. I am pleased today 

to represent the 3,700 associates of ADVO who serve 20,000 small 

and large clients across the United States. We are the largest user 

of standard mail, and we spend about half a billion dollars a year 

in postage. We are proud to be the constituent of the Ranking 

Member of the Committee in Connecticut, and we also have facilities in the States of most of the other Members of the Committee 

as well. 

I would particularly like to thank Chairman Collins and Senator 

Lieberman and the entire Committee for your work on Public Law 

108–18 which attempted to address the Postal Service’s CSRS 

funding issue. One of the key events of that effort was a request 

by Senator Lieberman for a report from the GAO. I thank the Senator for his initiative on that effort and for the commitment of 

every Member of this Committee to see that CSRS funding is corrected. 

As a result of that law, the Postal Service has promised to hold 

rates steady until at least 2006. Following three rate increases in 

an 18-month period, this respite came at a critical juncture for the 

Postal Service, our industry, and the economy as a whole as it prevented another rate increase and therefore created a window of opportunity for this Committee and Congress to thoughtfully consider 

postal reform. 

In the letter I received from the Chairman and Ranking Member, 

I was asked to address a wide array of reform issues being considered by the Committee. In response, I have submitted written testimony. I will summarize certain parts of my written submissions 

today. 

I am going to focus today on a topic that is not always considered 

exciting, and that is accounting. This Committee and the Congress 

49

should address this issue in a comprehensive manner. The issues 

I am talking about here are related to the retirement and health 

care benefits which have actually been mentioned this morning already. 

If we would put the Postal Service on a truly transparent and 

more clearly understood financial footing by addressing these 

issues, we would then empower all other reforms to, in fact, succeed. In addition, proper accounting of these benefits would allow 

the Postal Service to keep its commitment to its employees and retirees; that all pension and retirement benefits and health benefits 

are paid, now and in the future; and the Postal Service will be able 

to offer its customers an extended period of rate stability that 

would allow it to take advantage of our now recovering economy to 

grow volume and revenue for the Postal Service and improve the 

financial health not only of the USPS but our industry and the 

overall economy. 

As one of the Postal Service’s largest customers, I can confirm 

the GAO’s comments that predict spiraling, increasing rates will 

continue to drive business, volume and revenue away. Non-competitive pricing that creates higher than necessary postal rates has 

led existing and potential customers elsewhere. It has also led to 

the creation of competitive alternatives that have drained revenue 

and profits from the Postal Service. Some, like us, have even begun 

our own private delivery services as alternatives and as a necessary hedge for fear of continuing rising postal rates. If postal 

rates were established, maintained, and managed in a more market-oriented, efficiently run system, private industry would use the 

USPS more, and both the Postal Service and industry would experience growth. 

Our current strategy calls for us to double our business in the 

next few years. This will be done by expanding the geographic coverage and increasing the frequency of what we do. This expansion 

could bring significant additional business to the Postal Service. 

However, we have already begun shifting a significant portion of 

our business to alternate delivery. In just the three markets where 

we currently conduct our own private delivery system, we are delivering mail pieces that have more advertising, are heavier in 

weight, with equal readership and response to what we deliver 

through the mail, and are achieving savings of over $6 million per 

year compared to the cost of using the Postal Service. Unless 

changes are made, much of our future growth will continue to be 

shifted away from the Postal Service and into the alternate deliveries. 

Now let me give you a glimpse of a different scenario. Extending 

the current period of rate stability beyond 2006 would allow us to 

be even more aggressive in our expansion because we would have 

the confidence that our largest single cost would be contained. We 

have the latent ability to create 3 billion additional packages. Importantly, we would be able to plan our growth in a rate-stable environment. 

Continued rate stability would benefit the mailing industry, the 

Postal Service, and the economy as a whole. This is no overstatement. The volume generated by this hiatus in rate increases, coupled with the impact of the important reforms this Committee is 

50

considering, would set the Postal Service on a positive course for 

the next generation. On the other hand, frequent excessive rate increases, such as the three that were implemented from the beginning of 2001 until mid-2002, will decrease business and lead to the 

fulfillment of GAO’s prediction of spiraling declines in business. 

Stable rates coupled with comprehensive reform are not a pipe 

dream. This Committee can help lead the Congress to make them 

a reality. Since 1971, the Postal Service has been required to break 

even by charging mailers its cost of operation. The USPS has not 

been chronically losing money or breaking even in its operation, despite what many people have said. In fact, since it was created, the 

Postal Service has generated an operating profit, and a handsome 

one at that. 

Since 1971, postal revenues have been billions of dollars more 

than the cost of handling postal operations. Even if Congress were 

to force the Postal Service to book 100 percent of its health care 

liabilities today, the Postal Service still would have generated billions more in excess revenue through rates charged mailers and 

consumers in the past and still in place today. 

That money has gone to the Federal Treasury. The USPS is not 

only not subsidized by the taxpayer, instead, surprisingly, it has 

been subsidizing the taxpayer. 

Last year, this Committee took the first steps to correct the retirement overpayments made by the USPS to the Treasury. This 

important first step was only a partial, temporary solution and included some provisions whose effects were not known by this Committee and Congress and that were not in the best long-term interests of the Postal Service. 

In implementing last year’s action to correct the CSRS overfunding, the Office of Personnel Management made a very material 

accounting change to the existing 33-year methodology that substantially reallocated to the Postal Service some of the government’s responsibility for its share of the pensions earned as a result of work performed by postal workers prior to 1971. The 1970 

Postal Reorganization Act made the Treasury responsible for employee benefits earned while working for the old Post Office Department and it made the Postal Service responsible for benefits 

earned after they took over. For years, the benefit obligation for retirees with employment both before and after 1971 was allocated 

between the Postal Service and the Treasury based on the number 

of years of service employed at each agency, allocating the same 

dollar amount for each year of employee service. Using that methodology, the Postal Service has, as of today, even with last year’s 

changes, actually overfunded the CSRS liability by $81 billion. 

However, that fact was masked when OPM, after discovering this 

overfunding thanks to Senator Lieberman’s GAO request, responded by quietly adopting a new allocation method that shifted 

much of the pre-1971 obligation to the Postal Service, to the detriment of postal customers. Instead of an $81 billion overfunding, 

the USPS was told the obligation was still underfunded by $4.8 billion. 

Interestingly, congressional language in Public Law 108–18 established a method by which the USPS could appeal the change of 

the pre-1971 allocation to the CSRS Board of Actuaries. The USPS 

51

1The prepared statement of Mr. Pruitt appears in the Appendix on page 169. 

has filed that appeal. They make the case in that appeal that the 

original allocation method used for 32 years was fair and recently 

determined to be consistent with sound, common practice in both 

the public and private sectors by the Hay Group, a well-respected 

actuarial firm commissioned by the Postal Service. 

The USPS has a sound and well-substantiated case. However, 

the three-member, OPM-appointed board has not heard an appeal 

in its 84 years of existence. It is unclear what timeline or method 

will be applied to the USPS appeal. You have the opportunity to 

take control of that process and codify the former methodology in 

legislation, acknowledging postal customers have been grossly overcharged over the years, and make the operating and financial performance of the Postal Service clear and transparent as a productive base from which to implement other areas of reform. 

In addition, part of last year’s legislative fix of CSRS was a new 

requirement that the Postal Service pay military, Peace Corps, and 

other government retiree benefits. This transferred an additional 

$28 billion in charges. We would suggest, along with the Presidential Commission, that that requirement be removed. 

We believe that this Committee can put the Postal Service on the 

road to financial health if you fix the problem of the allocation of 

retirement benefits carried before 1971, transfer the military benefits back to the Treasury, and release a portion of the identified 

overpayments from the escrow created last year. These actions will 

make prefunding health care possible and eliminate the Postal 

Service’s debt to the Treasury. In addition, the Postal Service 

would have funds for needed capital expenditure, and it can provide additional years of rate stability going forward, that will, in 

fact, encourage revenue and business success for the Postal Service. 

We believe this resolution is fair to postal workers. We believe 

it is fair to the Postal Service. We believe it is fair to the consumer, 

and we believe it is fair to our industry that, in fact, relies on the 

Postal Service for its livelihood. 

Thank you for your time. 

Chairman COLLINS. Thank you. Mr. Pruitt. 

TESTIMONY OF GARY B. PRUITT,1 CHAIRMAN, PRESIDENT, 

AND CHIEF EXECUTIVE OFFICER, THE MCCLATCHY COMPANY, ON BEHALF OF THE NEWSPAPER ASSOCIATION OF 

AMERICA 

Mr. PRUITT. Thank you, Chairman Collins, Senator Carper, and 

Senator Voinovich. Thank you for the opportunity to share the 

views of the newspaper industry on the important issue of reforming the U.S. Postal Service. As mailers since the birth of the Republic, newspapers want and need a healthy and vibrant postal 

system for generations to come. 

The Newspaper Association of America encourages this Committee to take a comprehensive and fresh approach to postal reform, including addressing the difficult yet critical issue of cost control. NAA supports most of the recommendations outlined by the 

bipartisan Presidential Commission, and my written statement 

provides a summary of the industry’s position on all of the major 

52

issues addressed in the Commission’s report. The main focus of my 

testimony is pricing flexibility, an issue of particular concern to 

newspapers. 

First, I would like to take a moment to describe how newspapers 

use the Nation’s postal system. Throughout our history, newspapers have served as partners with the Postal Service in its mission to bind the Nation together. Congress has consistently recognized the important role newspapers and other periodicals play in 

our Nation’s postal system. 

Newspapers today are among the leading local users of postal services and, collectively, we spend well over $700 million on all 

classes of mail, particularly in periodicals and standard mail. And 

because we collect the majority of our revenue from subscriptions 

and advertising revenue through the mail, we also have a special 

interest in first-class. 

Newspapers, whether large or small, daily or weekly, serve as vehicles for news and advertising. Generally speaking, there are two 

kinds of newspaper advertising. One is commonly called ‘‘Run of 

Press’’ or ROP, and it appears on the page of the newspaper. The 

other is called ‘‘pre-prints,’’ and they are free-standing inserts that 

we either put inside the folded newspaper or mail to non-subscribers. 

Newspapers compete with other Postal Service customers, particularly saturation advertising mailers, for both types of advertising. Unfortunately, over the years this competition with other 

mailers has served as a source of considerable friction between 

newspapers and the Postal Service. Newspapers do not believe that 

the Postal Service, an agency of the Federal Government, should 

take sides in the marketplace competition between one mail customer and another. Regrettably, our experience has been that the 

Postal Service has, in fact, chosen to favor our advertising competitors through pricing strategies and new initiatives targeting the 

advertising revenues upon which we rely to support news and editorial content in our products. 

In its 1998 marketing plan, the Postal Service clearly presented 

its goal of harming newspapers in favor of advertising mailers. It 

said the service would ‘‘create the platform for moving substantial 

revenues from pre-printed newspaper inserts into the mail.’’

Since this declaration, Postal Service actions have spoken louder 

than words. It launched an ill-fated $10 million market test called 

‘‘Auto Day’’ that set out to divert automobile advertising from the 

Milwaukee Journal and into mail. Last year, in Iowa, the Postal 

Service employees made sales presentations to newspaper advertisers encouraging them to move their business out of newspapers 

and into direct mail. Finally, the Postal Service continues to advance the misperception that it is in the direct mail business. An 

example is its description in its 2002 Transformation Plan in which 

the Postal Service describes saturation advertising mail as ‘‘low 

hanging fruit’’ it seeks to increase, needless to say, at the expense 

of newspapers. 

While our concerns about the Postal Service choosing sides in the 

competition for advertising among mailers dates back more than 

two decades, we have been encouraged by the recent actions of 

Postmaster General Potter and his management team as they 

53

refocus the Postal Service on its core mission of mail delivery. We 

applaud their efforts, and we want to work with them as customers. 

Congress has heard from large mailers and the Postal Service 

that they want pricing flexibility and that that is key to the Postal 

Service’s financial future. We encourage you to examine these pleas 

carefully. There is a big difference between improvements that benefit all mailers, making the process of changing rates simpler, more 

efficient, and more predictable, and certain changes that would 

allow large influential mailers to get special deals for themselves. 

High on the wish list for pricing flexibility is the ability to enter 

into so-called negotiated service agreements, or NSA’s, with individual mailers. 

Although newspapers are often the largest mailer in a local market, we strongly oppose NSAs because we believe they unfairly 

favor the largest mailers with deals made by a government entity. 

Government services, here postal services, should not be based on 

negotiating or lobbying skills. I urge the Committee to support that 

principle. 

Newspapers believe strongly that NSAs for the benefit of individual mailers should be abandoned in favor of work-sharing arrangements that are available to all mailers, both large and small, 

who meet predetermined criteria for those rates, and that such discounts should be based on cost savings. By working with all mailers, the Postal Service would earn a far better return on its investment of time and effort than if it spends its energy and resources 

to negotiate special deals with individual mailers. 

While we oppose NSA’s for individual mailers, we agree that the 

current ratemaking process is too lengthy, too litigious, and too expensive. NAA supports the creation of an expedited rate-setting 

process that would also protect mailers from unjustified or flawed 

rate proposals before they are implemented. 

The Presidential Commission has recommended that the Postal 

Service should be allowed to set rates within certain limits established by an enhanced Postal Regulatory Board, and under this approach, rate ceilings could rise no more than inflation, and within 

a rate index, the Postal Service would have flexibility to make annual rate adjustments without going through the current lengthy 

Postal Rate Commission process. At the same time, mailers would 

be protected from large and frequent rate increases. NAA supports 

this type of pricing flexibility. 

Newspapers believe, though, that even with this revised system, 

mailers should be given at least an opportunity to challenge postal 

rates before they are implemented upon a complaint that a particular rate is flawed or discriminatory. Such a system would not 

cause delay in a proper rate change as the Postal Service must give 

mailers time to modify their mailing software to implement new 

rates. But it would provide an appropriate safeguard. 

Newspapers also agree with the Presidential Commission that 

with pricing flexibility must come enhanced oversight to ensure 

that the Postal Service operates properly as a public service. In 

particular, NAA supports the Presidential Commission’s recommendation to give an enhanced regulatory body the authority 

and tools to ensure that the Postal Service is appropriately alloVerDate 0ct 09 2002 13:34 Jul 12, 2004 Jkt 093479 PO 00000 Frm 00057 Fmt 6601 Sfmt 6601 C:\DOCS\93479.TXT SAFFAIRS PsN: PHOGAN
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1The prepared statement of Mr. Wientzen appears in the Appendix on page 183. 

cating its costs across its competitive and non-competitive products 

and services. The regulator in a separate proceeding should establish the methodology used for calculating and allocating costs and 

should be given necessary tools to compel the Postal Service to 

produce cost data. A more accurate and fair system for measuring 

and allocating costs should be a prerequisite of any reform measure. 

NAA appreciates the opportunity to provide the Committee with 

our views on postal reform and specifically on the issue of pricing 

flexibility. Congress established the U.S. Postal Service as a fundamental public service with a mission of providing universal mail 

service at affordable and non-discriminatory rates. We look forward 

to working with this Committee on comprehensive postal reform to 

improve this essential public service. 

Thank you. 

Chairman COLLINS. Thank you, Mr. Pruitt. Mr. Wientzen. 

TESTIMONY OF H. ROBERT WIENTZEN,1 PRESIDENT AND 

CHIEF EXECUTIVE OFFICER, DIRECT MARKETING ASSOCIATION 

Mr. WIENTZEN. Chairman Collins, I am Bob Wientzen, and I am 

President and CEO of the Direct Marketing Association. On behalf 

of the 4,700 members who are direct and interactive marketers—

and, by the way, that includes about 350 nonprofit companies or 

entities that use mail to raise charitable funds—I want to thank 

you for having us involved in these hearings. We consider this to 

be a vital issue for our industry, and, in fact, for its 9 million employees. This is the key to our continuing to be able to grow and 

be part of this economy. 

Now, I also believe that direct marketing is, in fact, a vital interest to the future of the Postal Service as well as the economic and 

social interest of the country. Our business has about a $635 billion 

impact on the economy, and our nonprofits, in fact, raise about $50 

billion a year through the mail. That is an important part of the 

social services part of the Postal Service’s contribution to the fabric 

of this country’s economy and its social work network. 

So we are talking about a major element of the economy and, in 

fact, over 50 percent of the Postal Service’s revenue from both mail 

and parcels, a very important distinction. 

From the outset, I want to tell you essentially what I told the 

Presidential Commission, and that is, I do not believe that you can 

find a solution to this problem without someone’s ox being gored. 

It is that simple. I do not think you are going to be able to find 

a way out without achieving less than that desired by some of the 

interested parties. 

My biggest fear at the moment is that the Washington drive to 

compromise will, in fact, produce a bill that ends up either not 

being effective or not being effective over the long term. And that 

view is shared by some of our larger members, who are worried 

that, in fact, we will not have a long-term solution coming out of 

this process. So that we want to acknowledge up front, that this 

is a tough one for you all to be dealing with. 

55

I want to cover a few of the key points that are covered in detail 

in our written testimony. 

Flexibility to set rates—clearly we think that the keystone of this 

legislation needs to be the ability to set increases on the part of the 

post office that are no more frequently than yearly and that are at 

or below the rate of inflation or the actual cost, whichever is less. 

To us that is sort of a bottom-line basis. 

We think that the post office and certainly us, the mailing community, need to be set free, as Mr. Pruitt and others have indicated, from this cumbersome and unbelievably costly ratemaking 

process that we now have before us. We also believe that the post 

office needs to have clear flexibility to achieve negotiated service 

agreements. 

On work sharing and workforce flexibility, another key point, I 

believe that any solution needs to build on the 25 years of worksharing experience that we have. We agree with the GAO. We are 

saving $15 to $17 billion with the work-sharing agreements we 

have now. That is more than the discounts that are being provided. 

The post office needs the flexibility to continue that program. It 

also needs the flexibility to right-size its labor force and its infrastructure. There is no question about that. It has to be able to 

match the marketplace demand for its services, which is—as you 

heard earlier and we certainly agree—going to continue to change. 

Now, that may mean a smaller internal workforce over the long 

term. I suspect it does. We think that can be handled by the significant retirements that we are going to see over the next 6 years. 

Also, modest adjustments in the current collective bargaining 

process may be in order. Specifically, we think we should be seeing 

required mediation and, very importantly, restricting arbitration 

awards to be prospective rather than retroactive. We do not see 

any sense in that system. 

Arbitrators, further, should be required to consider the current 

marketplace conditions in their findings. This is a changing communication world, and we think arbitration simply has to take that 

into consideration. 

Regarding workers’ comp—I agree with the Presidential Commission. An injured worker should receive the pension level that he or 

she would have ended up with had they not been injured. It is not 

comprehendible to me that somebody would end up with a bigger 

retirement having been injured versus somebody who served an entire career. And, Senator Collins, I know your staff is working with 

the employee groups on some of these issues to find ways to improve the collective bargaining process. We applaud you publicly 

for that. We know that is not simple. We would encourage you and 

we want to commit to being helpful in any way that we can in that 

regard. 

Let me make one additional point in that regard, and that is, we 

think there should be a continued effort to find ways to work with 

the employee units to increase volume. There is not enough talk of 

that, and some of them are working with us to try to find new ways 

to increase volume versus simply talking about cutting costs. 

Regarding universal service—we certainly support its continuation, and we think it ought to be reviewed periodically as the 

world changes. One important point, however, is we do see a conVerDate 0ct 09 2002 13:34 Jul 12, 2004 Jkt 093479 PO 00000 Frm 00059 Fmt 6601 Sfmt 6601 C:\DOCS\93479.TXT SAFFAIRS PsN: PHOGAN
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tinued need for a parcel delivery service component on the part of 

the Postal Service. It is vital to our members. Many of them depend on it, and it does provide a competitive base, and I think most 

of you realize that we believe that it is part and parcel of the work 

of keeping the system competitive. 

Now, two final big points regarding civil service retirement 

issues—we strongly agree with the Commission on this issue, and 

effectively we would say to you let’s make it right, let’s do it clearly, and let’s do it as soon as possible. There is no logical reason to 

continue the current funding of military retirement benefits by the 

post office, no logical idea that we have heard advanced, and we 

should not force mailers to fund an escrow account or in any way 

continue the mistakes of the past in that regard. Again, do the 

right thing for the post office’s future. And, Senator Collins, I know 

your initial bill did not include that escrow provision. 

To conclude, direct marketing is about arithmetic. It truly is. It 

is that simple. While we are a big industry, it is about the numbers. We use mail rather than use E-mail when mail works. We 

use mail rather than space ads when mail works. And, increasingly, there are competitions. We know that. Raising postal rates, 

to my knowledge—and I have been in the business a long time 

now, raising postal rates has never raised response rates. And, in 

fact, that has made the Postal Service less competitive with these 

other media. If we continue to raise them, we will make it even 

less competitive in the future. It is that simple. 

When the math says it no longer works, people now switch to 

other things, and they are increasingly doing so—a week does not 

go by that I do not have a meeting about issues of E-mail or wireless communication and so forth. And, in fact, if the mail continues 

to go up, we are going to see much more effort to use less of it. 

So I think this bill is going to have to end the death spiral that 

we have of increasing rates and diminishing volume. And I commit 

the Direct Marketing Association certainly to continue to work with 

all of you and ask that you really think of the fact that this bill, 

if it even comes close to the effort Senator Stevens and others made 

that was referred to earlier, is going to have to last us for a long 

time. We really need it to be effective. 

Thank you very much. 

Chairman COLLINS. Thank you, Mr. Wientzen. 

Let me start by responding to some comments that you made in 

which you expressed some skepticism about whether Congress will 

produce a comprehensive and effective bill. We would not be holding this, our sixth hearing on postal reform issues, if this were not 

a serious endeavor to produce a bill that does not just nibble 

around the edges but, rather, will be a comprehensive effort. I see 

the Commission’s report as presenting an opportunity that will 

pass by if we do not act. And a great number of the Members of 

this Committee have been very active in this effort. So our goal is 

the kind of comprehensive and effective bill that you seek as well. 

In that regard, aside from the issues of fixing the escrow account, 

which you correctly noted was not in the original bill that we authored here in the Senate, and the military retirement issue, what 

provisions do you believe are absolutely essential to make sure this 

is an effective, comprehensive bill? 

57

Mr. WIENTZEN. Well, certainly as others have indicated, the ratemaking process is really the keystone to, we think, the future. If 

we limit rate increases to the rate of inflation—I personally favor 

the rate of inflation minus some productivity factor. That aside, if 

we limit those increases, then, in fact, we will have a systemic reason for the Postal Service to be more responsive to the marketplace 

demands. And I think that will be very important. So that, I would 

say, is a key issue. 

The issue of being able to right-size both the workforce and the 

facilities, I think, is the second issue that we simply have to find 

a way to depoliticize that. We have to find a way to allow the post 

office adequate flexibility. The post office is doing a great job. We 

think that we have a marvelous post office. We really do. But, in 

fact, the fear is that they are going to be hamstrung from continuing to be able to deliver a competitive product if they do not 

have the ability to right-size both the workforce and the facilities. 

Those are the two big points I would advance to you. 

Chairman COLLINS. Thank you. 

Mr. Pruitt, in your testimony, you said, ‘‘Newspapers agree that 

the current ratemaking process can be too lengthy, too litigious, 

and too expensive.’’ You also say that, for good reason, Congress 

has never granted the Postal Service both a legal monopoly and 

pricing freedoms, and you go on to say that Congress should take 

pleas for pricing flexibility with a healthy grain of salt. 

I would like to explore this issue further with you because it is 

an absolutely key issue, and many of our witnesses have said exactly the opposite. They said without the ability to adjust rates, 

without a short-cut to the 18-month rate-setting process, the Postal 

Service just is never going to become agile enough and responsive 

enough. 

If Congress were to give the Postal Service more pricing flexibility, should the Postal Service be able to set whatever rates it 

wants? Should it have a cap? Should it have a review process before the fact or only one that is triggered after the fact upon complaint? Could you explain what you think should be done in that 

area now that we know your concerns. 

Mr. PRUITT. Sure. I will do my best, and to the extent that I am 

not complete in my answer, let me know. 

We do think the current process is not effective—too expensive, 

too lengthy, too litigious. So we do, in general, support the Presidential Commission’s recommendation on price flexibility and the 

indexing mechanism. 

Our concern there is that—and the way we would like to see that 

work is it would be indexed, say, to inflation or cost, whichever is 

lower, however it works, the rate announced, and would be put into 

effect unless there is a complaint, at which time the Postal Regulatory Board would quickly review and make sure it is fair, and the 

rate would be imposed. That is not unlike what the FCC used to 

do when they were administering rates and fees on telecommunications. There would be a rate announced, and without objection—

and there usually was not—it would go forward. If the rate is within the indexed amount, I do not think there would be many objections. 

58

But as the Presidential Commission pointed out, there are different postal functions that are used in each class of mail, so it 

does not necessarily follow that each will go up with inflation or 

each will go up at the same level or at the same time. Our biggest 

concern here is we do not want First-Class mail subsidizing standard mail. We do not want a cross-subsidization going on, and if 

there is an after-the-fact review, we fear that there will be damage 

in the marketplace with advertising and business switching in a 

fiercely competitive marketplace that an after-the-fact review and 

refund system will not adequately address. 

And so we are concerned with an after-the-fact review, but we do 

think the Presidential Commission is on to something with an appropriate amount of pricing flexibility within an indexing mechanism. 

With regard to NSAs, our concern with NSAs is that we do not 

think an essential public service should negotiate with individual 

customers for a price break. We do not think that that is the best 

or fairest or even most cost-effective way for the Postal Service to 

address this issue. We think what they should do is get the mailers 

together and establish work-sharing criteria for all of the mailers 

and have input from a wide array of mailers, it will be a better return to the Postal Service. It will be fairer. 

If you have an individual negotiation, that individual mailer will 

seek to have terms that may be particularized or individualized to 

its company, and that will be unfair to the other mailers who are 

not a part of this negotiation. I think it will be subject then to litigation and claims and not have an adequate return on the effort 

that the Postal Service is engaged in to create the NSA. 

Senator Carper has incorporated some safeguards into his proposal with regard to NSAs which I think are quite encouraging and 

wise. But we still have concerns that hopefully can be addressed. 

I do not want to go on too long, but I hope that addressed most 

of those questions. I would be happy to follow up if you would like. 

Chairman COLLINS. Thank you. Senator Voinovich. 

Senator VOINOVICH. Mr. Mulloy, you made reference to the accrued liabilities of the Postal Service. You think those need to be 

tackled, $48 billion in unfunded retiree health benefits and $6.5 

billion for unfunded workers’ compensation costs? In other words, 

this is a ticking time bomb, and you are concerned if we do not face 

that forthrightly that down the road you are going to see these 

things just skyrocket. 

Also, this is news to me. Did you say that the Postal Service subsidizes the Treasury of the United States. Is that correct? 

Mr. MULLOY. Yes, Senator. Essentially what has happened is 

that overcharges have been assessed to the Postal Service over the 

years. The Postal Service has charged excessive rates and those 

monies have been turned back to the Postal Service and then back 

to the Treasury in a way of assessed retirement benefits payments 

that were, in fact, not necessary. In effect, therefore, the Treasury 

has been subsidized by the Postal Service by incorrect assessment 

of retirement benefits payment obligations. 

Senator VOINOVICH. So what you would say is that that should 

be looked at very closely and start to direct those dollars, instead 

59

of going into the general fund, toward dealing in a responsible 

fashion with these accrued liabilities. That would be interesting. 

Mr. MULLOY. Yes, sir, it would. 

Senator VOINOVICH. Because our accrued liabilities for retirement and health care in the Federal service, as you know are enormous. We do not have the funds in many of these accounts, and 

then when these retire, we have to take money out of the income 

that comes in. It is a pay-in, pay-out type of a system. And you are 

suggesting that, like any business, you must put the money aside 

and deal with funding retirement benefits in a responsible fashion. 

Mr. MULLOY. Exactly, Senator. I would add that unfortunately, 

in most commercial entities, the accrual for retiree benefits is not 

necessarily 100 percent secure, as we all know, even in the commercial world; and that, in fact, with what the Postal Service has 

paid, for the last 30 years or so, is in an enviable position, to actually deal with all these issues at one time if we, in fact, look at that 

as a totality. 

Senator VOINOVICH. Well, the problem is that, like so many of 

the other trust funds, there is nothing. We have spent the money. 

Mr. MULLOY. Right. 

Senator VOINOVICH. We say it is there, but it is not. So that is 

something that really would need to be done over a period of years 

in order to make it right. 

Mr. Wientzen, you were saying something about competition. I 

asked a question earlier of the other two witnesses about if the 

Postal Service got out of parcel delivery, you would not want that 

to happen. 

Mr. WIENTZEN. No, Senator. We think that would be a serious 

problem on a couple of fronts. 

First, a large number of our members really do depend on the 

parcel delivery service of the Postal Service. We are large customers, and many of our members are entirely dependent on the 

Postal Service for their parcel delivery. 

Of course, we have a number of members who are delivering——

Senator VOINOVICH. Will you tell me, which members? 

Mr. WIENTZEN. Well, I was just going to say, we have a number 

of members who are delivering smaller parcels—books, CDs, software, and so forth. Oftentimes, they are finding that the Postal 

Service is absolutely cost-competitive and they provide an adequate 

service. 

Beyond that, there are many of our catalogue members—and you 

heard, I think, an earlier firm, a couple of them—who find that the 

Postal Service’s products are cost-competitive, that they are adequate for their needs and the Postal Service does a good job. 

I think finally we have a very serious concern that if the Postal 

Service were to either be pushed out of the business or to have encumbrances that make it less competitive, that, in fact, you would 

see prices being driven up by UPS and FedEx, good business practices that they would be, would simply move prices considerably 

higher and that would be bad for our members and bad for the customers that they serve. 

I do not know why so many people think that, for example, our 

industry, let’s take just the catalogue part of our industry, has 

switched over to the private delivery services. They have not. There 

60

are many who use both, and we have a fairly good number who use 

principally the Postal Service. And I will tell you, many of them are 

not unhappy, again, with that value proposition, the cost and the 

quality of delivery. 

Senator VOINOVICH. The question is are you happy with that 

service being subsidized by other customers of the Postal Service? 

Mr. WIENTZEN. Well, it is a fair question, and I would argue, we 

do not think it is. We think that there is adequate protection in 

place at this point. But, beyond that, I would ask you to think 

about this: Does United Parcel charge all of its customers the same 

rate? No. We know they do not. In fact, I can tell you, having been 

on the other side, that you can sit down and negotiate with United 

Parcel or with FedEx, and depending on your volume and what you 

want and where you are and how much business they have and a 

lot of other factors, not just your size, you can come out with a different price. 

Now, I would argue, if I come out with a better price than you, 

are you, in fact, subsidizing me? I think you all have to make a big 

decision here. Are we going to move this thing more in a direction 

of the marketplace or not? And, yes, if you do move it in a direction 

of the marketplace, are there going to be a few inequities here or 

there? Yes, maybe so. But as long as they are not significant and 

serious, I think you have to decide to move it in a direction of a 

freer marketplace situation. If the post office can do a good job at 

a reasonable price and agree that they do not use the monopoly as 

the principal way of subsidizing it, I think we have to open that 

up, frankly. 

And I would also say to you that we think opening it up to other 

private delivery services, be they domestic or foreign, is not inappropriate competition. We are not afraid of that. 

Senator VOINOVICH. So you would say that you think they ought 

to have the flexibility to look out at the marketplace and look at 

what their costs are and what others are, and understand that in 

totality to compete. 

Mr. WIENTZEN. Well, I do. And I would say if you look carefully 

under the hood, you would discover that there is one form or another of ‘‘unlevel playing field’’ all over the place. Do the private 

delivery services use other businesses to subsidize delivery? They 

have leasing businesses that, in fact, are less profitable than the 

delivery service. I suspect that in today’s world, we are going to see 

a lot of that. I grant you that government services are different, 

but the big decision you all have to tussle with is: Do you move this 

Postal Service further away from being a government agency and 

more into the private marketplace, competition world? 

Senator VOINOVICH. My time is up. 

Chairman COLLINS. Would you like to——

Senator VOINOVICH. I would just like to mention one other thing. 

Chairman COLLINS. Sure. 

Senator VOINOVICH. We got into the issue of the workforce in 

terms of needing flexibility, and as I mentioned earlier, we have 

tried, working with the Chairman of this Committee, to make some 

real changes in Title 5, for our civil service. The concept is to work 

harder and smarter and do more with less; to pay for performance 

and give agencies flexibility to bring in people, for example, and 

61

paying them more than what the Federal Government says you can 

pay because they need the experts, but just giving them a lot more 

flexibility. 

It has not been easy because there is some real concern in terms 

of the employee unions, and I would like you to further comment 

on that issue. I know the Chairman has been working with the 

unions. We are trying to come up with something that they feel is 

going to be fair. But from your perspective, are we too inflexible in 

terms of our operations, in terms of human resources? 

Mr. WIENTZEN. Well, certainly you are less flexible or the post 

office is a lot less flexible than the private sector would be, and the 

fact is that that is where the competitive pressures are coming 

from. So the answer is certainly yes, there is a lot less flexibility. 

I do think that you have made some progress. I think we should 

acknowledge that. There is some great thinking going on, and we 

are feeling generally positive. I will also tell you that we are working with some of the unions in a much more cooperative and 

proactive way. And we are seeing some different focus by a number 

of those folks who do recognize now that there is going to be a significant drop in the volume of mail at the post office. And if we do 

not have more flexibility and they do not join in on that, we are 

not going to have jobs one way or the other. 

But there are lots of things that you can do yet. For example, I 

think preserving seniority if the trades move between one kind—

because that is going to have to happen, I suspect. To have those 

inflexible silos like we have now is going to be really a problem 

down the road in the next couple years. You are going to have to 

have more flexibility there. I think the grievance process and some 

of those kinds of things need to be less bureaucracy oriented and 

faster. They need to move along, less incentive for spreading out 

things. We think the mediation thing I mentioned needs to be—we 

need to have incentive to move all of these processes more quickly, 

to make the post office more nimble and able to be competitive. It 

is not now able to really be as competitive as they want to be or 

they would be if we took some of the bureaucracy away from the 

structure that they are having to deal with. 

Senator VOINOVICH. Chairman, are the demographics the same 

in the post office as they are in most of the other Federal agencies 

in terms of this large group of people that are going to be retiring 

that could make it more easy to do some of the things that Mr. 

Wientzen suggests? 

Chairman COLLINS. Absolutely. Forty-seven percent of the postal 

workforce will be eligible for retirement within the next 10 years. 

So the workforce reforms, in my judgment, do not translate into the 

need for large-scale layoffs. I think a lot of the right-sizing can be 

done in a compassionate way that takes advantage of the aging 

workforce in the sense that they are eligible, going to become eligible for retirement. So I think a lot of the reforms that need to be 

instituted can be done in a way that creates a positive working environment, and I know that has been the Senator’s concern as well. 

Mr. WIENTZEN. And if you look at the detail of the numbers, even 

within 6 years of—while we say a decade, if you really look at the 

numbers, within the next 6 years you have got a tremendous opportunity within that time frame to make a very significant difVerDate 0ct 09 2002 13:34 Jul 12, 2004 Jkt 093479 PO 00000 Frm 00065 Fmt 6601 Sfmt 6601 C:\DOCS\93479.TXT SAFFAIRS PsN: PHOGAN
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ference. We just have to take sort of the boundaries of some of the 

things that the post office would do in terms of shifting people 

around and so forth. 

Chairman COLLINS. Thank you, Senator. 

Mr. Mulloy, I want to talk to you because you have a very interesting perspective. You are both a very large customer of the Postal 

Service, but you are also a competitor. You described in your statement that in three markets you have gone to an alternative delivery system. 

One of the issues that the Committee is debating is whether or 

not the Postal Service should be allowed to compete in areas where 

there are private sector providers. As you are well aware, the Postal Service has had some bad experiences in trying to sell products 

that really were not part of the Postal Service’s core commission, 

and they ended up being money-losing enterprises. 

So, first, I would like to get your view on the issue of the Postal 

Service competing with the private sector. And second, and a related issue, is whether there are additional constraints that are 

needed, either statutory or regulatory, to ensure fair competition 

and to ensure that there is not a cross-subsidy between the monopoly products and the competitive products. 

Mr. MULLOY. I think to reply to the first part of the question, I 

really do believe that we would support and I would support that 

the Postal Service should be a stronger and more competitive commercial entity. I think with that I am implying that it should, in 

fact, compete with commercial entities that are conducting the 

same kinds of businesses. 

There should be a charter around the Postal Service in terms of 

where it should properly focus its attention. Some of the things 

that were attempted to be done with separating its business into 

three separate buckets that begin to look at First-Class separately 

from standard mail and some of the other pieces of the business 

that it is in, we would support that. But I do believe that the Postal Service should be encouraged to be a competitive entity where 

it is doing its business. 

Our company makes decisions to use our own private carrier delivery system when we think it is economically attractive. I wish 

that that were not something we needed to do to protect the outlook for rates and the uncertainty of that rate process going forward. If we felt that the Postal Service managed its rates as most 

commercial entities do, which is setting the caps around inflation, 

and understanding the way that you are incentivized to manage 

your business then its customers would have the reliance upon the 

fact that they are not going to have an inflationary cost, especially 

when that cost is a major part of the business that they do. 

The second thing is that I think there is only a certain amount 

of regulatory environment you can put around an entity. You cannot legislate out every single thing that might, in fact, be simply 

a slightly different way of interpreting things. The idea that we 

need to fairly burden the cost of all parts of the mail system with 

the cost of doing that part of the mail is something that we would 

endorse. 

That being said, in my 35 years of business, I know that cost accounting is not a science. It is an art. And it, in fact, does subsidize 

63

new ventures for a business. When a company goes into a new 

business. In the very first company I worked for, in the new product department of a personal care company, they allocated what 

they called ‘‘before fixed overhead profitability.’’ For the first 3 

years of the product’s life they did not even allocate fixed overhead 

to that product because it was being invested in as the future 

growth of the business. 

I am not implying that that is done broadly and deeply and arbitrarily, but, in fact, it is a way that businesses look to the future. 

And if we want the Postal Service to begin to look to the future, 

it has to be looking at where its business is going to come from and 

where it wants it to go. And I really believe, as I think even Mr. 

Smith said earlier, that there is a bright outlook for the Postal 

Service. I think there is a lot of business to be had, as long as it 

is encouraged to commercially market itself against the growing 

product streams that are out there. 

Chairman COLLINS. Mr. Pruitt, I would like to ask you a similar 

question because in your testimony, you gave an example of the 

Postal Service competing with the newspaper business. And I remember it very well because my newspapers in Maine were very 

concerned about that experiment as well to pull the newspaper ads 

out as separate mailers. What are your thoughts on the appropriate role for the Postal Service when there is a private sector provider of the same service? 

Mr. PRUITT. I think it is critical, and the Presidential Commission got it right, it is an essential public service, universal service, 

and in the First-Class and standard mail area, it is a monopoly. 

And as a monopoly, it has worked well to provide that universal 

service, and we do not object to that at all. 

Our only concern is cross-subsidization, and what we want to ensure is that there is a postal regulator, a Postal Regulatory Board, 

that has the power to ensure that measures and allocation of costs 

are fair and appropriate and that the Postal Service’s delivery costs 

are covered within that class of mail. And we do not feel it is appropriate for a government service, a public service, with a monopoly to enter into private agreements with the mailers and give 

them a price break. That is our concern. 

In the competitive areas, I think it is a principle where cross-subsidies are also a problem, but, frankly, our biggest concern is the 

cross-subsidy in the monopoly areas between First Class Mail and 

standard mail. 

Our experience has been that alternative delivery has not been 

as effective in our products as mail delivery, and so we have delivery of the newspaper and then we use the mail, and we hope to 

use the mail, use it efficiently, but with fair pricing. 

Chairman COLLINS. Thank you. 

Mr. Wientzen, what is your opinion on this issue, which is going 

to be one of the major issues we tackle? 

Mr. WIENTZEN. Well, first, initially, I would probably be one of 

the few people saying I would let the Postal Service sell Buicks if 

I thought they could make money on it as a kind of a joke, but I 

do not believe we can, in fact, unbridle the Postal Service and say 

go do whatever it is that touches your fancy. 

64

But the problem that you are going to have with this is it is very 

easy to have a view of the right thing to do today. I think the difficulty is to figure out what is the right thing to do 5 or 10 years 

from now because the world is changing so rapidly. And if we put 

the post office in a box and say you can deliver letters and printed 

material, essentially what you are doing now, and that is it, I think 

you are going to—somebody, hopefully you, or someone else, is 

going to be sitting here 5 years from now scratching your head saying we really still have a problem because there has been this significant shift or there has been some new technology. 

So I think you have to provide a lot more flexibility, and to me, 

those who fear the post office just because of competition, I do not 

think we can listen to them. I think those who fear the post office 

because they do recognize that the monopoly benefit that they get 

could be used to create very unfair competition. But that is usually 

much more narrow than is being described. And I will say we have 

many companies, some of whom are my members, who would limit 

the Postal Service even within the business of doing the mail that 

they do now because it would benefit their particular business 

model. 

I think in your wisdom, you are going to have to give the post 

office more flexibility than they have, but you are going to have to 

find some way to provide the private sector for being protected 

from outlandish subsidization, I think as Gary has pointed out. But 

if you keep this definition very narrow, I am going to bet that in 

a few years we are going to have more problems because the Postal 

Service will not have enough business to continue doing the essential services they are doing. 

Chairman COLLINS. Thank you. Senator Voinovich, do you have 

any further questions? 

Senator VOINOVICH. Yes, just following up on your questions. 

Chairman COLLINS. Sure. 

Senator VOINOVICH. The competition aspect is important to me. 

I will recall that I ran a utility company when I was mayor of 

Cleveland, and it was in pretty bad shape when I started. We improved it substantially. Because we existed, we competed with an 

investor-owned company. The fact of the matter is that the businesses in our community benefited from that because we would 

offer a price and the competition would offer a price, and it kept 

rates down. You know, it was very good. Of course, the investorowned utility did not like it. 

So I am real concerned about if we are going to be in a dynamic 

area, that they should have the flexibility. The question I have is: 

Do you have in your organization people who are going to have a 

choice between either mailing something or putting it in a newspaper? 

Mr. WIENTZEN. Oh, absolutely, Senator. In fact, the vast majority 

of my members, I would say 98 percent——

Senator VOINOVICH. So the fact of the matter is you have got a 

choice of either sitting down with the advertising folks at a newspaper and discussing how much is it going to cost you to put that 

advertisement in the newspaper. The alternative you have is to 

mail it and is it more cost effective to do that. And in some instances—I do not know if it happens in your State, but I get a lot 

65

of stuff now that is just delivered at the door, advertising mailers, 

that type of thing, but usually from local people. 

Mr. WIENTZEN. Local people. 

Senator VOINOVICH. Tell me a little bit about how that works. 

Mr. WIENTZEN. Well, as I say, our business is arithmetic. You sit 

down and you say it is going to cost this much to deliver this message, and my tests tell me—and we deal in data. My tests tell me 

that if I do it this way, if I deliver it in a newspaper or I deliver 

it in mail, here are the response rates I get and here is the cost. 

I divide it and I say that is within my margin of profit or not. And 

if it is not, I do not do it. If it is, I do as much as I can of it. 

What we are facing is there are new competitions, the electronic 

ones, which, while the response rates are low, the costs are low. 

And they are going to continue to be low. Even if they go up, they 

are going to continue to be much lower. And those are being used 

more and more as the costs for mail go up. But, in reality, almost 

every one of our members look at newspapers, magazines, mail, 

electronic, door-to-door, handing out things in malls, they use all 

of those techniques when they are economically viable. 

Now, the other thing I think you need to keep in mind on the 

competition point is that the Postal Service has a lot of other burdens to deal with. They have universal service, which, I mean, I 

think some of the households they deliver are not exactly profitable 

ones. We know that. And so they have a burden, a competitive burden that they are assuming as a part of this monopoly package 

that they have taken on. Just as your utility company, I am sure, 

did some things that a private company would not have done had 

they not been a public entity. And I think we need to think about 

that, that that does provide some balance, and maybe there is a little advantage to the public entity that is balanced off by the additional obligations that they have. 

Senator VOINOVICH. Well, Mr. Pruitt indicated that he did not 

like the idea of the Postal Service going out and competing for people that put advertising in the newspapers. I think that is what 

you said. But if the Postal Service could do that without subsidizing—in other words, that it is an even-steven thing—why 

should they be prevented from going forward and doing it? 

Mr. PRUITT. They should not be prevented from offering the monopoly direct mail service that our competitors can take advantage 

of and that we take advantage of. We have no objection to that. It 

is an essential public service. But there are companies like ADVO, 

other the direct marketing companies and newspaper companies 

that are in the advertising mail business and take advantage of 

that service. 

What we object to is the Postal Service taking a small portion of 

its institutional or overhead costs and allocating it to standard 

mail, and thereby taking first-class institutional costs higher and 

artificially reducing standard mail costs so that direct mail advertising is being cross-subsidized by First-Class mail. And as a result, 

it hurts our business because it is not a level playing field. If it 

were a level playing field with no cross-subsidy, we would be fine. 

We feel no problem with open competition. But our business is 

about numbers as well. It is also news and advertising. And if we 

lose advertising, we lose the ability to produce quality news. 

66

Senator VOINOVICH. Well, would that be the excuse to discourage 

them from doing that? Is the reason why you do not want them to 

do it because if they lose their advertisers, the newspapers are 

going to be hurt in terms of their editorial content and so forth? 

Mr. PRUITT. We just want fair pricing, and we feel perfectly comfortable going toe to toe with fair allocation of costs. 

Senator VOINOVICH. Your argument is that the First-Class mail 

people are probably subsidizing their ability to compete and get 

these folks to come in and be their customers. Is that right? 

Mr. PRUITT. That is right. The Postal Rate Commission estimated that 66 percent of institutional costs, that is, overhead, is allocated to First-Class mail and 22 percent is allocated to standard 

mail, advertising mail. Yet they are virtually identical in volume. 

It just does not seem fair. 

Senator VOINOVICH. The thing is, though, in 2006 rates are going 

to go up. From what I am understanding, when rates go up it 

means that you are going to be more likely to look at some other 

alternative sources than the post office. 

What I am trying to say to you, if I am running a business and 

I keep my costs at what they are today, and there is a little crosssubsidization but I can go out and pick up some more business, 

why shouldn’t I be able to do it? 

Mr. PRUITT. Because it is a monopoly, and if it has pricing flexibility to disadvantage other customers as an essential public service and disrupt a competitive advertising market, that seems an inappropriate role for a monopoly government service. If it were in 

the parcel business, it might be different. I do not really have an 

opinion there. There is competition with FedEx and UPS and others. But in a monopoly—but in First-Class and standard mail, that 

is the only game in town, as it should be. But then that means 

making sure that their pricing is fair and evenly distributed to all 

customers. Giving a monopoly that pricing power is something we 

do not allow in the private sector, and certainly I do not think we 

want to allow it for a government entity. 

Senator VOINOVICH. Mr. Wientzen, what is your perspective? 

Mr. WIENTZEN. The fact is that we do not think newspapers are 

bearing the total overhead of the post office that indeed they 

should or would if you did a direct cost comparison. We do not begrudge them that. We do not suggest that it should be changed because we do acknowledge that there is some special informational 

value, etc. But we do think there ought to be a balance here. There 

is already an advantage, in effect, in their acknowledgment of the 

special case for newspapers. And my suspicion is that we will only 

handcuff the post office if we continue to put barriers in the competitive front. 

I think you are going to have to make a decision and give them 

more competitive strength than they have now. 

Senator VOINOVICH. Madam Chairman, Mr. Wientzen said somebody’s ox is going to be gored. [Laughter.] 

Senator VOINOVICH. We try not to do that. 

Chairman COLLINS. We are just hoping it will not be ours. 

[Laughter.] 

Mr. WIENTZEN. I do, too, Senator. 

67

Chairman COLLINS. I want to thank Senator Voinovich. He always makes such a contribution to the Committee’s work, and I appreciate his taking the time to be here today. 

I am sure all of us have additional questions. We are, however, 

in the midst of the budget debate, as you know, and so I am going 

to submit any additional questions for the record. This hearing 

record will remain open for 15 days. 

[Prepared statement submitted by Senator Lautenberg for the 

record follows.]

PREPARED STATEMENT OF SENATOR LAUTENBERG 

Madam Chairman: Postal reform is an important national issue, but most Americans spend little time thinking about it because they take postal service and the 

employees who provide it for granted. 

The importance of the U.S. Postal Service (USPS) to our national economy cannot 

be overstated. I’ll give you an example: A 2-year delay in postal rate increases has 

the potential to save publication companies like Time Warner approximately $200 

million in mailing costs. 

Last year alone, the USPS delivered more than 200 billion pieces of mail. So the 

important role the Postal Service plays in our economy and the contribution of its 

843,000 dedicated employees should not be overlooked or taken for granted. 

Having said that, this is indeed a time of great change for the Postal Service. As 

the President’s Commission has observed, ‘‘traditional mail streams will likely continue to migrate to cheaper Internet-based alternatives,’’ even as the Postal Service’s delivery network expands at a rate of 1.7 million new addresses per year. 

Given the existing regulatory structure, the Postal Service’s debt is likely to increase every year, making it tougher for the Postal Service to achieve its fundamental mission of universal service. 

Accordingly, it is clear that the Postal Service needs to become more efficient and 

more effective in fulfilling its universal service goal. 

I support the Commission’s recommendation to make the rate-setting process less 

cumbersome and more efficient. Today, the process can take upwards of 10 months; 

the Commission’s recommendations would reduce the rate-making process to 60 

days. 

I am also intrigued by the notion of increasing work-sharing and private sector 

partnerships. I would hope, however, that such partnerships are not at the expense 

of the hardworking men and women of the Postal Service. Improving the Postal 

Service should not mean gutting its workforce. 

Today, I look forward to hearing from some of the U.S. companies that rely on 

the delivery system of the Postal Service to operate their business. I am also interested to hear from the Postal Service’s business partners and competitors about the 

recommendations of the President’s Commission and other postal reform ideas. 

Thank you, Madam Chairman.

Senator COLLINS. We very much appreciate this panel’s testimony this morning as well as the previous panel. Our next hearing 

is going to be on March 23, and it is going to be a joint hearing 

with the House Government Reform Committee, at which the Postmaster General will be testifying. We are going to continue our 

work and hope to introduce a bill in April that will incorporate all 

that we have learned at these hearings. 

So thank you for your testimony this morning, and this hearing 

is now adjourned. 

[Whereupon, at 11:30 a.m., the Committee was adjourned.] 

(69)

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