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AHEAD OF POSTAL REFORM: HEARING FROM 

USPS BUSINESS PARTNERS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FEDERAL WORKFORCE, 

US POSTAL SERVICE AND THE CENSUS 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

APRIL 10, 2013 

Serial No. 113–17 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

DOC HASTINGS, Washington 

CYNTHIA M. LUMMIS, Wyoming 

ROB WOODALL, Georgia 

THOMAS MASSIE, Kentucky 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

KERRY L. BENTIVOLIO, Michigan 

RON DESANTIS, Florida 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

JACKIE SPEIER, California 

MATTHEW A. CARTWRIGHT, Pennsylvania 

MARK POCAN, Wisconsin 

TAMMY DUCKWORTH, Illinois 

DANNY K. DAVIS, Illinois 

PETER WELCH, Vermont 

TONY CARDENAS, California 

STEVEN A. HORSFORD, Nevada 

MICHELLE LUJAN GRISHAM, New Mexico 

VACANCY 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

ROBERT BORDEN, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. POSTAL SERVICE AND THE CENSUS

BLAKE FARENTHOLD, Texas, Chairman 

TIM WALBERG, Michigan 

TREY GOWDY, South Carolina 

DOUG COLLINS, Georgia 

RON DESANTIS, Florida 

STEPHEN F. LYNCH, Massachusetts, 

Ranking Minority Member 

ELEANOR HOLMES NORTON, District of 

Columbia 

WM. LACY CLAY, Missouri 

(III) 

C O N T E N T S 

Page 

Hearing held on April 10, 2013 .............................................................................. 1 

WITNESSES 

Mr. Steven Brandt, President and Publisher, Greenville News 

Oral Statement ................................................................................................. 4 

Written Statement ............................................................................................ 6 

Ms. Joy Franckowiak, Director, Postal Affairs and Distribution, Valpak 

Oral Statement ................................................................................................. 13 

Written Statement ............................................................................................ 15 

Ms. Meta Brophy, Director, Procurement Operations, Consumer Reports 

Oral Statement ................................................................................................. 27 

Written Statement ............................................................................................ 29 

Mr. Carl Janssens, Vice President, Pharmacy Operations, CVS Caremark 

Oral Statement ................................................................................................. 31 

Written Statement ............................................................................................ 33 

Mr. J. Kenneth Garner, President and CEO, Association of Marketing Service 

Providers 

Oral Statement ................................................................................................. 38 

Written Statement ............................................................................................ 41 

Mr. Jerry Cerasale, Senior Vice President of Government Affairs, Direct 

Marketing Association 

Oral Statement ................................................................................................. 44 

Written Statement ............................................................................................ 46 

Mr. Carl Gish, Vice President, Global Shipping for the eBay Marketplace 

Written Statement ............................................................................................ 54 

APPENDIX 

Letters sent to Mr. Ken Garner, Mr. Steven Brandt, Mr. Jerry Cerasale, 

Ms. Meta Brophy, Ms. Joy Franckowiak, and Mr. Carl Janssens, asking 

for a Response to Questions sent from the Honorable Darrell Issa, a Member of Congress from the State of California ..................................................... 70 

(1) 

AHEAD OF POSTAL REFORM: HEARING FROM 

USPS BUSINESS PARTNERS 

Wednesday, April 10, 2013, 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. POSTAL

SERVICE AND THE CENSUS, COMMITTEE ON OVERSIGHT, AND GOVERNMENT REFORM, Washington, D.C. 

The committee met, pursuant to call, at 1:37 p.m., 2154 Rayburn 

House Office Building, Hon. Blake Farenthold [chairman of the 

committee] presiding. 

Present: Representatives Farenthold, Walberg, Collins, DeSantis, 

Norton, Clay, Cummings. 

Also Present: Representatives Connolly, Davis. 

Staff Present: Molly Boyl, Majority Parliamentarian; Adam P. 

Fromm, Majority Director of Member Services and Committee Operations; Linda Good, Majority Chief Clerk; Shelby Hodgkins, Majority Staff Assistant; Michael R. Kiko, Majority Staff Assistant; 

Jeffrey Post, Majority Professional Staff Member; Scott Schmidt, 

Majority Deputy Director of Digital Strategy; Peter Warren, Majority Legislative Policy Director; Kevin Corbin, Minority Professional 

Staff Member; Devon Hill, Minority Research Assistant. 

Mr. FARENTHOLD. Good afternoon. The Subcommittee on the Federal Workforce, U.S. Postal Service and Census will come to order. 

I would like to begin this hearing, as is traditional with this committee, by reading the mission statement of the committee. We 

exist to secure two fundamental principles. First, Americans have 

a right to know that the money Washington takes from them is 

well-spent. And second, Americans deserve an efficient, effective 

government that works for them. 

Our duty on the Oversight and Government Reform Committee 

is to protect these rights. Our solemn responsibility is to hold the 

government accountable to the taxpayers. Because taxpayers have 

a right to know what they get from their government. 

We will work tirelessly in partnership with citizen watchdogs to 

deliver the facts to the American people and bring genuine reform 

to the Federal bureaucracy. This is the mission of the Government 

Oversight and Reform Committee. 

At this point, I would like to do my opening statement, then we 

will go to Mr. Clay and his opening statement. And then on to the 

witnesses. 

Again, welcome to our first hearing on Postal Reform. The purpose of today’s hearing is to give the people that rely on the United 

States Postal Service the opportunity to discuss how well the USPS 

2 

is meeting their needs and to see how we can better identify reforms that could make the Postal Service a better, more efficient 

provider. 

When a business is struggling, even the most basic business 

course will teach you that you need to look to your customers to 

see what they want and what they need and how you can serve 

them better. With the Postal Service losing $16 billion a year, there 

is no question that they are struggling. Over the last two years, 

postal reform has become the subject of great debate. In fact, in the 

last Congress, both this subcommittee and the full committee focused on issues dealing with postal reform. 

While last year s legislation was not ultimately signed into law, 

I believe we made great progress and I look forward to working 

with my colleagues, especially those across the rotunda in the Senate, to find a solution that will put the USPS on the right track 

to fiscal solvency. 

The Postal Service’s financial condition has only grown worse, 

and more mail has continued to seep from the system. While I am 

a strong proponent of the benefits of the internet, the loss of business to business email, with electronic bill payment and other first 

class mail is a real issue. The Postal Service must deal with these 

issues. There is still a need to deliver atoms, something tangible, 

in addition to the bits of data that the internet delivers. 

Last year, there were 23 million fewer mail pieces each day. How 

do we get additional revenue and right-size the Postal Service for 

customers current needs? With mail volumes down more than 25 

percent from its all-time peak, the Postal Service has been forced 

to default on the statutory payments to the Treasury and is rapidly 

facing shrinking liquidity that could lead to insolvency in the future. 

While pre-funding requirements are not the scope of this hearing, 

I am certain we will hear a lot about these issues in future hearings and as the debate on postal reform continues. 

Given the scope of the reforms we are talking about, mailers, 

a.k.a. customers involvement, is absolutely necessary in determining what postal reforms can and cannot be done and would be 

helpful, which brings us to our current hearing. As I have already 

stated, any struggling business must look to their customer’s need 

when charting a path to prosperity. If the customers are happy, 

whether they use the Postal Service for their business or personally, they will keep coming back. 

Today we will hear from six people who represent broad portions 

of the mailing industry, including newspapers, advertisers, periodicals, packages and others. In reading the testimony, I am encouraged to see that there appears to be a consensus that implementing 

cost-cutting reforms has gone fairly well for many. And many, if 

not all witnesses today broadly support the Postal Service’s rightsizing efforts and are interested in the long-term best interests of 

the Postal Service and the mailing industry as a whole. 

In addition, recently in the news, as I am sure you heard today, 

the USPS Board of Governors announced their decision to reverse 

modified Saturday delivery, which would have saved $2 billion annually. Contrary to the Board of Governors decisions blaming a 

Congressional mandate for preventing the implementation of modiVerDate Aug 31 2005 13:57 May 29, 2013 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\80919.TXT APRIL
3 

fied Saturday delivery, I believe modified six-day delivery met any 

Congressional requirement. 

It still appears there are a number of areas where the Postal 

Service can find further ways to improve its value to customers and 

improve its service and cut costs. I look forward to hearing about 

these areas. 

Finally, I would like to thank the witnesses for taking time to 

come and testify. I will now recognize the ranking member, Mr. 

Clay, for his opening statement. 

Mr. CLAY. Thank you, Mr. Chairman, and thank you for conducting this hearing. Let me also thank the witnesses for appearing before us today. 

Today’s testimony will help us understand the important relationship between the Postal Service and its business partners, 

mailing industry partners who are heavily dependent on a financially healthy postal system. 

Representing over 8 million jobs and accounting for almost 9 percent of our Nation’s gross domestic product, the mailing industry 

is a vast entity dependent not only on a growing economy but also 

on a heathy Postal Service. A recent industry study found that a 

majority of the jobs within the mailing industry are dependent on 

the Postal Service’s delivery network, whether it is delivering packages, printing advertisements or providing supplies for those items. 

These are jobs that are important, not only to the economy, but to 

our constituents. 

For its first quarter, the Postal Service reported a $1.3 billion 

loss as a result of declining mail volumes and required payments 

to pre-fund its retiree health benefits fund, a mandate that no 

other company must face. The Postal Service’s recent announcements to modify its delivery schedule and to accelerate its network 

consolidation program continue to reflect the dire financial condition it faces. So clearly, postal reform legislation must remain a top 

priority for this Congress. 

At a time where unemployment remains high, we in Congress 

must be mindful that any reform measures must preserve jobs, not 

only within the Postal Service, but also within the industry as a 

whole. 

Finally, as we listen to the testimony of our witnesses, I hope 

that we are reminded that each passing day is a missed opportunity to pass postal reform legislation. Each passing day is another day that the Postal Service loses millions of dollars that it 

desperately needs and each passing day is another day of uncertainty for the Postal Service, the mailing industry and its millions 

of workers across America. 

So thank you, Mr. Chairman, for holding this hearing. I look forward to the testimony of our witnesses. I yield back. 

Mr. FARENTHOLD. Thank you, Mr. Clay. 

And without objection, members will have seven days to submit 

opening statements for the record. And we will now recognize our 

distinguished panel. 

Mr. Steven Brandt is President and Publisher of the Greenville 

News in Greenville, South Carolina. Ms. Joy Franckowiak is Director of Postal Affairs and Distribution for Valpak. Ms. Meta Brophy 

is the Director of Procurement Operations for Consumer Reports. 

4 

Mr. Carl Janssens is Vice President of Pharmacy Operations for 

CVS Caremark. Mr. Ken Garner is President and CEO of the Association of Marketing Service Providers. And Mr. Jerry Cerasale is 

Senior Vice President of Government Affairs for the Direct Marketing Association. 

Pursuant to the rules of this committee, all witnesses are to be 

sworn in before they testify. So if you will stand with me and raise 

your right hand. 

Do you solemnly swear or affirm that the testimony you are 

about to give will be the truth, the whole truth and nothing but 

the truth? 

[Witnesses respond in the affirmative.] 

Mr. FARENTHOLD. Let the record reflect that all witnesses have 

answered in the affirmative. You may all be seated. 

We have a big panel today and a big part of these hearings is 

both hearing your testimony and answering the questions that the 

members of the panel have. As a result of the size of our panel, 

and consistent with our normal operating practices, we request 

that you summarize your testimony and limit it to five minutes. 

You will have a timer in front of you. Green light means go, yellow 

light means speed up and the red light means you need to wrap 

it up. 

Again, you will have five minutes. We have your entire written 

testimony before us. Hopefully the members have already read it. 

But we would appreciate your summary and we will get started. 

So first off we will go to Mr. Brandt. Mr. Brandt, you are recognized for five minutes. 

WITNESS STATEMENTS 

STATEMENT OF STEVEN BRANDT 

Mr. BRANDT. Chairman Farenthold, Ranking Member Clay and 

members of the subcommittee, I appreciate this opportunity to 

share my views on how the Postal Service is working with our business. 

The Greenville News is a daily newspaper serving the third largest metro area in South Carolina. The newspaper has been an important source of local news and information since 1874. 

Our newspaper uses all classes of mail, but by far our largest 

postal spend is in standard mail, which we use to distribute free 

weekly newspapers and preprinted advertising to homes that do 

not subscribe to the newspaper. These are ads for grocery stores, 

discount retailers, furniture stores and other home service companies. The News also delivers these preprinted ads to our subscribers as inserts in the daily newspaper. 

We call this combined distribution to subscribers and non-subscribers our total market coverage, or TMC program for advertisers. We mail 53,000 TMC pieces per week and have an annual 

postage bill of $850,000 for this class. Many other newspapers use 

the Postal Service in a similar manner. Daily newspapers collectively spend $500 million on standard mail postage for delivery of 

their non-subscriber TMC products. 

We depend on the reliable and efficient service from the Postal 

Service to keep our advertising customers happy. The success of 

5 

the midweek retail sales promotion depends on the timely delivery 

of the advertising piece. We receive excellent service from the hardworking men and women of the U.S. Postal Service. They help us 

serve our advertising clients and are a vital part of our local economy. 

Unfortunately, the business relationship with the Postal Service 

has become strained in recent years. Recent pricing initiatives are 

making our newspaper and many others around the Country reconsider using the postal system for delivery of TMC packages. Let me 

explain. 

Newspapers compete with direct mailers for the distribution of 

advertising inserts. Over the last decade the Postal Service has followed a strategy of giving significantly more favorable saturation 

rates to our direct mail competitors than it has offered for our TMC 

products, which are delivered at high density rates. In 2007, the 

rate difference between what our TMC mailings paid and what a 

saturation mailer paid was 9/10ths of a cent. In just six years, this 

rate difference widened to 2.6 cents per piece. This is a significant 

difference in a highly competitive market. 

To add insult to injury, the Postal Service last year entered into 

a negotiated services agreement with Valassis, the Nation’s largest 

saturation direct mailer, and a direct competitor to local newspapers. This special deal provides Valassis with deep discounts off 

its already preferred saturation rates for the sole purpose of driving retail advertising out of newspaper Sunday editions. 

In response to these pricing decisions, many newspapers have 

moved TMC packages out of the mail. Those packages now go to 

private firms that deliver advertising inserts on the porch or in the 

driveway and provide verified delivery through GPS technology. 

Over the last 10 years, the Greenville News has moved approximately 50,000 pieces, or roughly $800,000 in annual postage, out 

of the mail into alternate delivery. 

The Postal Service has driven our business away at precisely the 

time that it had a golden opportunity to increase volume and revenues from newspapers. When a newspaper s circulation declines, 

we need to increase the number of TMC packages, that we send to 

non-subscribers. Instead of designing rates and services to help us 

serve those non-subscriber customers, and to increase more volume 

and revenue for the Postal Service, the Postal Service put forward 

pricing initiatives designed to divert advertisers from newspapers 

to saturation direct mailers. The unintended consequence of those 

decisions was to drive hundreds of millions of dollars of the industry’s business out of the Postal Service. 

The Postal Service can get our business back if it stops taking 

sides in the marketplace competition. It should treat all mailers as 

valued and important customers, not some as favored and others 

as targets. 

Thank you for this opportunity to testify. I look forward to your 

questions. 

[Prepared statement of Mr. Brandt follows:] 

6 


Insert offset folio 1 here 80919.001

Statement 

of 

Steve Brandt 

Publisher and President 

The Greenville (South Carolina) News 

before the 

United States House of Representatives 

Committee on Oversight and Governmental Reform 

Subcommittee on Federal Workforce, U.S. Postal Service & the Census 

April 10, 2013 
7 


Insert offset folio 2 here 80919.002

Introduction 

Chainnan Farenthold, Ranking Member Lynch, and members of the Committee. 

My name is Steve Brandt. I am the publisher and president of The Greenville News 

and GreenvilleOnline.com in Greenville, South Carolina. The Greenville News is a 

newspaper with a circulation of 46,000 daily and 70,000 on Sunday in greater Greenville, 

which constitutes the third-largest metropolitan area in South Carolina. The Greenville 

News has been an important source oflocal news and infonnation since the first day it was 

published in 1874. Since December 1995, it has been owned by Gannett Company, Inc. 

I appreciate the opportunity that the Subcommittee has given me to share my views 

on how the Postal Service is working with our business and others in the newspaper 

industry where the business relationship is working well, and where it could improve. 

Newspapers and the Postal Service 

First, newspapers have had a long and positive relationship with the Postal Service 

dating back to the very beginning of our Nation. Our Nation's postal system was largely 

created to deliver newspapers so Americans in the early Republic could stay connected and 

infonned. A newspaper publisher, Benjamin Franklin, served as the first postmaster 

general. Throughout our history, newspapers have consistently served as partners with the 

Postal Service in its mission to "bind the nation together." 
8 


Insert offset folio 3 here 80919.003

The Greenville News uses all classes of mail. We use First-Class Mail to send 

invoices, and we receive much of our revenue through envelopes mailed in by subscribers 

and advertisers. We use Priority and Express Mail as needed for business purposes. And, 

we distribute a small number about 200 copies - of our print newspaper through the mail, 

typically to subscribers outside of our immediate area. 

By far our largest postal spend is in Standard Mail, which we have used for about 

20 years to distribute free weekly newspapers and free-standing preprinted advertising to 

homes that do not subscribe to the newspaper. These are ads for grocery stores, discount 

retailers, fast food restaurants, furniture stores, and other home service companies. The 

News also delivers these preprinted advertisements to our subscribers as inserts in their 

copies of the newspaper. We call this combined distribution to subscribers and nonsubscribers our Total Market Coverage, or "TMC," program. 

The Greenville News mails 53,000 TMC pieces weekly, mostly going at Standard 

High Density Plus rates. Our postage bill for our TMC program comes to about $850,000 

annually. Many other newspapers use the Postal Service in a very similar manner. Our 

national trade association, the Newspaper Association of America (NAA), estimates that 

daily newspapers collectively spend some $500 million on Standard Mail postage for 

delivery of their non-subscriber (TMC) advertising products. 

As customers of the Postal Service, we depend on reliable and efficient mail 

delivery. Advertising dollars provide the vast majority of the revenue that we need to 

3 
9 


Insert offset folio 4 here 80919.004

support journalism in our communities. And we need good service from the Postal Service 

to keep our advertising customers happy. The success of the midweek grocery store sale 

and the big weekend hardware sale depend on the timely delivery of the advertising piece. 

Like many other newspapers, we work closely with our partners at the Postal 

Service at the local level to make sure that the advertising that we deliver through our 

TMC program arrives by the time that the advertiser wants it to. Our Greenville 

postmaster, Patricia Sullivan, is a dedicated public servant. Mary Chandler, the Greenville 

BME (Bulk Mail Entry) supervisor, is especially helpful and will always take time to 

answer our questions and help us navigate the USPS system. In addition, and especially 

significant, is the reliable, timely and consistent service that we receive from postal clerks 

and carriers. While the Postal Service has 72 hours to deliver our TMC pieces once they 

arrive at the local Post Office, our experience is that they generally are delivered within a 

couple of days after we put them into the system. This is very helpful to us and to our 

preprint advertising clients. We appreciate the support of the Postal Service, which is a 

vital part of our local economy. 

Recent USPS Decisions Are Driving Daily Newspaper Business Away 

Unfortunately, recent pricing decisions and initiatives by the Postal Service are 

making our newspaper and many newspapers around the country - reconsider using the 

postal system for the delivery of our TMC packages. Some have already left the mail and 

converted their TMC distribution to more welcoming private business partners. Let me 

explain. 

4 
10 


Insert offset folio 5 here 80919.005

Newspapers (while mailers ourselves) compete with regional and national direct 

mailers for the distribution of advertising inserts for both small local retailers and large 

national chains. In Greenville, for example, we compete with national mailers such as 

Valassis (branded in our market as Red Plum) who mail at saturation rates. 

In recent years, the Postal Service has embarked on a strategy of giving 

significantly more favorable saturation rates to newspapers' direct mail competitors than it 

has offered our TMC products delivered at High Density rates. In 2007, the rate difference 

between what we paid for our TMC mail and what a saturation mailer paid for their 

advertising mail was 0.9 cents per piece. In the six short years since, the Postal Service 

has repeatedly increased our rates at a much faster clip than the rates for our saturation ad 

mail competitors. The clear goal was to make direct mail more attractive than newspaper 

advertising. As a result of this consistent pattern of discriminatory rate increases, the rate 

difference between High Density and saturation rates widened to 2.6 cents per piece, or 

$26 per thousand pieces, last year. I can assure you that $26 per thousand is very 

considerable price advantage for direct mailers in a highly competitive market. Although 

earlier this year the Postal Service reduced that difference to 2.3 cents for some of our 

mail, even that rate difference remains nearly three times what it was only a few years ago. 

As another example, in April oflast year, the Postal Service signed a negotiated 

services agreement with one company Valassis the nation's largest saturation direct 

mailer, which directly competes with newspapers for advertising in local markets. The 

5 
11 


Insert offset folio 6 here 80919.006

special deal granted exclusively to Valassis provides discounts between 22 and 34 percent 

off of the already lower saturation rates. These super discounts are designed specifically to 

enable Valassis to attract retail advertising out of newspapers' Sunday editions. 

Faced with a Postal Service that has plainly favored our direct mail competitors, a 

number of newspapers have moved TMC packages out of the mail. Those packages now 

go to private firms that deliver advertising inserts on the porch or in the driveway, and 

provide customers with verified delivery through GPS technology. Over the last 10 years, 

The Greenville News has moved approximately 50,000 pieces (amounting to about 

$800,000 in postage) out of the mail into alternative delivery. We have done so largely in 

response to Postal Service pricing decisions favoring our competitors. According to an 

NAA survey, the Postal Service has lost some $300 million worth ofTMC mail due to 

daily newspapers moving out of the postal system into alternative delivery over the last 

five years. 

The special NSA for Valassis has had the effect of increasing the interest on the 

part of newspapers that remain in the mail in exploring alternative delivery to distribute 

their TMC products. In short, a special deal for one customer is driving away business 

from hundreds of others, which may cost the Postal Service hundreds of millions of dollars 

in annual revenue. This is a short-sighted decision that the Postal Service cannot afford. It 

should simply cancel this special deal, which - as I understand - it could do at any time. 

6 
12 


Insert offset folio 7 here 80919.007

The sad truth is that the Postal Service has driven newspapers away at precisely the 

time that it had a golden opportunity to increase business from daily newspapers. As I 

mentioned before, newspapers distribute their TMC advertising inserts to households that 

do not subscribe to the newspaper. So, when a newspaper's circulation declines, as has 

happened in many places over the past five years, the Postal Service has an opportunity to 

increase business from daily newspapers through increased mailings ofTMC packages to 

nonsubscribers. But instead of designing rates and services to help us serve our customers 

- and capture more of our business - the Postal Service has sought to divert advertisers 

from newspapers to saturation direct mailers. 

The good news here is that our newspaper and many others in the industIy would 

prefer to be in the mail with our TMC products because we believe many of our advertisers 

value being in the mailbox and because, as I said earlier, we get great service from local 

postal employees. 

The Postal Service can get this business back if it stops taking sides in the 

marketplace competition between newspapers and other advertising media and, instead, 

offers postal rates and services that are competitively neutral between newspapers and our 

advertising mail competitors. It should treat all mailers as valued and important customers 

not some as favored and others as targets. 

Thank you for the opportunity to testify before you today. I will be happy to try to 

answer any questions that you may have. 

7 
13 

Mr. FARENTHOLD. And Mr. Brandt gives back 20 seconds. He set 

the bar high. 

[Laughter.] 

Mr. FARENTHOLD. We will now go on to Ms. Joy Franckowiak. 

STATEMENT OF JOY FRANCKOWIAK 

Ms. FRANCKOWIAK. Chairman Farenthold, Ranking Member 

Clay, members of the subcommittee, my name is Joy Franckowiak. 

I am the Director of Distribution and Postal Affairs for Valpak Direct Marketing, located in Largo, Florida. 

Valpak is a part of Cox Enterprises, a leading communications, 

media and automotive services company. Valpak operates through 

franchises in nearly every State and across Canada. Our 

franchisees are local, independent businesses with employees who 

live and work in towns across America. They sell advertising that 

drives significant economic activity for small business, the lifeblood 

of the American economy. 

Each year, almost half a billion of our familiar blue envelopes 

carry some 20 billion money-saving offers, exclusively using the 

Postal Service. Most mailers choose to use the mail as one of several available method of advertising, shipping or publishing. But 

Valpak s actual product is the mail that we send. That is why 

Valpak has been one of the most active mailers before the Postal 

Regulatory Commission, has participated in the Mailers Technical 

Advisory Committee, and has partnered with the Postal Service to 

create efficiencies and test new initiatives. 

Valpak also actively supported the Postal Service’s move to increase efficiency by reducing the number of money-losing post offices and supporting the Postal Service’s network realignment. 

Valpak was also one of the first large mailers to support five-day 

delivery and, along with the majority of Americans, we still support 

it. 

We, along with our advertisers, rely heavily on timely delivery 

across the Country. The Postal Service rarely gets credit for what 

it is doing right. Currently, the Postal Service delivers over 97 percent of our products on time. 

More than 150 postal facilities have been identified for closing as 

an essential cost-cutting strategy. Half of these closings affect 

where Valpak enters its mail. But the Postal Service has done an 

excellent job in working with mailers to reduce confusion and delay 

during this transition. 

To increase communication, last year Postal Service COO Megan 

Brennan reinstated one-day meetings in each postal area to ensure 

mailers are fully advised of upcoming developments. Every mailer 

had to go through painful downsizing a few years ago. We believe 

that Postmaster General Donahoe has done a remarkable job of 

right-sizing his business to adjust to plummeting mail volume. We 

urge Congress to allow him to do what he needs to do to cut costs 

and survive financially. 

Please remember that mailers are footing the bill for every dollar 

of expense that Congress doesn’t allow the Postal Service to cut. 

But Congress cannot force mailers to mail. 

I would like to highlight some concerns that we believe must be 

addressed by Congress. First, in fiscal year 2012, the Postal Service 

14 

allowed there to be eight underwater products, where the revenues 

earned do not even cover their attributable costs. As an example, 

a serious problem exists with standard flats, which lost an amazing 

$528 million last year alone. The Postal Service could increase 

these prices significantly, but refuses to do so. The Commission repeatedly has found this pricing unlawful, but has refused to order 

meaningful price increase. 

It is a mystery to me why the Postal Service believes it can lose 

enormous amounts of money on products, as no business could ever 

operate that way. In fact, during the six years since PAEA was enacted, $8.1 billion of the $9 billion in operating losses were caused 

by underwater products. 

A step in the right direction was the Issa-Ross bill in the last 

Congress. It would have done much to remedy underwater products, and we urge that these remedial provisions be included in the 

new bill. When some products pay none of the overhead, the other 

products must pay all of it. The product that has the highest burden imposed on it is the one most used by Valpak, high density and 

saturation letters. This product has a cost coverage of 221 percent 

and receives significant annual price increases, even though it is 

the only standard mail product whose costs have actually decreased. Postage rates are extremely important to our franchisees 

viability and postage rates impact the volume in which they mail. 

Lastly, the Postal Service believes that Congress has been pressuring it to pursue market-dominant negotiated service agreements, or NSAs. Yet its track record with such agreements has 

been terrible. One NSA is now on appeal and another lost $4.3 million in its first year. But neither the Postal Service nor the Commission has been willing to terminate that agreement. 

The Commission has taken a hands-off approach to postal pricing 

on the theory Congress wanted the Commission to use only lighthanded regulation. We cannot believe this is what Congress wanted. Yet the Commission has ignored below-cost pricing of many 

products, abusively high prices for other products and losses incurred by NSAs. We suggest Congress use this opportunity to remind the Commission that its role is to protect against abusive 

pricing by an agency with statutory requirements, rather than giving deference to the agency that it has been regulating. 

The Postal Service is the heart of a $1.3 trillion industry and 

needs greater control over its costs, but greater oversight over its 

pricing. Thank you. 

[Prepared Statement of Joy Frankowiak follows:] 

15 


Insert offset folio 8 here 80919.008

Subcommittee on Federal Workforce, U.S. Postal Service and the Census 

U.S. House of Representatives' Committee on Oversight & Government Reform 

Ahead of Postal Reform: Hearing From USPS Business Partners 

April to, 2013 

Statement of Joy Franckowiak 

on behalf of 

Cox Target Media, Inc. and Valpak Direct Marketing Systems, Inc. 

Chairman Farenthold, Ranking Member Lynch, and Members of the Subcommittee: 

My name is Joy Franckowiak. I am Director of Postal Affairs and Distribution of 

Valpak Direct Marketing Systems, Inc., located in Largo, Florida. Valpak is part of Cox 

Target Media, Inc., which is part of Cox Enterprises, Inc. - a leading communications, media 

and automotive services company. 

Thank you for this opportunity to testify. I have been with Valpak for more than 18 

years. I also chair the Government Affairs Committee of the Association of Marketing 

Services Providers, and serve on its Board of Directors, but I am testifying today only for 

Valpak. (A summary of my job responsibilities and experience is appended to this statement.) 

I. VALPAK 

Valpak has been in business for over 45 years and is one of the largest direct mail 

companies in North America. We pioneered the concept of local cooperative mail in the 

United States several decades ago and we operate through franchises in nearly every state and 

across Canada. Our franchisees are local independent businesses, with employees who live 

and work in towns across America. They sell the advertising that drives significant economic 

activity for small business - the lifeblood of the American economy. 

A few years ago, we opened a state-of-the-art $220 million manufacturing center in S1. 

Petersburg, Florida so that Valpak can deliver savings and value to about 40 million 

households each month. And, each year, the Postal Service delivers almost a half billion of 

our familiar blue envelopes containing some 20 billion money-saving offers throughout the 

country, exclusively using the Postal Service. Valpak helps American families save money, 

especially in tough economic times, and helps small businesses grow. Each year, we assist 

more than 54,000 advertisers in promoting their products and services. 

Our company also has aggressively entered the digital space in the online and mobile 

coupon business. This will allow us to reach new customers with our products and continue to 

serve as a leader in our industry. Our digital strategies will continue to complement our 

printed product strategies. 
16 


Insert offset folio 9 here 80919.009

2 

Most mailers choose to use the mail as one of several available methods of advertising, 

shipping or publishing, but Valpak's actual product is the mail that we send. 

That's why Valpak has for almost 20 years been one of the most active mailers 

before the Postal Regulatory Commission, and has been active on the Mailers Technical 

Advisory Committee ("MTAC"), and has worked as test sites for the Postal Service in 

evaluating new cost-saving measures. 

That's why Valpak actively supported the Postal Service's move to increase 

efficiency by reducing the number of money-losing post offices,l as well as the Postal 

Service's network re-alignment. 2 

Valpak was also one of the first large mailers to support former Postmaster 

General Potter's announced need to move to five day delivery,3 and, along with the 

majority of Americans, still support it. 

Although some other mailers may only care about low rates in the short term, Valpak is 

committed to the long term financial health of the Postal Service. And we submit that must be 

Congress' focus as well. 

II. USPS OPERATIONS 

Because we mail about 10 million Valpak envelopes a week, we rely heavily on timely 

delivery across the country. We incur the cost to ship our envelopes to Postal Service 

processing plants across the country - this practice is known as drop shipping. We send out 

approximately 160 trucks each month to more than 150 Postal Service Sectional Center 

Facilities. The Postal Service rarely gets credit for what it is doing right, but its timely 

delivery of drop shipped Standard Mail has been outstanding. Currently the Postal Service 

delivers over 97 percent of our product on-time. 

Valpak submitted an Initial Brief and a Reply Brief in support of the Postal 

Service's plans in Commission Docket No. N2011-1. 

Valpak submitted an Initial Brief and a Reply Brief in support of the Postal 

Service's plans in Commission Docket No. N2012-1. 

Valpak also submitted an Initial Brief and a Reply Brief in support of the Postal 

Service's original 5-day proposal in Commission Docket No. N201O-1. 
17 


Insert offset folio 10 here 80919.010

3 

I also want to report on the progress being made regarding the 150-plus postal facilities 

that have been identified for closing as an essential cost-cutting strategy.4 Almost half of these 

planned closings affect facilities where Valpak enters its mail. But the Postal Service has done 

an excellent job in working with mailers to minimize confusion and delay during this 

transition. The Postal Service has used many methods to advise mailers which facilities would 

be affected, where mail should be entered, and when the changes would go into effect. 

Mailers have worked with the Postal Service in adjusting to the new system. We have had 

some extra work to do, but have had no significant problems through this transition. 

The Postal Service is committed to ensuring that no mailer is caught off guard by its 

improvements. To increase communication, last year Postal Service Chief Operating Officer 

Megan Brennan reinstated area-wide meetings with mailers. The Postal Service operates 

through seven Areas, and one-day meetings are held in each Area to ensure that mailers are 

fully advised of upcoming developments. I serve as co-chair of the Southern Area Focus 

Group, and at our last meeting in Dallas, about 100 mailers received briefings by national staff 

and area officers. This outreach to the different areas helps reach mailers especially small to 

midsize mailers who cannot spend several days at the annual National Postal Forum, which is 

also an important outreach tool - despite some unfair criticism which it received recently. 

To improve service and decrease processing costs, the Postal Service has vastly 

increased use of technology. We were one of the Postal Service's first customers to implement 

the Full Service Intelligent Mail barcode ("1Mb") for outbound mail. The Postal Service, as 

well as mailers, uses the 1Mb to track mail through its system to the point of delivery. 

Now, it is moving to what is called Seamless Acceptance, which would eliminate clerks 

at mailer facilities' Detached Mail Units and reduce many other acceptance costs, substituting 

computer analysis of the mail. Valpak was the first mailer to test E-Drop Ship and Seamless 

Acceptance, which is now used in about five postal plants, and soon both will be rolled out 

across the Postal Service processing network. 

The nature of our business means that we watch the Postal Service and its issues very 

closely. Most mailers had to go through a painful downsizing program a few years ago. We 

believe that Postmaster General Pat Donahoe has done a remarkable job of right-sizing his 

business to adjust to plummeting mail volume. We urge Congress to allow him to do what it 

needs to do to cut costs and survive financially. 

Congress may write the laws, but the mailers are footing the bill for every dollar of 

expense that Congress refuses to allow the Postal Service to cut. And Congress needs to 

remember that as prices increase, mailers enter less mail. 

http://about.usps.com/news/electronic-press-kits/our-future-networkl 

welcome.htm. 
18 


Insert offset folio 11 here 80919.011

4 

The Postal Service simply cannot afford to deliver mail six days a week without 

causing price increases. Congress may be able to force the Postal Service to keep Saturday 

delivery, but Congress cannot force mailers to mail. 

Let me shift gears, and now I would like to highlight some key problems that we 

believe Congress needs to address as your craft revisions to the Postal Accountability and 

Enhancement Act ("PAEA"). 

II. UNDERWATER PRODUCTS 

It is a mystery to me why the Postal Service believes it can lose enormous amounts of 

money on products, as no business could ever operate that way. In fact, during the six years 

since PAEA was enacted, $8.1 billion of the Postal Service's $9.0 billion in operating losses 

were caused by underwater products. Nevertheless, neither the Postal Service nor the 

Commission appears willing to follow the law. 

Although most press accounts of Postal Service finances focus on the gross loss that 

includes Retiree Health Benefits Fund payments,' just as important is the Postal Service's 

operating loss, which is the focus of the following comments. Table 1 shows Postal Service 

operating revenue and operating expenses for FY 2007 through FY 2012, the years following 

enactment of PAEA in December 2006. The first row shows operating revenue, all of which 

is derived from mailers, except for a few minor items. The second row shows all operating 

expenses, excluding retiree health benefits. Payments for health insurance premiums for 

current retirees, which always have been recorded as operating expenses, are shown separately 

on row 4. The net profit or loss from operations is shown on row 5. 

The need to reform the RHBF prefunding schedule is well-known. Although 

not the focus of this statement, any postal reform legislation must include some reasonable 

relief to the RHBF schedule. 
19 


Insert offset folio 12 here 80919.012

5 

Table 1 

Postal Service Operating Revenue and Expenses 

FY 2007 - FY 2012 

($, millions) 

FY'07 FY'08 FY'09 FY'10 FY'11 FY'12 

1. Operating Revenue 74,778 74,932 68,090 67,052 65,711 65,223 

2. Operating Expenses, ExRetiree Health Benefits 70.021 70.331 68,440 67.679 68.193 67.235 

3. Op. Profit (Loss) Before 

Retiree Health Benefits 4,757 4,601 (350) (627) (2,482) (2,012) 

4. Health Benefits for Current 

Retirees 1.726 1.807 1.990 2.247 2,441 2.629 

5. Net Op. Profit (Loss), 

excluding RHBF 3,031 2,794 (2,340) (2,874) (4,923) (4,641) 

6. Funding of RHBF 8,358 5,600 1,400 5,500 11,100 

7. Six-year net operating loss, 

excluding RHBF 8,953 

8. Six-year cost of RHBF 31.958 

9. Six-year total reported loss 40,911 

In FY 2012, the Postal Service allowed there to be eight "underwater" products - where 

the revenues earned did not even cover these products' "direct and indirect attributable costs." 

Last year, on these eight products, the Postal Service lost nearly $1.5 billion, i.e., 

approximately 75 percent of the Postal Service's total operating loss. See Table 2. Valpak has 

asked the Commission to remedy this ongoing, widespread problem repeatedly, most recently 

in comments in the annual compliance review for FY 2012. 6 

Only about 60 percent of Postal Service costs are attributed to products, so even a 

product which merely covers its attributable costs is not paying anything toward the overhead 

of the Postal Service. A product or a class that does not even cover its attributable costs 

presents an even more serious hemorrhage to Postal Service finances. 

See Commission Docket No. ACR2012, Valpak's Initial Comments and &.!:ili: 

Comments. 
20 


Insert offset folio 13 here 80919.013

Product 

First-Class 

Parcels 

Inbound Int. 

Single-Piece 

First-Class Mail 

Standard Mail 

Flats 

Standard Mail 

NFMs and 

Parcels 

Periodicals 

Within County 

Periodicals 

Outside County 

Single-Piece 

Parcel Post 

Bound Printed 

Matter Parcels 

Media and 

Library Mail 

Total 

6 

Table 2 

Loss-Generating Market Dominant Products 

FY 2011-2012 

(Exclusive of Special Services) 

FY 2011 Deficit FY 2011 FY 2012 Deficit 

(million) Coverage (million) 

- - $10 

$36 79.0% $66 

$652 79.3% $532 

$117 84.8% $53 

$20 77.5% $29 

$597 74.5% $649 

$89 89.2% $66 

$5 98.4% -

$99 77.0% $56 

$1,615 $1,461 

Sources: FY 2011 ACR, Tables 1-4; FY 2012 ACR, Tables 1-2. 4-5. 

FY 2012 

Coverage 

98.4% 

65.8% 

80.7% 

84.3% 

69.7% 

71.8% 

92.1% 

-

85.1% 

A serious problem exists with Standard Flats - used by some catalog companies -

which lost an amazing $532 million last year, covering only 80.7 percent of its costs. The 

Postal Service could increase these prices significantly, but refuses to do so, as it prefers to 

overcharge other Standard mailers to subsidize the catalogers with which they compete. Just 

since P AEA, Postal Service pricing has forced other mailers to cross-subsidize these catalog 

mailers by a total of $2.6 billion. The Commission repeatedly has found this pricing unlawful, 

but it has refused to use the power Congress gave it to order the Postal Service to make 

meaningful price increases for this money-losing product. 
21 


Insert offset folio 14 here 80919.014

Fiscal 

Year 

2008 

2009 

2010 

2011 

2012 

TOTAL 

7 

Table 3 

Standard Mail Flats 

Revenue, Costs and Contribution 

FY 2008 - 2012 

(millions) 

Attributable 

Revenue Cost Contribution 

$3,663.7 $3,891.0 -$227.3 

2,866.0 3,488.3 -622.3 

2,579.4 3,161.3 -581.9 

2,491.1 3,142.9 -651.8 

2,229.6 2,761.7 -532.1 

$13,829.8 $16,445.2 -$2,615.4 

Source: CRA for each respective year. 

Volume 

10,010.875 

7,793.511 

7,049.230 

6,783.186 

5,939.635 

A different problem exists with the Periodicals class, which lost $670 million last year, 

and Periodicals' mailers covered only 72,1 percent of their costs. However, there the entire 

fault lies with the Commission, which in its Annual Compliance Determination recently 

refused to find that even this enormous loss constituted "noncompliance" with PAEA -

despite Valpak's and the Postal Service's requests that it clearly rule on the scope of its powers 

to remedy this problem. Congress required that each class must cover its cost, but the 

Commission reasoned that since the problem of underwater Periodicals has existed for so long 

(constantly losing money for the Postal Service over the past 16 years - totaling $5.6 billion), 

Congress must have wanted it to be that way. 
22 


Insert offset folio 15 here 80919.015

8 

Table 4 

Periodicals Class 

Revenue, Cost, Coverage, and Cross-Subsidies 

FY 1997 - 2012 

(1 ) (2) (3) (4) 

PRCCRA Revenue Costs Cover- Revenue 

age - Costs 

Year ($, mill.) ($, mill.) ($, mill.) 

UnderPAEA 

2012 1,731.5 2,401.6 72.10% -670.1 

2011 1,821.1 2,430.0 74.94% -608.9 

2010 1,878.8 2,489.8 75.46% -611.0 

2009 2,038.0 2,680.0 76.04% -642.0 

2008 2,294.9 2,732.1 84.00% -437.2 

2007 2,187.9 2,635.6 83.01% -447.7 

Subtotal 11,952.2 15,369.1 77.77% -3,416.9 

Under PRA 

2006 2,124.8 2,487.6 85.42% -362.8 

2005 2,068.9 2,431.6 85.08% -362.7 

2004 2,100.0 2,323.3 90.39% -223.3 

2003 2,139.6 2,196.2 97.42% -56.6 

2002 2,066.9 2,280.4 90.64% -213.5 

2001 2,106.9 2,367.1 89.01% -260.2 

2000 2,076.3 2,354.8 88.17% -278.5 

1999 2,017.7 2,213.1 91.17% -195.4 

1998 1,972.8 2,129.0 92.66% -156.2 

1997 1,964.6 2,038.5 96.37% -73.9 

Subtotal 20,6~ 22,821.6 90.43% -2,183.1 

------------ ------------ ----------- -----------

TOTAL 32,590.7 38,190.7 85.34% -5,600.0 
23 


Insert offset folio 16 here 80919.016

9 

A step in the right direction was the Issa/Ross bill (H. R. 2309) reported out of this 

Committee in the last Congress. It would have done much to remedy underwater products as 

well as many of the other problems facing the Postal Service, and we urge that these remedial 

provisions, at a minimum, be included in the new bill. 

When some products pay none of the overhead, the other products must pay all of it. 

The product that has the highest burden imposed on it happens to be the one used by ValpakHigh Density ISaturation Letter Mail. That Standard Mail product has a coverage of 221 

percent, and receives significant annual price increases even though it is the only Standard 

Mail product whose costs have actually decreased over the past six years. Some of the burden 

of these price increases have been offset by various incentive programs, but Valpak would 

much prefer that the general tariff rates be kept low, rather than needing to jump through 

hoops to qualify for special temporary sales. Postage rates are extremely important to our 

franchisees and every postal increases has an adverse impact on the volume they mail. 

III. NEW PRODUCTS 

The Postal Service also has had problems with some of its new product offerings. It 

began a market test for Every Door Direct Mail-Retail ("EDDM"), which is locally-entered, 

saturation, unaddressed mail. The Commission found that EDDM violated PAEA, in that it 

exceeded the Congressionally-imposed $50 million annual cap on market tests. But the 

Commission but ignored the violation since the test had ended. 7 

Also, the Postal Service says that it is committed to automation and transparency of 

mail, but EDDM is a manually-handled product which provides no transparency whatsoever. 

Lastly, while other mail must be addressed, the Postal Service exempts EDDM from 

this requirement so it can directly compete for this business with other mail service providers. 

While some EDDM mail may be new volume, the Postal Service cannot be successful if it uses 

marketing strategies which cannibalize business from existing mailers. Even the Postal 

Service's Inspector General could not tell whether any or all of EDDM was coming from 

businesses already using mail service providers. 8 

IV. NEGOTIATED SERVICE AGREEMENTS 

The Postal Service believes that Congress wants it to enter into Market Dominant 

Negotiated Service Agreements, or NSAs. Its track record with such agreements has been 

FY 2012 Annual Compliance Determination, p. 152. 

USPS OIG, Audit Report: Every Door Direct Mail-Retail (May 7, 2012), 

https:llwww.uspsoig.gov/foia files/ms-ar-12-004.pdf. 
24 


Insert offset folio 17 here 80919.017

10 

terrible. It has lost millions of dollars, yet it continues to pursue NSAs. The profitable ones 

barely make a dent, while the unprofitable constitute yet another serious drain on Postal 

Service finances. 

Bookspan 

Lifeline 

Bradford Group 

Bank of America 

Discover 

Valassis 

Total 

Table 5 

Summary of Market Dominant NSAs 

Net Effect on Postal Service Contribution 

$ Thousands) 

2009 2010 2011 2012 

25 104 0 

93 (72) (37) 

(23,514) 

(4,338) 

(23,396) 32 (37) (4,338) 

Total 

20 

129 

(16) 

(23,514) 

(4,338) 

(27,719) 

A recent NSA with one mailer is now on appeal to the U.S. Court of Appeals for the 

D.C. Circuit, and VaJpak has joined with the Newspaper Association of America and the 

National Newspaper Association in the appeal. That NSA provides special discounts to a large 

national mailer to enable it to enter into new markets to directly compete with other, already 

established advertisers. This marketplace is already highly competitive, and we had hoped that 

the Commission would stand in its place as a regulator of the Postal Service and protector of 

the marketplace. We are disappointed that we are having to rely on the courts to play that 

role. 

Another NSA with one credit card mailer (Discover) lost $4.3 million in its first year, 

and neither the Postal Service nor the Commission has been willing to use the authority they 

have under the law to terminate that agreement. The Commission's recent Annual Compliance 

Determination found that the NSA with Discover violated the statutory requirement that it not 

result in a loss to the Postal Service.9 Nevertheless, the Commission took no action, merely 

suggesting to the Postal Service that, if the second year also results in a loss, the Postal Service 

should re-evaluate continuing the NSA. 

See FY 2012 ACD, p. 158. 
25 


Insert offset folio 18 here 80919.018

11 

We have proposed specific statutory language to help stem losses from these illconceived NSAs. 10 

First, subsection (A)(i) currently provides that an NSA "improve the net financial 

position of the Postal Service," and the proposed amendment clarifies that this criterion will be 

determined based on the Commission-approved methodology. The Postal Service always 

claims greater financial improvement of NSAs based on its own methodology. The 

Commission's methodology is more conservative and likely is more accurate, yet the 

Commission has approved NSAs which were projected to result in a net financial loss using its 

own methodology. Our proposed amendment would clarify how to calculate financial 

improvement. 

Second, our proposed subsection 3622(c)(1O)(C) adds two additional criteria. 

New subsection (C)(i) would require a Commission finding that it would be 

"impracticable to offer" a niche classification that would be made available more broadly, such 

as part of the general tariff schedule. There was a similar requirement under Commission 

10 39 U.S.C. § 3622(c)(lO) (New language is shown as underlined; deletions are 

shown as strikethrough.) 

(10) the desirability of special classifications for both postal users and the Postal 

Service in accordance with the policies of this title including agreements between the Postal 

Service and postal users, when available on public and reasonable terms to similarly situated 

mailers, that-

(A) either-

(i) improve the net financial position of the Postal Service through 

reducing Postal Service costs or increasing the overall contribution to the 

institutional costs of the Postal Service, based on methodology al1l1roved by the 

Commission; or 

(ii) enhance the performance of mail preparation, processing, 

transportation, or other functions; and 

(B) do not cause unreasonable harm to the marketplace:; and 

(C) no agreement with one mailer or a groul1 of mailers shall be al1proved 

unless the Commission -

(j) makes a finding that it would be iml1racticable to make such a 

classification available to all mailers, and 

(ii) identifies the sl1ecific criteria by which mail users would be deemed 

"similarly situated mailers" entitled to receive a functionally equivalent 

agreement. 
26 


Insert offset folio 19 here 80919.019

12 

regulations for NSAs prior to PAEA.11 Niche classifications address some of the systemic 

problems identified with NSAs, and eliminate the inherent problem of preferences and 

discrimination (39 U.S.C. § 403(c» among mailers. 

New subsection (C)(ii) would require the Commission to determine which mailers are 

similarly situated to a mailer in an NSA so that they will be entitled to their own NSA. 

CONCLUSION 

The Commission has taken a hands off approach to postal pricing on the theory that 

Congress gave the Postal Service broad "pricing flexibility," and wanted the Commission to 

use only "light handed regulation." We cannot believe this is what Congress wanted. If the 

Commission ignores the below-cost pricing and cross-subsidization of many products, 

abusively high prices for other products, losses incurred by NSAs, and violation of limits on 

Market Tests, then exactly how does the Commission protect the public from the Postal 

Service misusing its monopoly pricing power over Market Dominant products? 

Looking at the larger picture, the Postal Service is at the heart of a $1.3 trillion 

industry which employs 8.4 million people. It appears clear that the Postal Service needs 

greater flexibility to cut costs, but greater regulation by the Commission over the Postal 

Service's pricing strategies. Both can be accomplished by this Subcommittee as it considers 

amendments to PAEA. 

Thank you. 

11 Former regulation 39 C.F.R. § 3001.l95(a)(1) required: "A written 

justification for requesting a Negotiated Service Agreement classification as opposed to a more 

generally applicable form of classification. " 
27 

Mr. WALBERG. [Presiding] Thank you, Ms. Franckowiak. I grew 

up in a Polish ghetto on the south side of Chicago, and I was a gym 

leader. Had to pronounce all those names. 

Ms. FRANCKOWIAK. So you know it used to have an ski at the end 

of it. 

Mr. WALBERG. Right. I married a Polenski. 

[Laughter] 

Mr. WALBERG. Thank you. 

Ms. Brophy, we recognize you for five minutes. 

STATEMENT OF META BROPHY 

Ms. BROPHY. Thank you. Good afternoon, Mr. Chairman and 

members of the committee. Thank you for inviting me here today 

to discuss Consumer Reports relationship with the Postal Service. 

Consumer Reports serves to educate consumers by helping them 

navigate the countless and confusing options in today’s marketplace that affect their every purchase decision in their everyday 

lives. Whether big ticket purchases like cars or electronics, or everyday purchases like detergents or cereal, Consumer Reports provides consumers with everything they need to make the best decisions for themselves and their families. 

Consumer Reports has no commercial interests or affiliations and 

operates the largest independent consumer testing organization in 

the world, where hundreds of people work every day to test products, inform consumers of the results and to protect consumer interests. Consumer Reports relies on subscription revenue to fund 

its product testing program, the sole goal of which is to inform and 

protect the U.S. consumer from unsafe products and misleading advertising in the marketplace. The marketing goal is to support this 

mission by continuing to grow the subscriber base in the most costeffective manner possible. 

Traditional direct mail marketing is the largest source of new 

subscriber acquisition for both Consumer Reports Magazine, published since 1936, its offshoot publication Shop Smart Magazine, as 

well as our Health and Money newsletters. Consumer Reports services nearly four and a half million print and more than three million online subscribers. 

Our marketing strategy is to continually increase our reach to 

our target market with the most impactful and cost-effective 

stream of communications, offering the right product at the right 

price in the optimal mail slot, using the right promotion in the 

right distribution channel. To that end, our direct marketing campaigns are carefully woven, multi-channel programs that include 

direct mail and email messages executed with precision to the appropriate prospects. 

The Postal Service is our largest outside vendor. Consumer Reports spends more than $32 million on postage in the United States 

each year. We primarily use first class mail, non-profit periodicals 

mail and non-profit standard mail. Consumer Reports relies on the 

Postal Service to deliver its marketing, subscriber and transactional mail in a consistently reliable and timely way. Our reliance on the Postal Service goes back to our beginning. Postal Service delivery is critical to our business. 

28 

Like most other content publishers, Consumer Reports is moving 

ahead with the digital first, digital fast entrepreneurial approach. 

To continue in direct mail, still the largest source of new subscribers, we pay careful attention to containing costs. Whereas CPI 

increases in postage are more predictable to budget, my department annually is charged with finding ways to mitigate additional 

costs. CPI increases are not something we can pass along to our 

customers in the cost of a subscription. 

In today’s postal announcement, I heard that until legislative action takes place the Postal Service has to pursue revenue ideas, including perhaps an exigent case. Such a scenario, especially in the 

absence of legislative reform, is very disturbing. It will hurt our 

business and drive our volume down. And it is mail volume that 

is at the heart of this situation. The Postal Service has excess capacity now. 

We are more than interested, we are invested in a viable, sustainable Postal Service. A significant portion of our customers and 

subscribers rely on mail to receive information from us. We support 

plans that reasonable and effectively improve the Postal Service’s 

business and financial footing. So far, postal communications have 

been clear and timely. And we have been able to adjust logistics 

plans and delivery dates very well. 

We will adjust to changes as best we can in continued partnership with the Postal Service. Thank you for your consideration. 

[Prepared statement of Ms. Brophy follows:] 

29 


Insert offset folio 20 here 80919.020

Statement of Meta BropJly 

Director. Proearement Operations 

ConsWDer Repons 

before the 

Committee on Oversight and Government Reform 

Subcommittee on Federal Workforce, U.S. Postal Service and the Census 

United States House of Representatives 

April 10, 2013 

Good afternoon, Mr. Cbairman and members of the Committee. I appteCiate the 

opportunity to be here today to discuss Consumer Reports' relationship with the Postal 

Service. 

Consumer Reports is the nonprofit publisher of Consumer Reports and Shop 

Smart magazines, as well as newsletters and other special interest publications for 

consumers. The Consumer Reports National Testing and Research Center in Yonkers, 

New York:, is the largest nonprofit educational and consumer product testing center in the 

world. Consumer Reports surveys millions of consumers about their experiences with 

products and services. Consumer Reports buys all the products that it rates, and does not 

accept flee test samples :from manufacturers or paid advertising. We derive revenue 

mainly through subscriptions and donations. Our mission, since 1936, is to worlc for a 

fair, just. and safe marketplace for all consumers and to empower consumers to protect 

themselves. 

Consumer Reports spends more than $32 million on postage in the United States 

each year. We primarily use First-Class Mail, nonprofit Periodicals Mail, and nonprofit 

Standard Mail. Consumer Reports relies on the United States Postal Service to deliver its 

subscriber mail--that is, magazines, newsletters, premiums, special interest publications, 

acknowledgments, bills, renewal notices-and to prospect for new subscribers and 

donors through direct mail solicitations. 

My responsibilities at Consumer Reports involve supply chain management 

including purchasing. high-volume print production and mail distn'bution for our 

magazines, newsletters, direct marlceting and fundraising mail campaigns, back-end 

circulation campaigns. premiums, and special publications. My team evaluates current 

practices and approaches and identifies opportunities for increased efficiency and cost 

savings. We explore and pursue opportunities for innovation, monitor supplier 

performance, and manage relationships with key suppliers, including the United States 

Postal Service and Canada Post. 
30 


Insert offset folio 21 here 80919.021

I serve as the president of the board of directors of the Alliance of Nonprofit 

Mailers. I am also a member of the Direct Marketing Association and Magazine 

Publishers of America. 

Consumer Reports has relied on the Postal Service as a vital business partner 

since our founding more than 75 years ago. Throughout our long association with the 

Postal Service, we have experienced consistently dependable and reputable service that 

has been the foundation of our partnership. We trust the Postal Service to deliver our 

information and communications to consumers. 

When Consumer Reports withdrew a report on infant car seats and had to notifY 

our subscribers very quickly. we turned to the p'Ostal Service for assistance. With a mass 

mailing to more than 3 million households, the Postal Service was key to delivering our 

message. The Postal Service ensured that our mailing was bandled expeditiously and 

successfully, allowing Consumer Reports to reach millions of members with an 

explanation of the situation and a promise to strive for accuracy and fairness, all in a very 

timely manner. 

In 2011, we changed our organizational identity from Consumers Union to 

Consumer Reports to strengthen our brand recognition in the marketplace. The Postal 

Service provided guidance and assistance in making the change known throughout the 

national postal network so there was no disruption to our mailings or our business. 

Through direct mail solicitations, our marketing eff'Orts will bring in 2 million 

new subscribers this year across all of our publications. Revenue derived from direct 

mail and print products is still vitally important to our budget and to our mission. A 

healthy, financially sound Postal Service is critical to 'Our business now and for the 

foreseeable future. 

As the Postal Service has been rightsizing its operational network to reduce 

excess capacity in the face of declining mail volumes, we rely on timely communications 

about those changes to ensure that our data, print, and logistics vendors can adjust plans 

accordingly. To date, the Postal Service has done a good job of disseminating critical 

information. 

Although a significant portion of our customers and subscnbers rely on mail to 

receive information from us, Consumer Reports is challenged by a pattern of declining 

growth in a weakened publishing industry and national economy. We are holding the 

line on expenses as we continue to help consumers and to have an impact in the 

marketplace. We will continue to support affordable methods of delivery for our 

products and services. 

We encourage the Postal Service to continue to maximize operational efficiency 

and productivity, making the best use of automation and technological advancements. 

We need the Postal Service to maintain reliable mail delivery in the most efficient 

manner possible. 
31 

Mr. WALBERG. Thank you, Ms. Brophy. 

Now, Mr. Janssens, you have five minutes. You are recognized. 

STATEMENT OF CARL JANSSENS 

Mr. JANSSENS. Thank you. 

Good afternoon, Mr. Chairman and members of the subcommittee. Thank you for holding this important hearing today and 

allowing CVS Caremark the opportunity to share our views on the 

United States Postal Service. 

My name is Carl Janssens, I am the Vice President of Logistics 

and Facility Engineering for CVS Caremark, a pharmacy innovation company located in Woonsocket, Rhode Island. I have the responsibility for the overall strategy in the areas of dispensing technology, packaging and transportation services for our products. 

Today I would like to provide the committee with an overview of 

CVS Caremark’s business, our relationship with the United States 

Postal Service, the benefits and cost savings to plan sponsors and 

beneficiaries of using mail order pharmacy and the opportunity for 

service improvements. 

Most people think of us as the Nation’s leading drug store chain 

because we operate more than 7,400 CVS pharmacy stores in 44 

States, the District of Columbia and Puerto Rico. Seventy-five percent of all Americans live within three miles of one of our stores 

in the markets where we operate. 

We are also a leading pharmacy benefit manager, or PBM, which 

administers prescription benefit plans for our clients, which include 

health plans, unions, and government groups. Our goal is to work 

with our clients to help them design prescription drug plans and 

options that best meet their members needs and help plan sponsors 

drive down costs while improving health outcomes. 

Our PBM also provides beneficiaries with access to a network of 

more than 65,000 pharmacies in the U.S. We operate 19 onsite 

pharmacies, 43 specialty pharmacies, three mail order pharmacies, 

not to mention CVS.com and Caremark.com websites, in addition 

to our Minute Clinic division, which operates more than 640 retail 

medical clinics. 

Our organization includes more than 75,000 pharmacists, pharmacy technicians, physician assistants, and nurse practitioners. 

They are focused on delivering expert pharmacy care to our consumers. 

We are a leaders in a variety of areas, including retail clinics, 

specialty pharmacy, technology and Medicare Part D. We are the 

third largest provider of health benefits to eligible beneficiaries 

under the Federal Government’s Medicare Part D program. Each 

year, CVS pharmacists serve more than 6 million beneficiaries and 

fill more than 275 million prescriptions under the Part D program. 

We also provides pharmacy benefits to the Federal Employees 

Heath Benefits Plan. 

CVS Caremark’s relationship with the United States Postal Service is one that dates back to 1985 when Caremark launched its 

first mail order pharmacy offering. CVS Caremark relies on USPS 

for both its inbound and outbound mail services. Our mail order 

pharmacies receive over a million prescriptions each week. On Saturdays alone, we receive approximately 100,000 prescription. 

32 

Once a prescription is received, our pharmacies process, fill and 

deliver the prescription within five business days on average, and 

this would include Saturdays. Our pharmacies are currently shipping on a six-day a week schedule, Monday through Saturday, and 

in many situations ships prescriptions seven days a week, using 

USPS services. 

Saturday delivery to our customers is a critical piece of our overall service offering to our plan members. Each year, over 5 million 

packages, or 20 percent of all packages shipped, are delivered via 

USPS on Saturday alone. Having a consistent, reliable mail six 

days a week operation is critical for our business and for our clients plan members, and we support the Postmaster General’s proposal to maintain Saturday package delivery. 

More than 50 million prescriptions are dispensed through mail 

by Caremark; 100,000 orders are delivered for quality and safety 

and reviewed by a registered pharmacist in mail order medications 

delivered through the USPS. CVS Caremark today works closely 

with our clients to design pharmacy benefit plans that ensure convenient, affordable access to medicine through mail delivery. 

In addition to cost savings, consumers receiving prescription 

medications for chronic conditions through a mail pharmacy are 

more likely to take them as prescribed by their doctors according 

to a study published in The American Journal of Managed Care. 

Since almost half of all Americans, or approximately 133 million, 

live with at least one chronic disease, medication adherence should 

be a matter of great importance to policy makers, insurance plan 

sponsors, physicians and patients. 

USPS plays a vital role in Caremark mail pharmacy offering. 

Caremark has come to rely on the Postal Service’s cost efficiency, 

reliability and predictability. We would like to see unnecessary regulatory burdens that are currently on USPS lifted to allow the 

Postal Service to better negotiate and reduce shipping rates so they 

can be more competitive with other shippers that they currently 

compete with. 

We appreciate the relationship with the USPS and the invitation 

to talk to you today. Thank you. 

[Prepared statement of Mr. Janssens follows:] 

33 


Insert offset folio 22 here 80919.022

Testimony Of 

Mr. Carl Janssens 

Vice President, Logistics and Facility Engineering 

CVS Caremark Corporation 

Good morning Chairman Farenthold, Ranking Member Lynch, and members of the 

Committee. Thank you for holding this important hearing today and for allowing CVS Caremark 

the opportunity to share our views on the United States Postal Service. 

My name is Carl Janssens. I am the Vice President of Logistics and Facility Engineering 

ofCVS Caremark Corporation, a pharmacy innovation company headquartered in Woonsocket, 

Rhode Island. I have responsibility for the overall strategy in the areas of dispensing technology, 

packaging, transportation services, quality performance and overall capacity planning and 

facility utilization for CVS Carernark' s Mail Service and Specialty Pharmacy operations 

Today I would like to provide the committee with an overview of CVS Caremark's 

business, our relationship with the United States Postal Service, the benefits and cost savings to 

plan sponsors and beneficiaries of using mail order pharmacy and opportunities for service 

improvements. 

Most people think of us as the nation's leading drugstore chain because we operate more 

than 7,400 CVS/pharmacy stores in 44 states, the District of Columbia and Puerto Rico. 

Seventy-five percent of all Americans live within three miles of one of our stores in the markets 

where we operate. Weare also a leading pharmacy benefits manager, or PBM, which 

administers prescription benefit plans for our clients, which include health plans, unions, and 

government groups. Our goal is to work with our clients to help them design prescription drug 
34 


Insert offset folio 23 here 80919.023

benefit options that best meet their members' needs and help plan sponsors drive down costs 

while improving health outcomes. Our PBM also provides beneficiaries with access to a network 

of more than 65,000 pharmacies in the U.S. We operate 19 on-site pharmacies, 31 specialty 

pharmacy stores, 12 specialty mail order pharmacies, three mail order pharmacies, and our 

CVS.com and Caremark.com websites. In addition, our MinuteClinic division operates more 

than 640 retail medical clinics. 

Our organization, including our more than 75,000 pharmacists, pharmacy technicians, 

physician assistants and nurse practitioners, is focused on delivering expert pharmacy health care 

to consumers. We are a leader in a variety of areas including retail clinics, speeialty pharmacy, 

technology and Medicare Part D. We are the third largest provider of drug benefits to eligible 

beneficiaries under the Federal Government's Medicare Part D program. Each year, CVS 

pharmacists serve more than 6 million beneficiaries and fill more than 245 million prescriptions 

under the Part D program. We also provide pharmacy benefits through the Federal Employees 

Health Benefits Plan. 

CVS Caremark's relationship with the United States Postal Service (USPS) is one that 

dates back to 1985 when Caremark launched its first mail order pharmacy offering. CVS 

Caremark relies on the USPS for both its inbound and outbound mail services. Our mail order 

pharmacies receive over a million prescriptions each week. On Saturdays, we receive 

approximately 100,000 prescriptions. Once a prescription is received, our pharmacies fill and 

deliver the prescription within five business days (including Saturdays) on average. Our 

pharmacies are currently shipping on a six-day-a-week schedule, Monday through Saturday and, 

in many situations, ship prescriptions seven days a week, using first class, priority, express and 
35 


Insert offset folio 24 here 80919.024

mail express USPS services. Saturday delivery to our customers is a critical piece of our overall 

service offering to our plan members. Each year, over five million packages - or 20 percent of 

all packages are delivered via USPS on Saturdays alone. Having consistent, reliable mail six 

days a week is critical for our business and for our clients' plan members and we support the 

Post Master General's proposal to maintain Saturday package delivery. 

More than 50 million prescriptions were dispensed through the mail in 2012, 100% of 

orders were reviewed for quality and safety by registered pharmacists with 90% of all mail order 

medications delivered through the USPS. While the postal service isn't a fit for all mail order 

medications, in particular those needing temperature control or special handling, average cost of 

shipping a prescription through the USPS is significantly lower than other carriers. For 

shipments requiring special delivery, average shipping cost is substantially more than other 

carriers. The USPS provides significant cost savings to plan sponsors and beneficiaries. 

CVS Caremark works closely with our clients to design pharmacy benefits that ensure 

convenient, affordable access to medicines through mail delivery. In addition to cost savings, 

consumers receiving their prescription medications for chronic conditions through a mail 

pharmacy "were more likely to take them as prescribed by their doctors" according to a study 

published in the American Journal of Managed Care. 1 Since almost haIf of all Americans or 

approximately 133 million Americans live with at least one chronic disease,2 medication 

adherence should be a matter of great importance to policy makers, insurance plan sponsors, 

physicians, and patients. Patients who adhere to their medication regimens have better health 

! American Journal of Managed Care, Mail-Order Pharmacy Use and Adherence to Diabetes-Related Medications, (0. Kenrik 

Durn, et aI., January 2010) 

2 Centers for Disease Control and Prevention. Chronic Diseases and Health Promotion [lnternetl Atlanta (GA): CDC; 2010 Jul? 

[cited 2010 Nov 29]. Available from: http://v,.'Ww.cdc.aovlNCCdphp!overview.htm 
36 


Insert offset folio 25 here 80919.025

outcomes3,4 and make less use of urgent care and inpatient hospital services, compared to 

patients with similar medical conditions who are not adherent. It is estimated that the lack of 

medication adherence costs our health care system up to $300 billion per year. 5 

The USPS plays a vital role in CVS Caremark's mail pharmacy offering. CVS Caremark 

has come to rely on the postal service's cost efficiency, reliability and predictability; so have 

plan sponsors and beneficiaries. In terms of service opportunities, CVS Caremark would like to 

see unnecessary regulatory burdens on the USPS lifted to allow the postal service to negotiate 

better shipping rates so that it can be more competitive with other shipping providers. 

We appreciate the invitation to describe CVS Caremark's relationship with the USPS and 

the value the Service brings to our mail order pharmacies, plan sponsors and members. CVS 

Caremark supports a robust postal service that includes flexibility to remain competitive in an 

evolving marketplace. Thank you for your time. 

3 DiMatteo MR, Giordani Pl, Lepper HS, Croghan TW. Patient Adherence and Medical Treatment Outcomes: A Meta-Analysis. 

Med Care. 2002; 40(9):794-811. 

4 McDermott MM, Schmitt B, Wallner E. Impact of Medication On-Adherence on CoronalY Heart DLvease Outcomes: A Critical 

Review. Arch Intern Med. 1997;157(17):1921-9. 

5 New England Healthcare Institute, Thinking Outside the Pillbox, A System-wide Approach to improving Patient lYfedication 

Adherence for Chronic Disease, August 2009 
37 


Insert offset folio 26 here 80919.026

Carl A. Janssens 

Vice President/Logistics/Facility Engineering 

As Vice President of Logistics and Facility Engineering, Carl Janssens 

has responsibility for the overall strategy in the areas of dispensing 

technology, packaging, transportation services, quality performance and 

overall capacity planning Ifacility utilization for CVS Caremark's Mail 

Service and Specialty Pharmacy operations. 

Previously, Mr. Janssens held the position of Vice President and 

General Manager for Caremark's Wilkes Barre Mail Service Pharmacy. 

Additionally he was with Material Control Systems, a company that 

provided logistic services for returnable packaging used in the heavy 

equipment industry. He also has served in senior-level positions in 

operations and general management in the areas of distribution, 

warehousing, transportation, and call center management with American 

Hospital Supply, Baxter International, and ValueRx. While at Baxter and 

ValueRx, he served as the Senior Vice President for mail service pharmacy 

operations. 

Mr. Janssens holds a Bachelor of Science degree in Mathematics from 

Benedictine University and a Master of Business AdministTation degree 

from the Keller Graduate School of Management. 
38 

Mr. FARENTHOLD. [Presiding] Thank you very much. 

I see that Mr. Connolly from the full committee has joined us. 

Just to make sure we stay appropriate with the rules, I would like 

to request unanimous consent that Mr. Connolly be able to participate in this subcommittee hearing. Without objection, so ordered. 

Mr. CONNOLLY. I thank the gentleman. 

Mr. FARENTHOLD. We will now hear from Mr. Garner, from the 

Association of Marketing Service Providers. 

STATEMENT OF J. KENNETH GARNER 

Mr. GARNER. Mr. Chairman and members of the subcommittee, 

I want to thank you for the opportunity to testify today on behalf 

of the members of the Association of Marketing Service Providers, 

formerly the Mailing and Fulfillment Service Association. 

My name is Ken Garner. I serve as President and CEO of AMSP, 

an organization comprised of 450 member companies that provide 

mailing fulfillment, marketing and consulting services for a wide 

range of clients nationwide. AMSP is a trade association that for 

over 90 years has addressed the needs of primarily small businesses serving local customers. Our members are typical of those 

businesses identified as job creators. Our members businesses are 

most sensitive to the economic circumstances impacting the hard 

copy message industry and the Postal Service in particular. 

AMSP is more than an association and its members are more 

than just marketing service providers. We are a critically important part of an enormous U.S. supply chain that develops, markets 

and sells products and ideas that help drive the Nation’s economy. 

This supply chain, which employs roughly 8 million people and contributes well over $1 trillion to the economy, depends on the distribution of our products to the ultimate customer. To a significant 

degree that distribution depends on the U.S. Postal Service 

AMSP members also participate in the exchange of information 

technology and ideas in this supply chain. We are members of the 

Coalition for a 21st Century Postal Service that includes members 

from every part of the U.S. print and product distribution channel 

and the Mailers Technical Advisory Committee to the Postal Service and many other related organizations. 

While there are many postal-related challenges about which we 

feel qualified to speak, we will confine our attention to the need for 

postal system infrastructure and operating cost reductions, since 

this is the most critical part of the relationship of our industry to 

the Postal Service. More specifically, I will focus today’s comments 

on downsizing mail processing capabilities, mail delivery and retail. 

This need not be a complicated discussion. The fact is that the 

Postal Service’s current processing, delivery and retail infrastructure was created in a different time with far greater volume and 

different customer expectations. At its peak only a few years ago, 

mail volume topped 212 billion pieces annually. The Postal Service’s volume projection for its current fiscal year is just slightly 

over 153 billion pieces. Between 2005 and 2012, mail volume declined by 28.9 percent for a corresponding revenue declination of 

24.5 percent, even after seven rate increases. 

While we believe printed content will remain an important part 

of communication in the future, we know that mail volume will 

39 

never return to anything resembling the peak volume years and 

continuing volume loss is probable. Quite simply, the current business model is not sustainable, because the underlying financial and 

operations assumptions no longer exist. 

There are no $500 million revenue streams that are readily 

available to tap. Though the Postal Service’s approach to product 

innovation, sales and marketing needs dramatic, it is a topic for a 

discussion at another time. While no enterprise can assure success 

through cost reduction strategies alone, and while it may be fair 

criticism that the Postal Service reacted too slowly to the crisis facing it, we believe that its current focus is well placed. In the past 

couple of years, it has initiated a series of strategies to right-size 

its processing, delivery and retail components. Its network realignment strategy is well on the way to accomplishing its goal of closing or consolidating over 220 processing facilities. This will enable 

them to better utilize existing equipment investment and reduce 

labor expense. To this point, the Postal Service has executed this 

strategy in an effective and efficient manner with minimal negative 

impact on customers and business partners. 

The Postal Service has also worked to rationalize and optimize 

its retail infrastructure. There is a need to close post offices that 

are under-utilized and represent expenses that is no longer supported by customer demand. However, in the face of Congressional 

opposition, USPS leadership revised its approach and created its 

POSt initiative that takes a somewhat softer but less effective approach. Rather than closing about 3,700 under-utilized post offices, 

the POSt plan seeks to align operating hours with current customer activity at about 13,000 post offices nationwide. Even this 

plan has met community resistance, but given the availability of alternative forms of access, the perpetuation of traditional brick and 

mortar USPS-operated retail outlets is an outdated and inefficient 

use of resources to meet ever-increasing customer demand. 

Operational and logistical management represent a core competency of the current Postal Service leadership team. They have 

demonstrated the ability to make tough decisions and, when allowed, to execute their strategies with a high degree of competency. 

While some level of oversight is appropriate and necessary, an excessive and overbearing approach is not productive and only serves 

to waste precious time in a critical turnaround situation. 

Of course, these infrastructure and cost reductions include related consequences. All stakeholders must be prepared to participate in this process. We all must be prepared to recalibrate our expectations. 

The central challenge facing the Postal Service is whether the 

Congress and citizens of the Country will allow the Postal Service 

to make the necessary changes to survive. With 80 percent of the 

cost of the Postal Service tied to personnel, all cost reductions must 

include a discussion about the cost associated with labor. 

In conclusion, the stakes are high and the consequences are significant. Time is not on our side. We need strong, decisive leadership that operates with a sense of purpose and urgency. This leadership must derive from an unprecedented level of collaboration by 

all stakeholders, including the leaders of the Postal Service, the inVerDate Aug 31 2005 13:57 May 29, 2013 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 C:\DOCS\80919.TXT APRIL
40 

dustry supply chain, postal labor and legislative oversight bodies 

and Congress. 

Success will depend on forward thinking, open-mindedness and 

a willingness to set aside dated perspectives. We need a commitment to action. At the Association of Marketing and Service Providers we are prepared to make this commitment, and I call on 

other leaders to join us in forging an effective solution. Thank you. 

[Prepared statement of Mr. Garner follows:] 

41 


Insert offset folio 27 here 80919.027

Testimony presented to the 

Committee on Oversight and Government Reform 

Subcommittee on Federal Workforce, 

u.s. Postal Service and Census 

J. Kenneth Garner 

President and CEO of the Association of Marketing Service Providers 

April 10, 2013 

Mr. Chairman and members of the Subcommittee, I want to thank you for the opportunity to testify 

today on behalf of the members of the Association of Marketing Service Providers (formerly the Mailing 

& Fulfillment Service Association). My name is Ken Garner. I serve as President and CEO of AMSP, an 

organization comprised of 450 member companies that provide mailing, fulfillment, marketing, and 

consulting services for a wide range of clients nationwide. AMSP is a trade association that for over 90 

years has addressed the needs of primarily small businesses serving local customers. Our members are 

typical of those businesses identified as "job creators." Our members' businesses are most sensitive to 

the economic circumstances impacting the hard-copy message industry, and the Postal Service in 

particular. 

AMSP is more than an association and its members are more than just marketing service providers. We 

are a critically important part of an enormous U.S. supply chain that develops, markets, and sells 

products and ideas that help drive the nation's economy. This supply chain, which employs roughly eight 

million people and contributes well over $1 trillion to the economy, depends on the distribution of our 

products to the ultimate customer. To a significant degree that distribution depends on the U.S. Postal 

Service. 

AMSP members also participate in the exchange of information, technology, and ideas in this supply 

chain. We are members of the Coalition for a 21st Century Postal Service that includes members from 

every part of the U.S. print and product distribution channel, the Mailers Technical Advisory Committee 

to the Postal Service and many other related organizations. 

While there are many postal-related challenges about which we feel qualified to speak, we will confine 

our attention to the need for postal system infrastructure and operating cost reductions since this is the 

most critical part of the relationship of our industry to the Postal Service. More specifically, I will focus 

today's comments on the followingMail processing capabilities 

• Mail delivery 

Retail 
42 


Insert offset folio 28 here 80919.028

This need not be a complicated discussion. The fact is that the Postal Service's current processing, 

delivery, and retail infrastructure was created in a different time with far greater volume and different 

customer expectations. At its peak only a few years ago, mail volume topped 212 billion pieces annually. 

The Postal Service's volume projection for its current fiscal year is just slightly over 153 billion pieces. 

Between 2005 and 2012 mail volume declined by 28.9% with a corresponding revenue decline of 24.5% 

(even after seven rate increases). While we believe printed content will remain an important part of 

communication in the future, we know that mail volume will never return to anything resembling the 

peak volume years and continuing volume loss is probable. Quite simply, the current business model is 

not sustainable because the underlying financial and operations assumptions no longer exist. There are 

no $500 million revenue streams that are readily available to tap. Though the Postal Service's approach 

to product innovation, sales, and marketing needs dramatic improvement, it's a topic for another 

discussion at another time. 

While no enterprise can ensure its success through cost reduction strategies alone, and while it may be 

a fair criticism that the Postal Service reacted too slowly to the crises facing them,- we believe that the 

its current focus is well placed.)n the past couple of years, it has initiated a series of strategies to rightsize its processing, delivery and retail components. Its network realignment strategy is well on the way 

to accomplishing its goal of closing or consolidating over 220 processing facilities. This will enable them 

to better utilize existing equipment investment and to reduce labor expense. To this point, the Postal 

Service has executed this strategy in an effective and efficient manner with minimal negative impact on 

customers and business partners. 

The Postal Service also has worked to rationalize and optimize its retail infrastructure. There is a need to 

close post offices that are underutilized and represent expense that is no longer supported by customer 

demand. However, in the face of Congressional opposition, USPS leadership revised its approach and 

created its "POSt" initiative that takes a somewhat softer but less effective approach. Rather than 

closing about 3,700 underutilized post office, the POSt plan seeks to align operating hours with current 

customer activity at about 13,000 post offices nationwide. Even this plan has met community resistance 

but, given the availability of alternative forms of access, the perpetuation of traditional brick-and-mortar 

USPS-operated retail outlets is an outdated and inefficient use of resources to meet ever-decreasing 

customer demand. 

Operational and logistical management represent a core competency of the current Postal Service 

leadership team. They have demonstrated the ability to make tough deCisions and, when allowed, to 

execute their strategies with a high degree of competency. While some level of oversight is appropriate 

and necessary, an excessive and overbearing approach is not productive and only serves to waste 

precious time in a critical turn-around situation. 

Of course, these infrastructure and cost reduction initiatives include service related consequences. All 

stakeholders must be prepared to participate in this process. We all must be prepared to recalibrate our 

expectations. The Universal Service Obligation and other service requirements were developed at a very 

different time with very different circumstances. We simply can't expect the Postal Service to reengineer 

its capabilities without a willingness on the part of its customers and partners to openly discuss a new 
43 


Insert offset folio 29 here 80919.029

level of appropriate service expectations. Overnight delivery is an unfortunate, but necessary casualty 

resulting from changes in citizens' communications habits that make maintenance of the related 

processing resources unaffordable. The plan to modify 6-day delivery also is an unfortunate, but 

necessary move to reduce an operating expense level that is simply not sustainable. The Postal Service 

cannot continue carrying less mail to more places while generating less revenue per delivery. AMSP was 

the first trade association to announce its support of 5-day delivery, not because the move represented 

our preference, but because we believe it's a necessary part of an overall strategy to save the Postal 

Service. Again, all stakeholders need to be prepared to "put some skin the game." 

The failure of the Postal Service was once an unthinkable possibility but, as recent history has taught us, 

no organization is too big to fail. As previously mentioned, the Postal Service is the heart of a supply 

chain that has supported millions of jobs and thousands of small businesses that represent the 

backbone of the American economy. Today, that supply chain is severely challenged. Over that past 

three years thousands of private sector jobs in the supply chain have been lost. Unlike displaced Postal 

workers, these workers had no "soft landing." These private sector losses, unlike job losses at the Postal 

Service, never appeared on the public or political radar because they occurred in small numbers as 

company after company cut back or ceased operations. 

The central challenge facing the Postal Service is whether the Congress and citizens of the country will 

allow the Postal Service to make the necessary changes to survive. With 80 percent of the expenses of 

the Postal Service tied to personnel costs, all cost reduction decisions must include a discussion about 

the costs associated with labor. As the Postal Service is working to reduce its network and continue to 

provide service, it must also follow the lead of the rest of the supply chain and bring its total cost of 

operation in line with current and potential revenues. 

In conclusion, the stakes are high and the consequences are significant. Time is not on our side. We 

need strong, decisive leadership that operates with a sense of purpose and urgency. This leadership 

must derive from an unprecedented level of collaboration by all stakeholders including the leaders of 

the Postal Service, the industry supply chain, postal labor, the legislative oversight bodies, and Congress 

itself. Success will depend on forward thinking open-mindedness and a willingness to set aside dated 

perspectives. We need a commitment to action. At the Association of Marketing Service Providers we 

are prepared to make this commitment, and I call on other leaders to join us in forging an effective 

solution. 
44 

Mr. FARENTHOLD. Thank you very much. 

The staff pointed out that Mr. Davis also needs to be UCd in. I 

have been on this subcommittee so long, we all just assumed you 

were still on it. So at this point,, I would like to ask unanimous 

consent as well for Mr. Davis to participate in this hearing. Without objection, so ordered. 

We will now move on to Mr. Jerry Cerasale. He is the Senior 

Vice President of Government Affairs for the Direct Marketing Association. You are recognized for five minutes, sir. 

STATEMENT OF JERRY CERASALE 

Mr. CERASALE. Thank you very much, Mr. Chairman, members 

of the subcommittee and members of the full committee. It is a 

pleasure to be here and speak to you. 

Direct Marketing Association is an association of mailers and 

suppliers. We represent probably 80 to 85 percent of the revenue 

the Postal Service receives. 

As we look at the Postal Service, Americans and American business particularly are spending $65 billion a year in postage. That 

is in fact, the Postal Service is providing something that is necessary to American business. You have heard from some of my colleagues here on how important the Postal Service is for their companies. So it is a very important entity and this is a very important 

issue. 

A couple more examples, disabled American veterans, a great 

member of DMA, receives 85 percent of its revenue to help disabled 

American veterans from direct mail campaigns. And they are typical for non-profit DMA members, that 80 to 85 percent of their 

revenue comes from direct mail campaigns. So the Postal Service 

is very, very important. 

In essence, as we look at this, the unfortunate of the world depend on the U.S. mail to get those revenues to help them. But it 

is not just to non-profits that is important. Another example that 

I will give you are catalogs. People think in e-commerce that paper 

catalogs are no longer important. They are important for our members to get new customers, but every single catalog, when people 

order online, over half the people ordering online have the catalog 

sitting in front of them. So the mail is important for that segment 

of our membership. 

Retail sales. There is a sale at the brick and mortar store. And 

the Postal Service delivers that advertisement to the home on time, 

so that customers will go to those brick and mortar stores. It is important for them as well to have the Postal Service. And the Postal 

Service does deliver on time most of the time. The complaints we 

receive, the Postal Service has been very, very, very responsive to 

try and look at errors and problems in their delivery system. They 

have been much more willing recently to meet with mailers, and 

we congratulate them for that. 

As you look at all those examples, all of the use of the mail depends upon the return on investment, how much do I spend for 

postage, what is the response rate that I receive. And all of our 

members look at that return on investment across the board for all 

the communications channels that are open for them. And for many 

45 

of them, the mail is still a very, very important communication 

channel. 

But we all know the Postal Service cannot continue to lose $25 

million a day. So what can they do? Our hope is that they will try 

and grow volume and try and work with them. But you cannot 

grow volume by raising postage rates. Postage increases and increases in mail preparation costs, to put regulations down, hurt 

mail volume in two distinct ways. One, the revenue budget, the 

postal budgets are exhausted with less volume, and that volume 

that is most likely lost is prospective volume, the engine to try and 

grow those businesses. And second, the return on investment 

drops. When that happens, alternatives become more and more advantageous. 

So our hope is that the Postal Service can use the sales force, 

Valpak as a sales force, others as sales forces out there. And if they 

get volume for their businesses, it grows postal volume. So lets 

work together and try and have the Postal Service leverage those 

sales forces. We think the Postal Service should be more aggressive 

with negotiated service agreements across classes of mail to try 

and keep volume within the Postal Service. 

Finally, cutting expenses. The Postal Service has excess capacity. 

They are working well to reduce that excess capacity. They have 

to work faster. You can’t raise rates and ask mailers to pay for excess capacity. It is not going to work. It is going to hurt mail volume, it is going to hurt the Postal Service. And it is going to hurt 

the mail industry. So they have to move more rapidly with that. 

And I appreciate this time, and look forward to your questions. 

Thank you very much. 

[Prepared statement of Mr. Cerasale follows:] 

46 


Insert offset folio 30 here 80919.030

BEFORE THE 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. POSTAL SERVICE AND CENSUS 

UNITED ST ATES HOUSE OF REPRESENTATIVES 

"AHEAD OF POSTAL REFORM: HEARING FROM USPS BUSINESS PARTNERS" 

APRIL 10,2013 

TESTIMONY OF 

JERRY CERASALE 

SENIOR VICE PRESIDENT, GOVERNMENT AFFAIRS 

DIRECT MARKETING ASSOCIATION, INC. 

Jerry Cerasale 

Senior Vice President, Government Affairs 

Direct Marketing Association, Inc. 

1615 L Street, NW, Suite 1100 

Washington, DC 20036 

202/861-2423 
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Insert offset folio 31 here 80919.031

Good afternoon, Chairman Farenthold, Representative Lynch, Chairman Issa, 

Representative Cummings and members of the Subcommittee, I am Jerry Cerasale, 

Senior Vice President for Govemment Affairs of the Direct Marketing Association, and I 

thank you for the opportunity to appear today concerning the relationship of the Postal 

Service and its business customers. 

The Direct Marketing Association (DMA) (www.thedma.org) is the leading 

global trade association of businesses and nonprofit organizations using and supporting 

multichannel data-driven marketing tools and techniques. DMA advocates standards for 

responsible data-driven marketing, promotes relevance as the key to reaching consumers 

with desirable offers, and provides cutting-edge research, education, and networking 

opportunities to improve results throughout the end-to-end direct marketing process. 

Founded in 1917, DMA today represents companies from dozens of vertical industries in 

the US and 48 other nations, including nearly half of the Fortune 100 companies, as well 

as many nonprofit organizations. 

In a time of rapidly changing communications technology and declining mail 

volume, Americans, particularly American businesses, still pay $65 billion annually in 

postage. They are voting with their wallets that the Postal Service meets some of their 

communications needs. For DMA, its members account for approximately 70% to 80% 

of mail volume in all classes of mail and contribute over 85% of the revenue of the Postal 

Service. The U.S. Mail is an important channel of communications for our members to 

reach donors, customers and potential donors and customers with relevant appeals, offers, 

information, notices on transactions and delivery of products. As the Committee is aware 

the Postal Service and mailing industry annually contribute over $1 trillion to the 

American economy and employ over 8 million Americans. The Postal Service is 

important for all of us. 

Examples of Critical Importance of the US Mail 

The Disabled American Veterans (DAV), a DMA member that, unfortunately, 

could not be here to testify in my place today, receives 85% of its revenue from direct 

mail appeals. Without the Postal Service disable veterans would not receive the services 

of the DA V. DA V has found that the Mail is a reliable and affordable channel to reach 
48 


Insert offset folio 32 here 80919.032

out to past donors and find new ones. In fact, today the Mail is the most economically 

efficient communications channel to reach donors. This same scenario is true almost all 

DMA member nonprofit organizations and charities. Over 80% of all donations are 

received in response to direct mail appeals. Those less fortunate than we throughout the 

world depend on the US Mail and the donations raised through it for food, for shelter, for 

medical care, for education-for a chance to live. 

Nonprofits are only part of the Mail story. Catalogs have offered Americans the 

ability to purchase goods from their homes for over a century. DMA's catalog members 

still rely on the US Mail to send offers to customers and prospective customers and to 

send ordered goods to the customers' homes. Historically, orders from customers arrived 

via the Mail. Technology intervened, and it became more economical for consumers and 

marketers to accept orders via toll-free telephone. Today technology and economics are 

moving to online ordering. It is interesting to note, however, that more than half the 

customers ordering from catalogs online have the print catalog in front of them when 

ordering. That is why on the website of catalogs there is a box to enter the item number. 

Catalog members have found that mailing a catalog is the most efficient channel to reach 

potential customers. 

Timing the arrival of the catalog also is very important-inventory must be 

available, fulfillment operations must be adequately staffed, operators must be standing 

by. The Postal Service has been delivering the mail on a consistent basis and has been 

very open to correcting delivery problems quickly. 

DMA's members with brick and mortar presence use the Mail to notify 

consumers of a sale to entice them to come to their store. One of the leading complaints 

about the Postal Service that DMA receives from members is that the sale flyer arrived in 

consumers' homes after the sale which creates two problems--one, the advertising 

expenditure was totally wasted and two, the consumer is upset with the marketer for 

sending a sale flyer after the sale has closed. The Postal Service has worked to correct 

the service problem albeit sometimes more slowly than DMA members desire. 

Moreover, the Service has no program or ability to help mitigate the damage suffered by 

the mailer. Despite those few problems, the Mail is a cost effective means to advertise a 

sale at a local retailer. 

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The Mail remains a vital communications tool for marketers in this electronic 

communications age. 

Return on Investment (ROI) 

Although the Mail is the economically efficient communications channel for 

many DMA members, it is so only because the return in donations or sales per cost of 

communicating is greater than any other channel. If the ROI calculation changes, 

however, marketers will shift their advertising quickly. For example, it is significantly 

cheaper for utilities if customers pay online and not via check in the Mail. Thus, utilities 

have encouraged customers to pay online. In the same vein, utilities are encouraging 

customers to receive their bills online. Banks are pushing customers to eliminate paper 

statements. These efforts have been very successful, and they are driven by ROI. 

All the examples in the previous section of this testimony reflect instances where 

the ROI for the Mail is higher than for other communications channels. However, a shift 

in service by the Postal Service that reduces responses to offers or an increase in the cost 

of using the Mail (including postage, printing costs, paper costs and mail preparation 

costs) reduces the value of the mail to nonprofits and marketers and, particularly, the ROI 

compared to other channels. 

An increase in the cost of mailing has a twofold effect on the volume of mail. 

First, nonprofits and marketers usually have a set mailing budget. Ifpostage, paper or 

mail preparation costs rise, the mailing budget will be exhausted with fewer pieces of 

mail being sent. Those pieces not sent most likely are prospects-reducing efforts to 

grow the charity or the business. Second, the ROI on the Mail drops and other 

communication channels become more competitive further reducing mail volume. 

DMA members often complain that the Postal Service does not adequately 

consider the costs of implementing mail preparation changes for its customers. For DMA 

members increased costs due to mail preparation change regulations has the same effect 

as a postage increase. This is an area where mailers believe the Postal Service has failed. 

Rather than examining the entire mailing system environment, the Postal Service utilizes 

blinders and examines only its internal operations. DMA believes that is a mistake and is 

an area where the Postal Service should and must improve. It cannot afford to lose mail 

volume due to narrow focused regulatory burdens. 

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The Dark Cloud 

No nonprofit or business can sustain losses of$25 million per day. DMA 

members need an affordable, financially viable Postal Service. How can the Postal 

Service help reach that goal? 

Grow Mail Volume 

As explained above, the Postal Service should keep mailing affordable by taking 

into account the entire cost of entering product into the mail stream. It cannot just raise 

postage and increase mail preparation requirements to increase revenue and reduce costs. 

It must ask its customers what products they need and work with them to provide those 

products. DMA is encouraged by efforts of the Postal Service to find new businesses to 

try the mail and by efforts to improve interoperability of the mail with mobile 

technology. However, DMA believes that the Postal Service should work more closely 

with its customers before offering new products or discounts. Many members believe 

that the Postal Service introduces a new product or discount without customer input and 

discussion, and they must react after the fact. There should be more consensus before 

introduction. Moreover, it should partner with the private sector to offer new products. 

If the private sector offers a product similar to one the Service may offer, it should not 

reinvent the wheel. 

Many DMA members are suppliers to nonprofits and marketers. Their businesses 

depend upon mail volume and a strong Postal Service. Those suppliers have sales teams 

throughout the country finding new customers. A new customer for a supplier means 

new mail volume for the Postal Service. The Postal Service should leverage these 

supplier sales teams with its own marketing efforts. There should be very close 

coordination between the Postal Service marketing team and the sales teams of suppliers. 

Sadly, we do not see that-an area where Postal Service can improve. 

Finally, the Service has not fully utilized its ability to grow volume with its 

customers using negotiated service agreements (NSA). DMA believes and has argued 

that the Service should look at the entire customer profile when considering an NSA. It 

should work with the mailer to construct an NSA that bundles every class of mail the 

mailer uses, including competitive and market dominant classes of mail. In order to grow 

mail volume a mailer should not be viewed or treated as separate silos--one sending 

4 
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First-Class Mail; one sending Standard Mail; one sending parcels, etc. Mailers look at 

their entire mail footprint, and the Postal Service should as well. This alone could help 

maintain and grow mail volume by leveraging the product offerings of the Postal Service 

with each mailer. 

Cutting Costs 

Every DMA member that uses the Mail agrees that the Postal Service must cut its 

costs-in fact, DMA has testified that the Service must slash its costs. 

The first obvious area for cost cutting is the elimination of excess capacity. 

According to the Postmaster General the Postal Service could deliver 300 billion pieces 

of mail per year, but is now expected to deliver less than 150 billion. No mailer can 

afford to pay for that excess capacity. DMA members appreciate the efforts of the 

Service to eliminate mail processing facilities. However, we believe it is not occurring 

swiftly enough. We believe the $25 million daily loss is evident of that fact. Postal 

Service customers know they must adjust to this down-sizing. DMA members need to 

know how the down-sizing will affect service delivery time to make the proper 

adjustments to their mail planning and preparation. 

Postal Service announced plans for retail operation down-sizing are fully 

supported by DMA. 

The DMA membership is split on supporting or opposing elimination of Saturday 

delivery. DMA agrees with the recent Senate testimony of the President and CEO of 

Quad Graphics that reduction of service should be a last resort for any business, including 

the Postal Service. Many members were encouraged by the plan to continue parcel and 

Post Office Box delivery on Saturdays which reduced concerns for some members. 

Other members believe that reduction of 16% of delivery days will have a negative effect 

on consumer response which will decrease the ROI of Mail. 

All DMA mailing members, however, will have to adjust their mailing schedules, 

some more than others and some more successfully than others, if Saturday delivery is 

eliminated. That raises a serious concern among all mailers. Will there be Saturday 

delivery the week of August 5? Mailers are well into planning for August mailings. 

Confusion whether or not there will be Saturday delivery in August and beyond harms 

5 
52 


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their planning-reduces the attractiveness of mail. Uncertainty is the enemy of mailers 

and the Postal Service. That uncertainty must be eliminated quickly. 

Conclusion 

The Postal Service is important to DMA members. Mailers can rely upon 

affordable delivery. The Service has been responsive to delivery service problems. The 

Service must slash costs to remain financially viable. It cannot simply raise rates to 

balance its books. Doing that would drive mail from the system and just compound the 

current problems. The Postal Service should work with its customers to make the Mail 

more ecommerce friendly. It should use NSAs much more aggressively to grow mail 

volume. 

The title of the hearing is "before postal reform .... " Concerning postal reform 

and stealing a well-known advertising slogan, DMA asks Congress to "Just Do It." 

I thank you for the opportunity to testify and look forward to any questions you 

may have. 

6 
53 

Mr. FARENTHOLD. Thank you very much. 

We appreciate everyone’s testimony. At this point, we also invited testimony from eBay, a Mr. Carl Gish. He was unable to attend, and he did submit written testimony. Without objection, I 

would like to include that in the record. 

Without objection, so ordered. 

[Prepared statement of Mr. Carl Gish follows:] 

54 


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Testimony of 

Carl Gish 

Vice President, Global Shipping for the eBay Marketplace 

eBayInc. 

Before the 

United States House of Representatives 

Committee on Oversight and Government Reform 

Subcommittee on Federal Workforce, U.S. Postal Service and the Census 

Ahead of Postal Reform: Hearing from USPS Business Partners 

Rayburn House Office Building, Room 2157 

1:30 p.m. 

SUBMITTED 

April 10, 2013 

Chairman Farenthold, thank you for the opportunity to submit testimony to the 

Committee on how eBay is partnering with the United States Postal Service (USPS) to support 

Internet-enabled small businesses, and empower them to serve their local and global customers. 

My name is Carl Gish and I am a Vice President at eBay Inc., where I oversee the global 

shipping initiatives on the eBay Marketplace. 

Founded in 1995 in San Jose, Calif., eBay Inc. connects millions of buyers and sellers 

globally on a daily basis through eBay, the world's largest online marketplace, and PayPal, which 

enables individuals and businesses to securely, easily, and quickly send and receive online 

payments. We also reach millions through specialized marketplaces such as StubHub, the world's 

largest ticket marketplace, and eBay classifieds sites. And through our company OSI 

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Commerce, eBay Inc. has become the leading provider of eCommerce and interactive marketing 

services for many of the world's premier brands and retailers, such as Toys R Us, Ralph Lauren 

and Dick's Sporting Goods. 

Additionally, eBay Inc. is actively working to revolutionize global commerce with the 

recent additions of mobile technology companies WHERE, Milo, Zong and others combined 

with the seasoned services of eBay Marketplaces Mobile and PayPal Mobile. In fact, in 2012, 

eBay Marketplaces generated $13 billion in sales of nearly everything from cars, clothing, shoes, 

electronics, and toys all through mobile applications. Altogether, we estimate that the total 

enabled commerce volume, or purchases touched by eBay Inc., was $175 billion in 2012, and we 

expect that to grow to $300 billion in 2015. 

As you can see, eBay Inc. represents a very diverse family of businesses supporting 

millions of users ranging from individual consumers to merchants and retailers of every shape 

and size. By understanding our company profile and where our company is going, you can see 

how the Internet and mobile technology are changing the commerce landscape and empowering 

retail businesses, large and small alike. It is our hope to be their partner in this venture. 

But commerce as we imagine it would not be possible without strong and reliable 

partners to facilitate the physical movement of goods. This is true today and it will be especially 

true going forward. We at eBay know that developments in the commerce landscape and 

consumer preferences for Internet-enabled retail are why the postal service is experiencing year 

over year growth in shipping and package volume. And eBay's growth plans support the notion 

that USPS package volumes will continue to grow. 

We are pleased that the USPS has put increased focus on serving their eCommerce 

customers, and we have been encouraged by the USPS's willingness to explore future postal 

innovations that would support our users - especially the small businesses and entrepreneurs that 

use our services. But, the USPS/eBay relationship is nothing new. eBay and the Postal Service 

have enjoyed a strong formal partnership for nearly 10 years. The Postal Service has long been a 

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key package delivery service for eBay's top sellers - the small businesses and entrepreneursthat are at the heart of the eBay marketplace. 

In addition to being long-term, the eBay relationship with the USPS is robust and 

complementary. Approximately 85 percent of the total domestic shipping volume from eBay is 

managed by the USPS. The eBay users that drive this volume include hundreds of thousands of 

small business retailers and entrepreneurial individuals across America, including individuals 

and small retailers in rural and disadvantaged communities. 

In tum, eBay-generated commerce is a significant part of USPS' revenue. Shipping on 

eBay now accounts for approximately a quarter of all packages shipped by the USPS. As a 

result, eBay sellers are collectively the USPS's single largest package customer. Additionally, 

total USPS revenue related to commerce over eBay was close to $2.5 billion in 2012. And we're 

proud to report that last year we also surpassed the $1 billion mark in postage paid through the 

label function on the eBay platform. It marked the first time we've reached this mark in a single 

year with the USPS. 

Our partnerships go beyond our user uptake. eBay has invested several millions of 

dollars into marketing to promote the USPS. We also continue to collaborate with the Postal 

Service across many fronts, including fighting fraud together and co-developing technology tools 

to provide shipping solutions. In fact, in April 2012, eBay was awarded the Partnership for 

Progress Award by the USPS for teclmology and financial innovation after we systematically 

developed a setup on our platfonn that allowed sellers to bill and ship faster. We also recently 

concluded negotiations around an extension to the service agreement that gives our small 

business users access to competitive shipping prices. 

It is clear that eBay and the Internet help American small businesses connect with buyers 

across the nation and around the world. The Postal Service with its unique network is a critical 

piece of that connection. Together, we are driving benefits to small Internet-enabled businesses 

and their customers. 

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As I'm sure you can understand, a financially and structurally sound postal service 

remains critically important to eBay Inc. and the hundreds of thousands of small businesses that 

use our platform. We have long-supported Congressional action to preserve a postal system that 

is strong and viable for the long-term. As the Committee considers how to address the financial 

challenges facing the USPS, we would encourage you to keep in mind that eBay's sellers' 

success translates into a growing postal service. That's why we think Congress should focus on 

reforms that preserve and promote affordable and reliable shipping alternatives for the small 

businesses that use them. 

In the world of eCommerce, low-cost shipping alternatives are a tremendously important 

tool for small businesses. Customers today demand free and same-day shipping. Large retailers 

in particular have been successful in meeting these demands by leveraging their economies of 

scale. Small businesses, on the other hand, have a harder time meeting these customer 

expectations because of their proportionally higher costs of doing business; however, the USPS 

provides important low cost shipping alternatives that especially benefit small businesses. 

Maintaining and building upon these and other low-cost shipping products ensures the ability of 

the small Internet-enabled retailers to compete, grow, and create jobs. 

Conversely, when the USPS has increased prices, those increases have negative impacts 

on the small businesses that use our platform. For example, we believe that the 14.5% average 

increase in international shipping services instituted on January 27,2013, has reduced the 

competitiveness of our sellers in their efforts to export to foreign buyers. We also know that the 

most recent price adjustments have negatively impacted the sales of goods that rely on first class 

mail. When postage rates go up, so too do the overall prices of the item, causing some customers 

to abandon their purchase. Overall, these higher postal shipping rates compromise the ability of 

small businesses to succeed in a highly competitive retail world. 

Additionally, we believe that any changes to the service week or any restructuring efforts 

that compromise fast and reliable service by the USPS would have negative impacts on small 

businesses. In particular, offering affordable Saturday delivery has significant value. Without 

Saturday delivery from USPS, sellers will be forced to pay a significant premium. Consumers 

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who shop with small businesses online will suffer as these costs will be passed onto them and 

small business retailers will make fewer sales. This, in turn, rebounds in a negative way and 

means less package volume for the Postal Service. 

We recognize and empathize with the financial difficulties the Postal Service now faces. 

That's why we support aggressive management efforts to address financial problems without 

undermining the core value proposition, which is based on competitive rates and quality service. 

For example, eBay has long agreed with other postal customers that any plan to stabilize the 

postal service should include reamortization of payments by the USPS to pre-fund retiree health 

benefits. We also believe that any financial stabilization plan should return to the USPS 

overpayments that were made to the federal employee retirement system. Finally, we believe 

that the USPS should be empowered to make structural adjustments that reflect the current 

market. I must underscore, though that we do not think structural adjustments should equate 

with price increases or service reductions. Rather, appropriately closing or moving underutilized 

post office locations, renegotiating labor contracts, and introducing new products should all be 

aggressively pursued by the Postal Service. 

We are encouraged by the USPS's intention to preserve the six-day delivery week for 

packages, including many of the products our users enjoy. And we have worked with the postal 

service to try to address some of the ramifications of the most recent postal price increases. But 

we know that until Congress takes action, both eBay and the USPS will be limited in their ability 

to serve small shippers. 

As I highlighted above, the Internet is an important component of every retail business 

model, especially for small and micro-small businesses. It provides a channel by which small 

businesses can grow and, with the right tools and dedication, become big businesses. But 

without Congressional action, this small business growth opportunity may be in jeopardy. 

Thank you for the opportunity to express our views on this important issue. We look 

forward to working with Congress to support a strong and viable United States postal system. 

6 
59 

Mr. FARENTHOLD. But for eBay, I wouldn’t have this lovely tie. 

[Laughter.] 

Mr. FARENTHOLD. Actually, but for a lot of people on this panel, 

my life would be very different. I paw through the Valpak for the 

pizza coupons, I paw through my newspaper for the CVS coupons. 

So it is, a very interesting panel that I think affects all postal customers lives as well. 

At this point I want to begin my questioning with something that 

is really kind of topical in the news today. We are seeing a pullback 

now from the Postal Service saying they are going to stay with full 

six-day delivery. What I do want to, I know the gentleman from 

CVS pointed out they were happy with just packages being delivered, that met their business needs. But I would like to go down 

and ask the panel, is part of their business, do they see a huge negative effect with the proposal that was before us to just deliver 

packages and priority mail and post office boxes on Saturday? If 

you could all just answer quickly, because I have quite a few questions. We will start with Mr. Brandt. 

Mr. BRANDT. Mr. Chairman, we in the newspaper industry have 

experienced many of the challenges that the Postal Service is facing. We have had multiple responses to that. But one has been to 

reduce our costs significantly. So my view, and the one expressed 

in editorials in my newspaper, is that that was a perfectly legitimate option available to the post office for reducing its costs. 

Mr. FARENTHOLD. About 71 percent of surveyed folks agreed with 

you on that. 

Ms. Franckowiak? 

Ms. FRANCKOWIAK. We actually also mail into Canada. We have 

franchises located up there where they have a five-day delivery 

model currently. So we have been used to that for quite some time. 

We have been very supportive of the Postal Service. At this point 

we kind of look at it as maybe a luxury if they are able to continue 

Saturday. It wouldn’t be our preference, if they could afford it, to 

eliminate it. But we have had the experience in Canada. 

Mr. FARENTHOLD. Ms. Brophy? 

Ms. BROPHY. We understand that the move to eliminate the sixth 

day of home delivery is another initiative to cut costs. We have said 

right along that we will adjust. 

Mr. FARENTHOLD. Okay, great. Mr. Janssens? 

Mr. JANSSENS. Yes, sir, as I stated, we supported the initiative 

of moving to a five-day for first class and keeping the parcel for six 

days. 

Mr. FARENTHOLD. Great. Mr. Garner? 

Mr. GARNER. Our Association was the first to announce its support of the PMG s intent to move to five-day, not because we were 

excited about it, but because we believe that everybody has to 

make some concessions in this, everybody has to have some skin 

in the game. That was one of the concessions we were prepared to 

make. 

Mr. FARENTHOLD. And Mr. Cerasale? 

Mr. CERASALE. DMA can’t take a position. Our Association is 

split, our membership is split. But we all agree that you should cut 

as much as you can before you cut service, and as a last resort 

there. All my members will have to adjust if Saturday delivery 

60 

goes. For some it would be easier than others. But, as a last resort, 

we support it as a last resort, because we need the Postal Service 

to stay financially viable. 

Mr. FARENTHOLD. Thank you very much. 

I am going to go back to Mr. Brandt, as well. You mentioned that 

the Postal Service is negotiating a sweetheart deal with some of 

your competitors for delivery, a lower rate for bringing in new customers. I know my local newspaper, the Corpus Christi Times, 

brought that to my attention. We sent a letter to the Postal Service 

about it. 

Do you feel like some of the customers that are using this service 

are actually new postal customers, or are they customers that were 

using the Postal Service to begin with and are just switching providers to get a better deal? 

Mr. BRANDT. Mr. Chairman, first of all, I appreciate your signing 

and perhaps even initiating that letter. That was very helpful. 

Our industry association tracks activity related to the negotiated 

services agreement with Valassis, which was targeted at Sunday 

inserts in newspapers. There has apparently not been, at this 

point, an actual conversion of a pre-print delivered by newspapers 

to the new program. So at the moment, it has netted nothing for 

the Postal Service. 

However, there is evidence and data that it is being used by 

agencies that place newspaper inserts to flog newspapers in rate 

negotiations to reduce the rates that pre-print advertisers are paying for the inserts that they put into newspapers. 

Mr. FARENTHOLD. I see my time is expired. So I am going to lead 

by example and move along. If we have time for a second round 

of questioning, I do have a couple more, if they don’t get asked by 

other members. 

At this point, I will recognize Mr. Clay for five minutes. 

Mr. CLAY. Thank you, Mr. Chairman. I certainly will observe the 

five-minute time limit. 

In the 112th Congress, both Chairman Issa’s bill and the Senate 

bill addressed underwater or under-priced postal products through 

a provision that mandated increasing prices of market-dominant 

classes, products or types of mail that did not contribute to 100 

percent of their indirect or direct costs. 

Joy, let me begin with you, and I will not try to tackle your last 

name. But in your testimony you mentioned that the Postal Service 

allowed eight products to remain underwater, costing the Postal 

Service millions of dollars. Do you think that the House and Senate 

provision on this issue would address the problem and do you think 

that this provision should be included in any future reform package? 

Ms. FRANCKOWIAK. Thank you. Yes, sir, we believe that the Postal Service cannot afford to continue losing, at this point, billions of 

dollars on products that don’t cover their costs. As a private business, we certainly probably wouldn’t be very profitable if we had 

a bunch of products that didn’t cover their cost, let alone contribute 

towards overhead. So we don’t think that it needs to be an immediate jump and get them there in one year or even two years. But 

they should start to move in that direction and develop a plan that 

everybody can move toward. 

61 

Mr. CLAY. Thank you for your response. 

Mr. Brandt, you mentioned that high density rate prices have incrementally increased over time at a higher rate than saturation 

rates. Has this caused you or any of the other newspapers in your 

association to scale back the amount of mail you enter into the system at the high density rate? 

Mr. BRANDT. Congressman Clay, the expanding differential between saturation rates paid by direct mailers and high density 

rates paid by newspapers has resulted in Greenville in the transfer 

of 50,000 pieces per week from the mail to alternate delivery. Our 

industry association estimates that $300 million has migrated from 

the postal system to private alternate delivery forces as a result of 

what we view an ill-advised pricing action by the Postal Service. 

Mr. CLAY. And Mr. Brandt, how do those costs, how do they come 

out? Is it more expensive to use the private company or is it less 

expensive to be with the Postal Service? 

Mr. BRANDT. The private or proprietary, in our case, we have our 

own alternate delivery force in Greenville, the proprietary or private services are 25 to 50 percent less expensive than the Postal 

Service. 

Mr. CLAY. At this time? It could change? 

Mr. BRANDT. Yes, sir. 

Mr. CLAY. Thank you for that response. 

Do you think that if this issue was addressed in postal reform 

language that it would cause you and other newspapers to use the 

Postal Service more? 

Mr. BRANDT. Mr. Congressman, the newspaper industry values 

the Postal Service. Even though it is more expensive, many deliveries remain in the Postal Service because our pre-print advertising 

clients value them. 

So, if the differential were scaled back, I think there is every reason to believe that postal volume would increase as a result. 

Mr. CLAY. Thank you for that response. 

Mr. CONNOLLY. Would my colleague yield? 

Mr. CLAY. I have one more. 

Mr. Cerasale, one non-profit organization within your organization is the Disabled American Veterans. Could you discuss how this 

organization would be affected if non-profit mailing rates were increased? 

Mr. CERASALE. Sure. As I said, the return on investment is the 

major driver. But they have a postal, or a mailing budget, not just 

for postage, but to prepare the direct appeals. And if postage rates 

go up, they will send out less pieces of mail. They will send it to 

the lower response rate that they think, but they will receive fewer 

dollars coming in to help disabled American veterans. 

So it is just a simple dollar and cents issue, the mailing budget 

is used, and when it is all used up, they stop mailing. If they mail 

less, they get less money back. 

Mr. CLAY. Thank you, and I am finished. 

Mr. FARENTHOLD. Thank you very much, Mr. Clay. 

We will now recognize Mr. Walberg for five minutes. 

Mr. WALBERG. Thank you, Mr. Chairman. Begin with a father 

that just put my daughter on a plane back to Uganda where she 

has lived and worked for six years and this time, transporting with 

62 

her by air six large containers, because you can’t mail to Uganda 

and expect that it gets there, safe, sound, or even gets there. 

So to have a panel in front of us that is giving us ideas on how 

to work to make sure that a Postal Service which provides us really 

excellent service that we can trust, when you send a check or you 

send a package it arrives, sometimes a little bit beat up, but what 

do you expect, it is worse on the airplanes. It is good that we have 

this opportunity. 

Ms. Brophy, for your magazines, can you estimate what share of 

the cost is postage? 

Ms. BROPHY. There are a number of different ways that you 

could look at that. I couldn’t tell you for sure unless I knew exactly 

what we were including. It is a significant portion of the direct 

mail cost. 

Mr. WALBERG. So a significant portion. 

Ms. BROPHY. It is significant. 

Mr. WALBERG. I would assume because of that you have probably 

looked at other possibilities for delivering your magazines or mailings. What has kept you with the Postal Service? 

Ms. BROPHY. Most of our customers, a great number of our customers, rely on getting that information. They like getting the print 

information. Direct mail is also the largest acquisition source and 

more than half of our revenue still comes from direct mail acquisition. So direct mail campaigns are vitally important to the mission 

and to the budget. 

We have a very strong digital presence. Consumerreports.org is 

one of the largest paid sites on the web. At any given time, depending on how much of an expense postal happens to be in that equation, we would probably divert much more of our resources to figuring out and conquering how to pursue acquisitions online. 

Mr. WALBERG. Thank you. 

Mr. Garner, in your testimony you highlight the major actions 

that the Postal Service has taken to begin right-sizing its infrastructure. Could you expand on why that right-sizing is so important to mailers? 

Mr. GARNER. I think it is a very basic principle here in terms of 

an infrastructure that exists now that can’t support itself. It is not 

sustainable. As we have all been made aware here, the financial 

consequence of having the cost of an infrastructure that far exceeds 

the demand for it is penalizing all of us. It puts all of what we do 

here at serious risk. 

So first and foremost, I think, as a strategy, we need to get the 

Postal Service’s infrastructure and costs in line with the volume 

and the revenue it receives. 

Mr. WALBERG. In your fully testimony, you touched on the larger 

mailing industry and the effect that the electronic diversion and 

downturn in mail volume has had on the industry as a whole. If 

you could, could you explain for us what have been some of the differences between how the United Parcel Service has impacted or 

worked to deal with that, respond to that crisis, I think is a better 

how they have responded in some ways in the private sector better 

than they have done with the U.S. Postal Service? 

Mr. GARNER. I will take a swing at it. I think one of the things 

about UPS and FedEx is they are not encumbered by some of the 

63 

same requirements that the Postal Service is. They don’t have a 

thing called the universal service obligation. They don’t have to deliver mail every day to every residence. In fact, the Postal Service 

does a lot of that work on behalf of FedEx and UPS. 

So as commercial businesses, I think they have more latitude, 

more freedom to execute the kinds of cost reduction and infrastructure reduction strategies that are available to them. So I think 

they have a distinct advantage in that area. 

Mr. WALBERG. Okay, thank you. 

Mr. Janssens, in your testimony you mentioned the important 

role of cost efficiency in your decision to use the United States 

Postal Service. How has the continual increase in the cost of postage affected your business over the past few years? 

Mr. JANSSENS. From a history perspective, back in the 1980s 

when we first started the program for mail order prescriptions, everything went 100 percent UPS. FedEx didn’t exist back then. The 

pressure on the industry, like all industries, continued to look for 

cost savings. And we have moved to the postal system. And as they 

upgraded their delivery system for packages, it has been very opportunistic for everyone to increase that volume. 

As I said, over 90 percent of the medicine and medication that 

we ship today on the maintenance side for maintenance products 

goes to the postal system. As we continue to have these price increases, obviously that affects our business as well as our pricing 

model. We have less ability to pass that savings on to our clients 

and our constituents, or our beneficiaries that are using our products. We still have a very good differential today between the Postal system and UPS, it is getting closer all the time, for example. 

Mr. WALBERG. Thank you, Mr. Chairman. I yield back. 

Mr. FARENTHOLD. Thank you very much. We are now up on the 

other side of the aisle to the gentlelady that has the shortest commute of anybody in Congress to their home district, the gentlelady 

from the District of Columbia, Ms. Norton. 

Ms. NORTON. Thank you very much, Mr. Chairman. Nine blocks. 

[Laughter.] 

Ms. NORTON. First, let me ask a threshold question. If we do not 

pass a postal bill, a lot of the testimony we are hearing today may 

be quite moot. We have done nothing on this side of the House, of 

the Congress. But last year I note that the Senate actually passed 

a postal service reform bill. Two-thirds of the Senate is voting for 

it, really bipartisan bill. 

Could I ask where each of you stand on the Senate bill? Mr. 

Brandt, why don’t you start? 

Mr. BRANDT. Congresswoman Norton, I am not familiar with the 

content of the bill. Therefore, I can’t comment on it. 

Ms. FRANCKOWIAK. Our preference, I think, from an operational 

perspective, we preferred a lot of the language that was in the proposed House bill that was passed out of subcommittee. Because we 

didn’t feel that the Senate bill really went after a lot of the fundamental issues of the Postal Service. It relayed a lot about RHBF 

and some of the other things that, while they are things that are 

impacting the Postal Service, they really need to have the ability 

to right-size their business model and do some of these changes 

that we feel need to occur. 

64 

Ms. BROPHY. We supported the Senate bill. There are very many 

elements in the House bill that we were also in favor of. 

Ms. NORTON. Thank you. Mr. Janssens? 

Mr. JANSSENS. Congresswoman, I am not close enough to understand all the details of that bill to comment. 

Ms. NORTON. Mr. Garner? 

Mr. GARNER. We did support the Senate bill, but similar to my 

colleague, Ms. Franckowiak, we wish it would have been a bit more 

aggressive in its approach to cost reduction. 

Ms. NORTON. Mr. Cerasale? 

Mr. CERASALE. We supported the bill. We think the postal reform 

needs to get moving so we supported the Senate bill and hope that 

they pass something similar to get things started again. 

Ms. NORTON. I appreciate just that understanding of where people would have been willing to start. Obviously the House and the 

Senate are not going to agree on everything. That is why if somebody doesn’t get it started it doesn’t happen. So I think they did 

make a start, and I do believe this is the year that if we don’t do 

it, the Postal Service, this will be the second or third year of defaulting on its health benefits, prepayments. It is out of cash. In 

November it will owe $1.3 billion just for workmen’s compensation. 

No cash in November. It will owe $5.5 billion in prepaid benefits, 

health benefits, at the end of this fiscal year. This is folly. We are 

sitting here talking about an important matter, but I think there 

are worse problems here. 

I was interested in how you viewed the Postal Service, Mr. 

Brandt indicated that something like 25 percent of your business 

had been moved to private deliverers. Mr. Cerasale, you indicated 

that the Postal Service was timely and reliable. I am sure if there 

any Postal Service people here they are glad to hear someone say 

such good things about them. 

By the way, there was a recent survey done of government agencies. It found the Postal Service to be the most trusted by the 

American people, and it is not even a government agency. 

Let me ask you, though, this is my pet peeve. In 1971, the Congress spun off the Postal Service to be a private business, to be like 

you who are sitting at this table, but it has never treated it like 

a private business. The health benefits are only one example that 

they have to prepay in a way that no Federal agency does, for example. 

And the reason for that, very frankly, is only because it makes 

our deficit look better. It doesn’t have anything to do with them. 

If they didn’t put their trust funds then our deficit would look like 

it really is. 

Let me ask you though about treating the Postal Service as a private business. The Postal Service has a unparalleled infrastructure 

in transportation and delivery like nobody else. But they cannot at 

the moment even engage with non-Postal Service matters, like 

products or the internet, other kinds of things that its infrastructure, if any private sector had it, would be now used in a dozen 

ways. 

Do you think that today’s Postal Service should be allowed to use 

that infrastructure in a, to take full advantage of that infrastructure by not being required to stick only to what is a very narrow 

65 

set of products and services related to the Postal Service itself? I 

would like to hear what each of you who are in private business 

have to say about that. Mr. Brandt? 

Mr. BRANDT. Congresswoman Norton, I agree with you on the 

scope and magnitude of the challenge that the Postal Service is facing. I think that when we talk about spinning it off and giving it 

true independence as a business, an issue that is part and parcel 

of that has to do with the fact that the Postal Service is both an 

umpire and a player in some of the arenas where it operates. I 

think that would have to be taken into account if it were spun off 

as an independent business. 

Ms. NORTON. Mr. Franckowiak? 

Ms. FRANCKOWIAK. We generally feel that the Postal Service, 

what they are really good at, to your point, is delivering the mail 

and the size of their network and utilizing their infrastructure. We 

would support anything that they could do that falls within their 

specialty. A lot of foreign posts get into banking and insurance and 

different things like that. We don’t think that that is something the 

Postal Service should go after. 

But anything that can enhance their strengths we would support. 

Ms. NORTON. Ms. Brophy? 

Ms. BROPHY. I would leave it up to other experts to decide 

whether or not the Postal Service should pursue other avenues. We 

are really much more interested in what is in front of us immediately and that they continue to work on organizational changes 

that make them financially sound. 

Ms. NORTON. I am just trying to allow them to grow like any 

business would like to grow. 

Mr. Janssens? 

Mr. JANSSENS. I also share your pet peeve, by the way, in terms 

of, either we fund it as an organization as part of the government, 

if we feel that is the right way to go, or we allow it to be an independent business from a regulatory perspective. So today we are 

kind of in that middle ground. 

As to your comment or your question, I would support them looking for other avenues for revenue generation to fill that capacity, 

as has been discussed by a number of the constituents here. 

Ms. NORTON. Mr. Garner? 

Mr. GARNER. I believe that product innovation and service innovation is not a core competency that the Postal Service currently 

has. I think industry could help a great deal in that area. But I 

would also caution against kind of a free rein here in a sense that 

they are in a position to, perhaps in some cases inappropriately, leverage their size and their reach. So there needs to be a sensitivity 

to private business and competition in those areas. But there is no 

question about the fact that they need to be much better at product 

and service innovation. 

Mr. CERASALE. I agree with Mr. Garner that they need to be 

much better in product service integration. I have testified before 

that the Postal Service should not reinvent the wheel in looking at 

products. They should try and look to partner with the private sector, if in fact the private sector is producing something they don’t 

have to reinvent and do it, they can work with them together. I 

66 

think that is an area the Postal Service should be allowed to more 

aggressively pursue. 

Ms. NORTON. Thank you very much. 

Mr. FARENTHOLD. Thank you, and I would note that they have 

now called votes in the House. This is going to be a rather lengthy 

series of votes. They are saying that we will probably not walk off 

the Floor until 4:15. 

So what we are going to do, so we have time to get to the votes 

by probably taking two more rounds of questions if they stick to 

five minutes. Then we will recess. If any of our witnesses have to 

leave to catch a plane or whatever, we will excuse them. But we 

will reconvene immediately after the votes for any other members 

who have questions of any of our panel who can stay. 

So at this point, in order to get a couple more sets of questions 

in, we will recognize the gentleman from Georgia for a quick five 

minutes. 

Mr. COLLINS. Thank you, Mr. Chairman. This is going to be 

quicker than five minutes. 

I think one of the things that was said here, and we can rehash 

a lot of what has been said, the Postal Service is a vital function 

that is needed, it is something that we need, it provides a service 

that no one else is going to pick up. UPS, FedEx, nobody else is 

going to pick up a lot of what they do. And we have to fix that. 

But we also have to acknowledge that there are a lot of problems. 

And this is what we have had in the last two days over here. And 

one of the things, we talk about the pre-funding mandate, and that 

is causing all the problems. There is an issue there, but you have 

$9.9 billion in losses on top of the pre-funding. There is just an inherent problematic model here. And when I sit here and listen 

today about the agreements, the NSAs agree, you are losing money, 

you are giving preferential treatment, I have a real problem with 

the Postal Service picking winners and losers, I have a problem 

with any side of that. 

But I do have one quick question, and then I am going to reserve 

back. I am just going to say Joy, not even going to attempt it. My 

north Georgia would just mutilate it. 

It is my understanding, though, that products such as Valpak 

pay a higher percentage of basically the cost relative to the cost of 

the Postal Service. Is that true? So basically you are a profit, you 

pay more than what is needed to deliver, is that correct? 

Ms. FRANCKOWIAK. Yes, sir. We pay approximately 220 percent 

of our costs. So we are paying quite a bit to help offset some of the 

products that aren’t paying even 100 percent of their costs. 

Mr. COLLINS. And when I hear that, and seeing how this model 

is not working, it really bothers me. And I am all for doing what 

we can, because it is a vital service. And even the others, UPS, 

FedEx and others I have talked to, want a strong relationship with 

the Postal Service like they already have. 

I think what concerns me though in that question, and with 

other things going on, is that we simply again have just a flawed 

business model here, it is a flawed model that is not working to 

support newspapers, to support others where you have this kind of 

rate structure that basically says, we will make here or not make 

here, when you can actually do something about it. 

67 

I look forward to dealing with the chairman and ranking member 

and others on this subcommittee as we move forward, and that we 

do need to address this. This is not something we need to duck. It 

is something we need to move forward on. 

And is it going to be easy? No. But we have to do it, and I appreciate all of your attendance today. Mr. Chairman, I yield back. 

Mr. FARENTHOLD. And I appreciate your generosity with your 

time. 

We will now recognize Mr. Davis for five minutes. 

Mr. DAVIS. Thank you, Mr. Chairman. I certainly appreciate your 

giving me the opportunity to participate. I think I have been on 

this committee so long until I forget that I am not still a member 

of it. 

There are many members of Congress, including some people on 

this committee, who are concerned that senior citizens and veterans who receive their prescriptions by mail would be adversely 

affected by the Postal Service’s decision to reduce its delivery 

schedule. The Postal Service has stated that package delivery will 

occur on Saturdays. 

However, many of the prescriptions that our seniors and veterans receive are not classified as packages. Mr. Janssens, you 

mentioned how important Saturdays are to your operation. As a 

provider of mail order prescriptions for Federal employees, retirees 

and their dependents, has the Postal Service reached out to your 

company to explain its plan to implement this measure or address 

the issue of delivery to our seniors and veterans? 

Mr. JANSSENS. Congressman, they have reached out, and we 

have talked to our account representatives. Right now, all of our 

products that we ship today is either a parcel select or a parcel select lightweight. It would be included in their Saturday delivery 

schedule. 

Mr. DAVIS. Do you think that additional costs will be incurred by 

your company that you in turn would pass on to the consumer, 

some of whom are already on fixed incomes or are already contending with high prescription costs? 

Mr. JANSSENS. At this point, are you suggesting if they stopped 

Saturday deliveries? 

Mr. DAVIS. Yes. 

Mr. JANSSENS. It would impact our ability to maintain our current margins. It has not been decided at this point whether that 

cost would be passed on to our clients, who are the payers that tie 

back into our members from a health plan perspective, unions and 

government organizations. 

Mr. DAVIS. So you think it would adversely affect your operation 

vis-a-vis your clients? 

Mr. JANSSENS. Correct. If we had to continue to ship on for delivery on Saturday. But there is also the issue, as I touched on from 

an adherence perspective, then we have one less day where they 

would have deliveries if we chose not to ship for delivery on Saturday. 

Mr. DAVIS. Thank you very much. Mr. Chairman, I thank you 

again for the opportunity to participate, and I certainly thank all 

of the witnesses for coming to share with us. 

68 

Mr. FARENTHOLD. Since our two previous questioners were so 

rapid, we probably can still make our votes by letting Mr. Connolly 

go for five minutes. You are recognized. 

Mr. CONNOLLY. I thank the Chair, and I thank you for your courtesy in allowing me to participate. 

All of you were asked by the Chairman the question about the 

reasonableness of going from six to five days. But would you not, 

might you have a different answer if the question were phrased differently? If for example you knew that the biggest cost item that 

we have not dealt with in the House bill we did in the Senate bill 

that you were not familiar with, Mr. Brandt, is the pre-payment requirement, an onus put on no other entity on the planet of the 

United States Congress, except the U.S. Postal Service, that costs 

it between $5 billion and $6 billion a year right now? You might 

have answered differently, might you not, if I had said, that is the 

choice. 

The choice is, cost-cutting from six to five, holding in abeyance 

what revenue loss you might have, and/or dealing with the prepayment problem, which is the big elephant in the room, except we 

didn’t deal with it here in the House. Might your answer have been 

different, Mr. Brandt, if I had phrased it that way? 

Mr. BRANDT. Congressman Connolly, my understanding is the 

deficit for the Postal Service last year was $15.9 billion. My understanding is that the prepayment on retiree health care benefits is 

$5.5 billion. Clearly that leaves more work to be done. 

I understand that the elimination of Saturday delivery other 

than parcels would save an additional $2 billion. 

Mr. CONNOLLY. Can I stop you there, Mr. Brandt? 

Mr. BRANDT. Yes, sir. 

Mr. CONNOLLY. So far you are accurate in the retelling. But I assume, being a newspaperman, you don’t just accept those numbers 

uncritically. For example, let s take this so-called $2 billion savings 

from six to five days a week. Are you aware of the fact that the 

Postal Regulatory Commission actually examined that number and 

said it overstates the savings by $1.4 billion and understates the 

revenue loss by $.4 billion? Might that have changed your editorial 

opinion about going from six to five? 

Mr. BRANDT. Congressman Connolly, our editorial was really addressing a more general issue, and that is the necessity to reduce 

costs and/or increase revenues in order to sustain the viability of 

the Postal Service into the future. As part of that, as a subset of 

that editorial, we endorsed the idea that Saturday delivery be on 

the table. 

Mr. CONNOLLY. Fair enough. 

Mr. BRANDT. And my answer would not have changed. 

Mr. CONNOLLY. I would just say to you, however, especially in 

the newspaper business, it seems to me we can’t accept things 

uncritically. It has to be examined. For example, there was a study 

two years ago that the Postmaster General commissioned, not an 

outside study. And they deep-sixed it because it found that yes, all 

these reforms to save money actually cost money and lost revenue, 

over $5.2 billion. And they buried the study, rather than have it 

be available to the public. I assume you were aware of that. 

69 

Which calls into question the efficacy of some of the so-called reforms. And Mr. Garner, you really emphasize cut, cut, cut. But 

don’t we need to emphasize new revenue opportunities? Let me 

give you one simple example. In terms of parcel service delivery, 

the Federal business alone, to the Federal customer, was $342.6 

million in 2011 and $336.9 million a year later. The Postal Service 

share of that was $1.2 million in 2011, and $4.8 million in 2012. 

This is Federal business. 

Would you at least agree that in addition to spending cuts, there 

are revenue opportunities that we are not really exploring? 

Mr. GARNER. I would absolutely agree. 

Mr. CONNOLLY. Okay. Because that is what bothers me. I think 

we need a new business model. And Mr. Cerasale, you touched on 

it. If you look at Europe, they are exploiting that business model, 

and it is a fairly significant chunk of their revenue. And it is viable. 

But our 2006 legislation around here actually precludes the Postal Service from really examining that. Why, I don’t know. But it 

seems to me that we are the ones who put a real onus on the ability of the Postal Service to respond by creating a more nimble business model, including cuts, including new revenue opportunities, 

including expansion into areas heretofore unexplored or limited. 

And I would hope that as we do that, we do it within the law. 

Because one of the others things, I end on this note, that didn’t 

get said about the Postal decision to go from six to five is, it was 

frankly an extra-legal decision. The Postmaster General clearly, on 

its face, he did not have that authority. That was so opined by the 

GAO and confirmed today by the Postal Board of Governors, even 

though they disagree with the Congressional intent. 

But a statute is a statute, and we all have to operate within the 

law. Thank you. 

Mr. FARENTHOLD. Mr. Connolly and I may disagree with the intent of that statute. 

I have been informed by the minority staff that since Mr. 

Connolly has gotten his questions, the remainder of the members 

of the minority, we will not be able to get back after votes. We have 

completed our questioning on our side. I had a couple of other questions that I wanted to direct to the panel in general. That was just 

a general comment with respect to the customer service you have 

received from the Postal Service. 

And I have a question for Mr. Brandt as well about the different 

effectiveness of using the Postal Service for delivery of your products versus your door hangers. Because I need to get over and vote 

as well, if you guys would just fire off a quick letter to the committee with the answers to those questions, to supplement your 

written testimony, we will adjourn this and we will all go about our 

business. 

I would like to thank each member of the panel as well as members of the subcommittee for participating in this. I think we 

gained some valuable insight as we move forward with postal reform. 

So with that, thank you very much, and the subcommittee stands 

adjourned. 

[Whereupon, at 2:59 p.m., the subcommittee was adjourned.] 

70 


Insert offset folio 42 here 80919.042

Mr. Ken Garner 

President & CEO 

ONE HUNDRED THIRTEENTH CONGRESS 

ctCongress of tbe Wntttb $tates 

J,JOUlI£ of l\eprclItntatil.1£l1 

COMMITIEE ON OVERSIGHT AND GOVERNMENT REFORM 

2157 RAYBURN HousE. OFFICE BUILDING 

WASHINGTON, DC 20515-{)143 

April 17,2013 

Association of Marketing Service Providers 

1800 Diagonal Road, Suite 320 

Alexand,ia, VA 22314 

Dear Mr. Garner: 

Thank you for appearing before the Committee on Oversight and Govenllnent Reform 

Subeommittee on Federnl Workforce, U.S. Postal Service and the Census on April 10, 2013, atthe 

hearing entitled "Ahead of Postal Reform: Hearing from USPS Business Partners." We appreciate the 

time and effort you gave as a witness before the Comm ittee. 

Pursuant to the direction of the Chainnan, the hearing record remains open to permit Members to 

submit additional questions to the witnesses. Attached are questions directed to you from Representative 

Farenthold, Chainnan of the Subcommittee. In preparingyoul' answers to these questions, please address 

your response to the Member who has submitted the question(s) and include the text oflhe Member(s) 

question along with your response, 

Please provide your response to these questions by May 1,2013. Your response should be 

addressed to the Committee office at 2157 Rayburn House Office Building, Washington, DC 20515. 

Please also send an electronic version of your response bye-mail to Michael Kiko, Staff Assistant, at 

michael.kiko@rnail.house.gov in a single Word formatted document. 

Thank you for your prompt attention to this request. If you need additional infonnation or have 

other questions, please contact Michael Kiko at (202) 225-5074. 

Attachment 

~~ Darrell Issa 

Chairman 

cc: The Honorable Elijah Cummings, Ranking Minority Member 

Committee on Oversight and Government Refonn 
71 


Insert offset folio 43 here 80919.043

Garner 

Page 2 

Questions for Mr. Ken Gamer 

President & CEO 

Association of Marketing Service Providers 

Chainnan Blake Farenthold 

Federal Workforce Suhcommittee 

Committee on Oversight and Government Refornl 

Customer service is a vital part of keeping business. Previously, businesses have felt the 

USPS has been not been as concerned with keeping their business as they should be. 

1. In the last few years, do you think the Postal Service has gotten better at listening and responding 

to the concerns of mailers? 

2. What areas do you think they can improve in? 

3. Have you noticed a difference in dealing with USPS employees on II local versus a national level? 
72 


Insert offset folio 44 here 80919.044

AS50CIOtlO11 of 

Marketmg ServIce ProvIders 

Federal Workforce Subcommittee, Committee on Oversight and Government Reform 

2157 Rayburn House Office Building 

Washington, DC 20515 

Attn: Subcommittee Chairman Farenthold 

The answers to your follow-up questions are as followsIn the last few years, do you think the Postal Service has gotten better at listening and responding to the 

concerns of mailers? 

Yes, I believe there has been improvement resulting from a concerted effort on the part of Postal 

management to be more receptive to input and feedback from mailers and service providers. However, 

there is still room for improvement. There is still a need for closer collaboration on policy development. 

There are opportunities to create more productive and mutually beneficial relationships with industry 

including collaborations on new technology development. Creating a "customer driven" culture is a 

significant challenge for Postal leadership largely because they must overcome ingrained employee 

attitudes, but some progress is being made. 

What areas do you think they need to improve in? 

As previously mentioned, they need to create a customer driven culture that incorporates a better 

understanding of who their customers and partners are, and a willingness to effectively respond to their 

wants, needs, and expectations. 

They need to improve the consistency of the customer experience. Customers should receive excellent 

service regardless of size or geographic loeation. 

They need to communicate better with off stakeholders. Communications need to be clear, concise, 

proactive and result in meaningful two-way dialog. 

They need to develop and maintain stronger relationships with members of the postal supply chain. 

Postal leadership needs to create a compelling organizational vision - beyond the cost reduction 

strategies that currently exist - to galvanize off stakeholders with a common goal and objective. 

Postal leadership needs to be alert to the sensitivity that service providers have about potential 

encroachment and competition. 
73 


Insert offset folio 45 here 80919.045

Have you noticed a difference in dealing with USPS employees on a local versus a national level? 

Yes, the experience varies not on the basis of geography or national verses local level. The variance is a 

function of the lack of a consistent understanding of what needs to be done and how it needs to be done. 

Employees must recognize that they work for a "business" and that they must represent that business in a 

positive manner. The sheer magnitude of change puts an enormous strain on postal staff everywhere. 

And, given the size of the Postal Service it will take some time to weed out the bod attitudes. 

When and if, the culture is appropriately and successfully transformed employees can be empowered to 

make better decisions on the basis of responding to customer needs and expectations. 

I would give significant credit to PMG Donahoe. He has been making progress under very diffiCUlt 

circumstances with little or no support from labor or the various oversight groups that significantly limit 

the latitude he has to make necessary changes. 

As a footnote, my offices are located in nearby Alexandria. I would be happy to meet with Mr. Farenthold, his 

staff, or other members of the committee to discuss my answers or other elements of my testimony at their 

convenience. 

I appreciate the opportunity to provide this input and perspective. 

Ken Garner 

President and CEO 

Association of Marketing Service Providers 
74 


Insert offset folio 46 here 80919.046

Mr. Steven Brandt 

President/Publisher 

The Greenville News 

P.O. Box 1688 

ONE HUNDRED THIRTEENTH CONGRESS 

~Ottgrt~~ of tfJt mntttb .i>tattfS 

J.)OllSt of i\rprtSclItatibtS 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

2157 RAYBURN HOUSE OmCE BUILD!NG 

WARH!NGTON, DC 20515-6143 

April 17, 2013 

Greenville, SC 29602-1688 

Dear Mr. Brandt: 

Thank you for appearing before the Committee on Oversight and Government Retarn> 

Subcommittee on Federal Workforee, U.s. Postal Service and the Census on April 10, 2013, at the 

hearing entitled "Ahead of Postal Refonn: Hearing from USPS Business Partners." We apprecintethe 

time and effbrt you gave as a witness before the Committee. 

Pursuant to the direction of the Chainnan, the hearing record remains open to pennit Members to 

submit additional questions to the witnesses. Attached ale questions directed to you from Representative 

Farenthold, Chairnlan of the Subcommittee. In preparing your answers to these questions, please address 

your response to the Member who has submitted the question(s) and include the text of the Member(s) 

question along with your response. 

Please provide your response 10 these questions by May 1,2013. Your response should be 

addressed 10 the Committee oflice al21 57 Rayburn House Oflice Building, Washington, DC 20515. 

Please also send an electronic version of your response bye-mail to Michael Kiko,StaffAssistant,at 

michael.kiko@mail.hollse.gov in a single Word formatted document. 

Thank you for your prompt attention to this request. If you need additional infonnation or have 

other questions, please contact Michael Kiko at (202) 225-5074. 

Chairman 

Attachment 

cc: The Honorable Elijah Cummings, Ranking Minority Member 

Committee on Oversight and Government Reform 
75 


Insert offset folio 47 here 80919.047

Mr. Brandt 

Page 2 

Questions for Mr. Brandt 

Publisher and President. 

The Greenville News 

Chairman Farenthold 

Federal Workforce Subcommittee 

Committee on Oversight and Govemment Refonn 

Customer service is a vital part of keeping business. Previously, businesses have felt the 

USPS has been not been as concerned with keeping their business as they should be. 

1. In the last few years, do you think the Postal Service has gotten better at listening and responding 

to the concerns of mailers? 

2. What areas do you think they can improve in'? 

3. I·lave you noticed a difference in dealing with USPS employees on a local versus a national level? 

4. The Greenville News uses a Total Market Coverage (TMC) strategy, which means they send 

preprinted ads to homes that do not subscribe to the newspaper. These ads are for grocery stores, 

discount retailers, fast food restaurants. furniture stores, and other retailers. Because of recent 

Postal Service policies favoring direct mailing, The Greenville News has removed 50,000 oflhese 

TMC items from the mail. 

5. How has this affected your business? 

6. Do you believe the Postal Service is the most effective method for delivery of your product? 
76 


Insert offset folio 48 here 80919.048

Steven R. Brandt 

President & Publisher 

Regional Publisher 

South Newspaper Group 

April 22, 2013 

mtt <VltttlvUleNeW5 

greenvilleonline.com 

The Honorable Darrell Issa, Chai1man 

Committee on Oversight and Government Ref 01111 

2157 Rayburn House Office Building 

Washington, DC 20515 

Dear Chailman Issa: 

Thank you for the opportunity to testifY before the Committee 011 Oversight and 

Government Reform Subcommittee on Federal Workforce, U.S. Postal Service and the 

Census on April 10, 2013 at the hearing entided "Ahead of Postal Reform: Healing from 

USPS Business Partners." 

Thank you also for the opportunity to respond to the additional questions posed by the 

Members of the Conunittee. My responses are included \vith tIus letter. 

If there are furdler questions, I will be glad to try to answer tIlem. 

Sincerely, 

Steven R. Brandt 

Attachment 

cc: The Honorable Elijall CmInnings, Ranking NIinotity Member 

Committee on O\'ersight and Government Reform 

Office: 864-298-4416 • Fax: 864-298-4805 • srbrandt@QreenvUlenews.com 

305 S. Main Street, Greenville, se 29601 
77 


Insert offset folio 49 here 80919.049

RESPONSES OF STEVE BRANDT TO QUESTIONS POSED BY 

THEHONORABLEBLAKEFARENTHOLD 

HEARING ON "AHEAD OF POSTAL REFORM: HEARING FROM 

USPS BUSINESS PARTNERS" 

1. In the last few years, do you think the Postal Service has gotten better at listening 

and responding to the concerns of mailers? 

Chairman Farenthold, The Greenville News works closely with our local postal 

officials to serve our advertising clients through the delivery of our Total Market 

Coverage products to non-subscribers. Local postal officials listen to our 

concerns, and are always responsive. 

2. What areas do you think they can improve in? 

Chairman Farenthold, from our experience there is good communication from 

USPS national headquarters and local postal officials on operational issues 

involving the movement of the mail through the postal system. However, it 

doesn't appear that USPS headquarters seeks feedback from the field on the 

impact of USPS pricing decisions and initiatives on local businesses. Postal 

Service pricing decisions are often made in a vacuum, without good market 

intelligence to assess the impact of those decisions on local business mailers like 

The Greenville News. 

3. Have you noticed a difference in dealing with USPS employees on a local versus 

national level? 

Chairman Farenthold, at the local level, postal officials and employees are 

mindful of local business customer needs and are extremely responsive. While I 

don't have personal experience with USPS officials at the national level, it is the 

view of many in the newspaper industry that USPS management is so focused on 

rolling out new pricing and revenue initiatives to support and feed the postal 

system they fail to fully assess the impact of those initiatives on local business 

mailers. For example, as I described in my testimony, the Postal Service has 

raised rates on newspapers' TMC products at a much faster clip than rates for 

newspapers' national saturation mail competitors. In six short years, the rate 

differential between two very similar advertising products expanded from a little 

less than a penny per piece to 2.6 cents per piece. This is a sizable rate advantage 

given to our competitors, which has resulted in newspapers taking TMC products 

out of the mail system to lower their costs to stay competitive. These pricing 

decisions have cost the Postal Service hundreds of millions of dollars in annual 

postage. This loss of revenue for the Postal Service likely could have been 

avoided, if the national USPS officials involved in rate setting had fully assessed 

the predictable impact in the market of its preferential rates for Valassis and other 

national direct mailers. 
78 


Insert offset folio 50 here 80919.050

4. The Greenville News uses a Total Market Coverage (TMC) strategy, which means 

they send preprinted ads to homes that do not subscribe to the newspaper. These 

ads are for grocery stores, discount retailers, fast food restaurants, furniture stores 

and other retailers. Because of recent Postal Service policies favoring direct 

mailing, The Greenville News has removed 50,000 of these TMC items from the 

maiL 

A. How has this affected your business? 

Chairman Farenthold, by moving 50,000 TMC pieces a week out ofthe mail, The 

Greenville News has reduced our distribution costs by $430,000 annually, based 

on the current average size of our weekly TMC package. We receive good 

service from alternative delivery firms that distribute our TMC packages to nonsubscribers. 

B. Do you believe the Postal Service is the most effective methodfor delivery 

of your product? 

Chairman Farenthold, right now, postal delivery is not the most cost effective 

method for distributing our TMC products. However, we value the good service 

we receive from the Postal Service for the TMC products that we have in the maiL 

And, there is significant value in being in the mailbox. If the Postal Service 

stopped favoring our national advertising mail competitors in its pricing decision, 

it is possible that our newspaper and others would do more business with the 

Postal Service. On the other hand, if the Postal Service continues to give our 

direct mail competitors a significant pricing advantage, it is likely that The 

Greenville News will feel compelled to move some or most of our 52,000 

remaining mailed TMC packages to alternative delivery. 
79 


Insert offset folio 51 here 80919.051

Mr. Jerry CerasaIe 

ONE HUNDRED THIRTEENTH CONGRESS 

((ongrt£i£i of tbt 1tnittb ~tatt£i 

~OU5t of ~epr£5£lttlltil.lC5 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

2157 RAYBURN HOUSE OFFICE BUH.DING 

WASHINGTON, DC 20515-6143 

April 17,2013 

Senior V ice Presidentt Government Affairs 

Direct Marketing Association 

1615 L Street NW, Suite 1100 

Washington, DC 

Dear Mr. Cerasale: 

Thank you for appearing before the Committee on Oversight and Govemment Reform 

Subcommittee on Federal Workforee, U.S. Postal Service and the Census on AprilIO, 2013, at the 

hearing entitled "Ahead of Postal Refonn: Hearing from USPS Business Partners." We appreciate the 

time and effort you gave as a witness before the Committee. 

Pursuant to the direction of the Chairman, the hearing record remains open to permit Members to 

submit additional questions to the witnesses. Attached are questions directed to you from Representative 

Farenthold, Chainnan oflhe Subcommittee, In preparing your answers to these questions, please address 

your response to the Member who has submitted the question(s) and include the text of the Membet(s) 

question along with your response. 

Please provide your response to these questions by May 1,2013. Your response should be 

addressed to the Committee office at 21 57 Rayburn House Ofiice Building, Washington, DC 20515. 

Please also send an electronic version of your response bye-mail to Michael Kiko, Staff Assistant, at 

michaeLkiko@mail.house.gov in a single Word fonnaned document. 

Thank you for your prompt attention to this request. If you need additional infonnation or have 

other questions, please contact Michael Kiko at (202) 225·5074. 

Attachment 

~I:::, 

-~71~ Darrellissa 

Chainnan 

cc: The Honorable Elijah Cummings, Ranking Minority Membcr 

Committee 011 Oversight and Government Reform 
80 


Insert offset folio 52 here 80919.052

Mr. Cerasale 

Page 2 

Questions for Mr. Jerry Cerasale 

Senior Vice President of Government Affairs 

Direct Marketing Association 

Chairman Farenthold 

Federal Workforce Subcommittee 

Committee on Oversight and Government Reform 

Hearing on "Ahead of Po sIal Rcfonn: Hearing from USPS Business Partners" 

Customer service is a vital part of keeping business. Previously, businesses have felt the 

USPS has been not been as concerned with keeping their business as they should be. 

I. In the last few years, do you think the Postal Service has gotten better at listening and responding 

to the concerns of mailers? 

2. What areas do you think they can improve in? 

3. Have you noticed a difference in dealing with USPS employees on a local versus a national level? 
81 


Insert offset folio 53 here 80919.053

The Honorable Darrell Issa 

Chainnan 

April 30, 2013 

Committee on Oversight and Govermnent Refonn 

United States House of Representatives 

2157 Rayburn house Office Building 

Washington, DC 20515-6143 

Dear Chainnan Issa, 

I thank you and the Committee for the opportunity to participate in the hearing entitled >Ahead of Postal 

Refonn: Hearing from USPS Business Partners." I have attached my responses to the questions from 

Representative Farenthold as requested. 

If you or other Members of the Committee have any further questions, I look forward to them. 

Sincerely, 

Jerry Cerasale 

Senior Vice President, Government Affairs 

Direct Marketing Association 

1615 L Street, NW, Suite 1100 

Washington, DC 20036 
82 


Insert offset folio 54 here 80919.054

Responses of Jerry Cerasale 

To 

Questions from Chairman Farenthold 

From Hearing Entitled 

"Ahead of Postal Reform: Hearing from USPS Business Partners 

Customer service is a vital part of keeping business. Previously, businesses have felt the USPS 

has not been as concerned with keeping their business as they should be. 

1. In the last few years, do you think the Postal Service has gotten better at listening and 

responding to the concern of mailers? 

A. It has. Postal Service management has significantly improved its communication 

with and cooperation with its business customers particularly since Patrick 

Donahoe has become Postmaster General. 

2. What areas do you think they can improve in? 

A. The Postal Service still has a tendency to craft a new program, service offering, or 

automation project that centers solely on internal Postal Service operations 

without regard to business mailer interface, including new mail preparation costs. 

This creates some friction between USPS and its business customers. Any 

increase in mailer operations to prepare mail for entry into the maiistream, in 

reality, is a postage increase. Obtaining business mailer input at the very start of 

any new service, program or automation project and maintaining that input 

throughout the process is an area begging for improvement. 

On the local level, members of my Association have complained that responses to 

mail classification questions "take too long." Local managers seem reluctant to 

make decisions and simply buck the question up to the next level. This 

phenomenon may be due to the reduction in trained staff. Whatever the cause, 

mail may sit on a loading dock waiting a few days for a classification 

clarification. Such delays cause missed in home delivery dates--causing missed 

mailer staffing at call centers and fulfillment centers--causing inventory backups. 

For sale flyers those delays cause in home delivery after the sale which angers 

consumers and potential customers for the mailer. In essence, slow response by 

USPS lowers the value of the maiL USPS should eliminate (or, at least, reduce) 

1 
83 


Insert offset folio 55 here 80919.055

those delays by providing better training for the local employee and empowering 

that employee to make the classification determinations quickly at the local level. 

3. Have you noticed a difference in dealing with USPS employees on a local versus a 

national level? 

A. On the national level, USPS employees have been more responsive and have 

sought out business mailer opinions more often than any time in my 38 years 

working in the mail industry. The Postmaster General holds monthly dialogues 

with mailer associations to discuss what is happening at USPS and to listen to our 

concerns. This has been a mlljor improvement. On the local level, most of Direct 

Marketing Association's (DMA) members have a very good relationship with 

local employees with whom they work. However, as noted in answer to question 

2 above, those local employees need to be empowered to respond quickly and 

make decisions at the local level to avoid delayed acceptance of mail at the postal 

facility. 

2 
84 


Insert offset folio 56 here 80919.056

Ms. Meta Brophy 

ONE HUNDRED THIRTEENTH CONGRESS 

(:ongr~~ of tUt Wnfttb ~tat~ 

~OtUit of l\tprtlieutatibtli 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

2157 RAYBURN HOUSE OFfICE BUILDING 

April 17,2013 

Director, Procurement Operations 

Consumer Reports 

101 Truman Avenue 

Yonkers, NY 10703 

Dear Ms. Brophy: 

Thank you for appearing before the Committee on Oversight and Goverument Reform 

Subcommittee on Federal Workforce, U.S. Postal Service and the Census on April 10, 2013, atthe 

hearing entitled "Ahead of Postal Reform: Hearing from USPS Business Partners." We appreciate the 

time and effort you gave as a witness before the Committee. 

Pursuant to the direction of the Chairman, the hearing record remains open to pennit Members to 

submit additional questions to the witnesses. Attached are questions directed to you from Representative 

Farenthold, Chairman ofthe Subcommittee. [n preparing your answers to tbese questions, please address 

your response to the Member who has submitted the question(s) and include the text of the Member( s) 

question along with your response. 

Please provide your response to these questions by May 1,2013. Your response should be 

addressed to the Committee office at 2157 Rayburn House Office Building, Washington, DC 20515. 

Please also send an electronic version of your response by .-mail to Michael Kika, Staff Assistant, at 

michael.kiko@mail.house.gov in a single Word fonnatted document. 

Thank you lor your prompt attention to this request. If you need additional information or have 

other questions, please contact Michael Kiko at (202) 225-5074. 

Attachment 

~ ~~ Chairman 

ce: The Honorable Elijah Cmnmings, Ranking Minority Member 

Committee on Oversight and ("tovemment Refonn 
85 


Insert offset folio 57 here 80919.057

Ms. Brophy 

Page 2 

Questions for Ms. Brophy 

Director, Procurement Operations 

Consumer Reports 

Chairman Blake Farenthold 

Federal Workforce Subcommittee 

Committee on Oversight and Government Reform 

Hearing on "Ahead of Postal Reform: Hearing from USPS Business Partners" 

Customer service is a vital part of keeping business, Previously, businesses have felt the 

USPS has been not been as concerned with keeping their business as they should be. 

I. In the last few years, do you think the Postal Service has gotten better at listening and responding 

to the concerns of mailers? 

2. What areas do you think they can improve in? 

3. Have you noticed a difference in dealing with USPS employees on a local versus a national level? 
86 


Insert offset folio 58 here 80919.058

April 30, 2013 

Honorable Blake Farenthold 

Chairman 

Federal Workforce Subcommittee 

Committee on Oversight and Govemment Reform 

2157 Rayburn House Office Building 

Washington, DC 20515 

Dear Chairman Farenthold: 

I am glad to have had the opportunity to address the Subcommittee on Federal 

Workforce, U.S. Postal Service and the Census at the April 10 hearing, "Ahead of 

Postal Reform: Hearing from USPS Business Partners." Additionally, here are 

my responses to the questions that you posed subsequent to the hearing. 

1. In the last few years, do you think the Postal Service has gotten better at 

listening and responding to the concerns of mailers?" 

In the last few years, Consumer Reports has frequently engaged in dialog with 

the Postal Service. We have been invited to speak with postal executives on a 

number of occasions, including a 2009 luncheon with the former Postmaster 

General and the Board of Governors, at National Postal Forums, at a 2009 

breakfast for CEOs hosted by the former Postmaster General, at the 2009 

National PCC Day event, and at the Magazine Publishers of America's 2012 

Postal Summit. Additionally, through our position on the Alliance of Nonprofit 

Mailers, we have asked to speak directly to postal executives, including 

Postmaster General Donahoe, who have attended our Washington, DC-based 

board meetings regularly. Postal leaders are accessible and available. 

In each instance. the Postal Service asked directly about our business needs or 

responded to our questions and comments. The Postal Service has gotten better 

at listening and responding to our concerns. Service adjustments to the 

proposed Saturday schedule that include keeping post offices open, maintaining 

package delivery, and continuing mail processing reflect a positive response to 

stakeholder input. 

lmTrumanAllenue: 

Yonkers, NewYortc107OH057 

... 378-2000 

fax:914178~2900 

continued 
87 


Insert offset folio 59 here 80919.059

Fanmthold 2 

2. What areas do you think they can improve in? 

Continue to build out a customer-centric approach. It is no! sufficient to say, we 

have a great delivery infrastructure and service, so come and use them. Give 

the customers what they want, when they want it, at a price they can afford. 

Innovate, automate, adhere to standards, and provide value. A great staff, a vast 

network, and an impressive green fleet are nothing without customers. 

3. Have you noticed a difference in dealing with USPS employees on a local 

versus a national level? 

Yes, there has been a difference in our dealings with the USPS on a local and 

national level. In the last few years our local representation has been eliminated. 

We do not have local account representatives calling on us anymore. We enjoy 

a long-term, excellent rapport with representatives in our local Business Service 

Network, and at our local home facility in Yonkers. However, we deal with 

mailing concems and issues at the national level exclusively. 

Representative Farenthold, thank you for asking Consumer Reports, a long-term 

postal business partner, to participate in this hearing. If you have additional 

questions or need more information, please don't hesitate to ask. 

Sincerely, 

7Ju&tt 1Jz~· Meta A. Brophy 7' (j 

Director, Procurement Operations 

lOlil'urnanAvemJfYonkers, NewYorkT070H0'S1 

914378-2000 

fax: 914371-"2900 
88 


Insert offset folio 60 here 80919.060

Ms, Joy Franckowiak 

ONE HUNDRED THIRTEENTH CONGRESS 

(;ongr~£i of tlje liniteb ~tate£i 

J,JoWl'r of itrprtlil'lttatibcli 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

2157 RAYaUflN HQUSE OFFICE BuILDING 

WASHINGTON, DC 20515-6143 

April 17,2013 

Director, Postal Affairs & Distribution 

Valpak 

8605 Largo Lakes Drive 

Largo, FL 33773 

near Ms, Franckowiak: 

Thank you for appearing befbre the Committee on Oversight and Government Reform 

Subcommittee on Federal Workforce, U,S, Postal Service and the Census on April 10, 2013, at the 

hearing entitled "Ahead of Postal Reform: Hearing from USPS Business Partners," We appreciate the 

time and effort you gave as a witness before the Committee, 

Pursuant to the direction of the Chairman, the hearing record remains open to permit Members to 

submit additional questions to the witnesses, Attached are questions directed to you from Representative 

Farenthold, Chairman of the Subcommittee, In preparing your answers to these questions, please address 

your response to the Member who has submitted the question(s) and include the text oftbe Member(s) 

question along with your response. 

Please provide your response to these questions by May 1, 2013, Your response should be 

addressed to the Committee office al 2157 Rayburn House Office Building, Washington, DC 20515, 

Please also send an "Iectrenie version of your response by.-mail to Michael Kika, Staff Assistant, at 

michaeLkiko@mail.house,gov in a single Word formatted docoment. 

Thank you for your prompt attention to this request, If you need additional information or have 

other questions, please contact Michael Kiko at (202) 225-5074, 

Attachment 

~ 

I SitiCe,etji',JJ ;:..~ 

........... . 

Darrelllssa 

Chairman 

ce: The Honorable Elijah CUmmings, Ranking Minority Member 

Committee on Oversight and Government Reform 
89 


Insert offset folio 61 here 80919.061

Ms. Franckowiak 

Page 2 

Questions for Ms. Franckowiak 

Director, Posta! Affairs and Distribution 

VaJpak 

Chairman Blake Farenthold 

Federal Workfurce Subcommittee 

Committee on Oversight and Government Reform 

Hearing on "Ahead of Postal Reform: Hearing from USPS Business Partners" 

Customer service is a vital part of keeping business. Previously, businesses have felt the 

USPS has been not been as concerned with keeping their business as they should be. 

I. In the last few years, do you think the Postal Service has gotten better at listt'lling and responding 

to the concerns of mailers? 

2. What areas do you think they can improve in? 

3. Have you noticed a difference in dealing with USPS employees on a local versus a national level? 
90 


Insert offset folio 62 here 80919.062

Responses of Joy Franckowiak 

Director of Postal Affairs and Distribution 

Cox Target Media, Inc. / Valpak Direct Marketing Services, Inc. 

To Questions Posed by Hon. Blake Farenthold, Chairman 

Subcommittee on Federal Workforce, U.S. Postal SeM'ice and the Census 

Committee on Oversight and Government Reform 

Submitted May 1, 2013 

Regarding Subcommittee on Federal Workforce, U.S. Postal Service and the Census's 

Hearing on "Ahead of Postal Reform: Hearing from USPS Business Partners, " 

April 10, 2013 

1. In the last few years, do you think the Postal Service has gotten better at listening 

and responding to the concerns of the mailers? 

Response 

Yes. There is a noticeable difference from the last five years or so, especially when 

dealing with the operations side versus the customer service side. It used to be that operations 

management, particularly plant personnel, were difficult to locate and even more difficult to 

talk to when problems arose with mail acceptance at drop shipment sites, timely mail 

processing, etc. Accountability was lacking at certain facilities, but that seems to be 

improving. With the advent of the Intelligent Mail Barcode ("IMb"), mail visibility has put 

many facilities on the customer's radar when it comes to tracking their performance with 

respect to mail service standards. 

2. What areas do you think they can improve in? 

Response 

Communications among internal postal functional areas: We sometimes hear postal 

representatives are not aware of or fully trained when it comes to either national pricing 

promotions or network changes. We have heard of postal sales representatives selling Every 

Door Direct Mail ("EDDM") a Postal Service product - to customers who are already 

using a mail service provider; Postal Service dock personnel refusing drop shipments because 

of minor errors on paperwork (Form 8125s); mailing requirement clerks among different areas 

giving inconsistent mail preparation advice; etc. We believe that most of these problems are a 

lack of training or communication within the Postal Service's ranks. 
91 


Insert offset folio 63 here 80919.063

2 

3. Have you noticed a difference in dealing with USPS employees on a local versus a 

national level? 

Response 

Usually, local employees are very willing to assist but may not comprehend the bigger 

picture on which a national level employee focuses. Sometimes this limits the response or 

effectiveness of the local employee. We have not seen any dramatic changes within these two 

levels of employees. 

Most USPS employees (local or national) are courteous, responsive, and provide good 

information in general, but there are some exceptions as listed above. It behooves the USPS to 

educate their own employees on the challenges that mailers face when doing business with the 

USPS. Having USPS employees visit business mailers might facilitate reducing that gap of 

knowledge, but postal finances or work hour limitations may be a barrier to such collaborative 

interactions. 
92 


Insert offset folio 64 here 80919.064

Mr. Carl Janssens 

ONE HUNDRED THIRTEENTH CONGRES,'3 

((:ongre~~ of tue 'ltntteb ~tate~ 

J;lotlse of !\rprestntlltibes 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

2157 RAYBURN HOUSE OFFICE BUiLDING 

WASHINGTON, DC 20515-6143 

April 17, 2013 

VP Pharmacy Operations 

CVS Caremark 

2211 Sanders Road 

Northbrook, IL 60062 

Dear Mr. Janssens: 

Thank you for appearing before the Committee on Oversight and Government Retorm 

Subcommittee on Federal Workforce, U.S. Postal Service and the Census on April 10, 2013, at the 

hearing entitled "Ahead of Postal Reform: Hearing from USPS Business Partners." We appreciate the 

time and effort you gave as a witness before the Committee. 

Pursuant to the direction of the Chairman, the hearing record remains open to permit Members to 

submit additional questions to the witnesses. Attached are questions directed to you from Representative 

Farenthold, Chairman of the Subcommittee. In preparing your answers to these questions, please address 

your response to the Membcrwho has submitted the question(s) and include the text of the Member(s) 

question along with your response. 

Please provide your respollse to these questions by May 1, 2013. Your response should bc 

addressed to the Committee office at 2157 Rayburn House Office Building, Washington, DC 205! 5. 

Please also send an electronic version of your response by .-mail to Michae! Kiko, Staff Assistant, at 

michael.kiko@mai!.house.gov in a single Word formatted document. 

Thank you for your prompt attention to this request. If you need additional information or have 

other questions, please contact Michael Kika at (202) 225-5074. 

~~ Chairman 

Attachment 

ce: The Honorable Elijah Cummings, Ranking Minority Membcr 

Committee on Oversight and Government Reform 
93 


Insert offset folio 65 here 80919.065

Mr. Janssens 

Page 2 

Questions for Mr. Carl Janssens 

VP Pharmacy Operations 

CVS Caremark 

Chairman Blake Farenthold 

Federal Workforce Subcommittee 

Committee on Oversight and Government Reform 

Hearing on "Ahead of Postal Reform: Hearing from USPS Business Partners" 

Customer service is a vital part of keeping business. Previously, businesses have felt the 

USPS has been not been as concerned with keeping their business as they should be. 

I. In the last few years, do you think the Postal Service has gotten better at listening and responding 

to the concerns of mailers? 

2. What areas do you think they can improve in? 

3. Have you noticed a difference in dealing with USPS employees on a local versus a nlltionallevel? 

Under the original USPS plan to end all Saturday mail and package delivery concerns were expressed that 

such a plan could make it more difficult for consumers to receive medication and that additional costs for 

delivery could be passed along to the consumer. 

4. Does CVS Caremark foresee its customers being negatively affected by prices increases or 

delivery delays if a modified Saturday delivery schedule is implemented? 
94 


Insert offset folio 66 here 80919.066

MayS, 2013 

Hon. Darrell Issa 

Chairman, House Oversight & Government Reform Cornmittee 

US House of Representatives 

2157 Rayburn House Office Building 

Washington, DC 20515-6143 

CARE~I 

Re: House Oversight & Government Reform follow up from April 10, 2013 hearing 

on Postal Reform 

Chairman Issa: 

This letter responds to your April 17, 2013 correspondence requesting answers to 

additional questions from the Oversight & Government Reform Cornmittee members 

following the recent AprilIO'h, 2013 hearing, "Ahead of Postal Reform: Hearing from 

USPS Business Partners." As you are aware, this hearing was called by the Oversight 

and Government Reform's Subcornmittee on Federal Workforce, US Postal Service and 

the Census. 

The questions raised in your letter relate to CVS Caremark' s relationship with the US 

Postal Service and anticipated price impact to customers assuming a modified Saturday 

delivery schedule is implemented. Our responses to the questions are set forth below. 

1. In the last few years. do you think the Postal Service has gotten better at listening and 

responding to the concerns of mailers? 

CVS Caremark, specifically Mail Order Operations, has a designated USPS account 

executive that manages the relationship between the two parties. CVS Caremark has 

maintained a positive relationship with the USPS and we find them to be responsive to 

questions and concerns associated with postal delivery of mail order medications. 

2. What areas do you think they can improve? 

As mentioned in our testimony during the April 10,2013 hearing, CVS Caremark would 

like to see unnecessary regulatory burdens on the USPS lifted to allow the postal service 

to negotiate better shipping rates so that it can be more competitive with other shipping 

providers. 

CVS Caremark· 1300 I Street, NW· Suite 525W' Washington, DC 20005 
95 

Æ+ 


Insert offset folio 67 here 80919.067

3. Have you noticed a difference in dealing with USPS employees on a local versus 

national level? 

CVS Caremark deals mostly with designated USPS account executives. We have not 

noticed a difference in dealing with USPS employees on a local versus national level. 

4. Does CVS Caremark foresee its customers being negatively affected by price increases 

or delivery delays if a modified Saturday delivery schedule is implemented? 

CVS Caremark prepares and ships mail order medication packages seven days a week 

with its highest average volume on Wednesdays. Shipping costs for mail order 

medications are built into negotiated contract prices between the plan sponsor (large 

employers, unions, public clients, etc.) that uses a pharmacy benefit manager to 

administer their prescription drug benefit. Since many medications shipped through mail 

order pharmacy are maintenance medications, CVS Caremark has the ability to shift 

outbound mail to other days of the week, sometimes avoiding unnecessary charges for 

Saturday delivery through vendors other than the USPS. Preservation of Saturday 

package delivery would be helpful from the CVS Caremark perspective as the USPS 

typically provides our customers with the most economical shipping mode. Any adverse 

price impact to our customers would need to be evaluated on a client by client basis 

pursuant to the terms of each client's contract with CVS Caremark. 

If you have any questions regarding the above responses, please contact me at 

847/559-5646 or carl.ianssens(filcvscaremark.com. 

Sincerely, 

Carl Janssens 

Vice President, Pharmacy Operations 

CVS Caremark 

CVS Caremark· 1300 I Street, NW • Suite 525W • Washington, DC 20005