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SERVICE STANDARDS AT THE POSTAL SERVICE:

ARE CUSTOMERS GETTING WHAT

THEY PAID FOR?

HEARING

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, FEDERAL SERVICES, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

AUGUST 2, 2007

Available via http://www.access.gpo.gov/congress/senate

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

JOSEPH I. LIEBERMAN, Connecticut, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

BARACK OBAMA, Illinois 

CLAIRE McCASKILL, Missouri 

JON TESTER, Montana 

SUSAN M. COLLINS, Maine 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

PETE V. DOMENICI, New Mexico 

JOHN WARNER, Virginia 

JOHN E. SUNUNU, New Hampshire

MICHAEL L. ALEXANDER, Staff Director 

BRANDON L. MILHORN, Minority Staff Director and Chief Counsel 

TRINA DRIESSNACK TYRER, Chief Clerk 

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, 

FEDERAL SERVICES, AND INTERNATIONAL SECURITY SUBCOMMITTEE 

THOMAS R. CARPER, Delaware, Chairman 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

BARACK OBAMA, Illinois 

CLAIRE McCASKILL, Missouri 

JON TESTER, Montana 

TOM COBURN, Oklahoma 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

PETE V. DOMENICI, New Mexico 

JOHN E. SUNUNU, New Hampshire

JOHN KILVINGTON, Staff Director 

KATY FRENCH, Minority Staff Director 

LIZ SCRANTON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Carper ................................................................................................. 1

Senator Akaka .................................................................................................. 16

Senator Coburn ................................................................................................. 19

WITNESSES 

THURSDAY, AUGUST 2, 2007

Hon. John E. Potter, Postmaster General, United States Postal Service ........... 3

Hon. Dan Blair, Chairman, Postal Regulatory Commission ................................

Jody Berenblatt, Senior Vice President of Postal Strategy, Bank of America ... 5

Anthony W. Conway, Executive Director, Alliance of Nonprofit Mailers ........... 23

Robert E. McLean, Executive Director, Mailers Council ...................................... 27

James West, Director of Postal and Legislative Affairs, Williams-Sonoma, 

Inc. ......................................................................................................................... 29

ALPHABETICAL LIST OF WITNESSES

Berenblatt, Jody: 

Testimony .......................................................................................................... 23

Prepared statement with attachments ........................................................... 50

Blair, Hon. Dan: 

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 43

Conway, Anthony W.: 

Testimony .......................................................................................................... 25

Prepared statement .......................................................................................... 103

McLean, Robert: 

Testimony .......................................................................................................... 27

Prepared statement .......................................................................................... 110

Potter, Hon. John E.: 

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

Prepared statement .......................................................................................... 37

West, James: 

Testimony .......................................................................................................... 29

Prepared statement .......................................................................................... 114

APPENDIX‘‘MAIL SERVICE PERFORMANCE, AN INTERNATIONAL PERSPECTIVE,’’ 

INTERNATIONAL POST CORPORATION PRESENTATION AT JULY 11 FULL

WORKGROUP MEETING BY ROSS HINDS, DIRECTOR OPERATIONS & TECHNOLOGY

SUBMITTED FOR THE RECORD BY JUDY BERENBLATT

63

Questions and Responses for the Record from: 

Mr. Potter .......................................................................................................... 121

Mr. Blair ............................................................................................................ 131

(1)

SERVICE STANDARDS AT THE POSTAL 

SERVICE: ARE CUSTOMERS GETTING 

WHAT THEY PAID FOR? 

THURSDAY, AUGUST 2, 2007

U.S. SENATE,

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT,

GOVERNMENT INFORMATION, FEDERAL SERVICES,

AND INTERNATIONAL SECURITY, 

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:03 a.m., in 

Room 342, Dirksen Senate Office Building, Hon. Thomas R. Carper, Chairman of the Subcommittee, presiding. 

Present: Senators Carper, Akaka, and Coburn. 

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. The hearing will come to order. Welcome to our 

witnesses today, to our guests, especially to our first panel. I will 

be introducing General Potter and Mr. Blair in just a few minutes. 

The Senate is in session. We are expecting our first series of 

votes later today at roughly 11:45, and I don’t know if this is doable, but my goal is that by the time we finish up, the first vote 

will have begun and we will be able to move from there to vote and 

everyone will have had a chance to make their presentations and 

we will have had a chance to ask questions and make it all work. 

A bunch of people missed a vote yesterday, and for some of the 

people, it was the first time they have ever missed a vote in the 

Senate. We are going to run under a little tighter rules as we come 

down the stretch here in the beginning of August on the Senate 

floor, so I want to make sure that we don’t miss any votes over 

there today, but I want to also make sure we have a chance to fully 

hear from each of you that have come. 

This is the third hearing that we have had on this Subcommittee 

this year with respect to the legislation that we passed last year 

that a lot of the folks in this room and those who were here last 

week helped us to develop. The part of the bill that we are going 

to be focusing on today is one that I am especially proud of. Title 

3 of the Postal Accountability and Enhancement Act (PAEA) requires the Postal Service to issue a new set of service standards for 

its so-called market dominant products, essentially those products 

that make up the Postal monopoly. That section of the bill also 

2

calls for the creation of a system for measuring service performance 

at the Postal Service. 

Senator Collins and my other colleagues who were involved in 

the drafting of this bill, along with our staffs and, as I said earlier, 

a number of others, sought to include this provision not because we 

wanted to micromanage the Postal Service. We micromanage plenty of other things. We don’t need to micromanage the Postal Service. But we included it because we thought it was vitally important 

that the Postal Service find a way to make their products relevant 

and valuable to their customers as we go forward in the first part 

of this century. 

It doesn’t take a Postal expert to figure out that the Postal Service has lost some customers over the years to innovations such as 

e-mail, electronic bill pay, fax machines, and cell phones—some of 

that business is, I think, likely gone for good. One look at the testimony, from Postal customers on our second panel, however, tells 

me this: Strong service standards coupled with an aggressive program to track and report on service performance will go a long way 

toward making at least some Postal products more competitive 

when compared to the new technologies that you go toe-to-toe with 

every single day. 

The Postal Service adds, as we know, between one and two million new addresses to its rolls every year. We are likely very far 

away from the point where those homes and businesses no longer 

require mail service. Businesses, charities, and the American public 

still rely on the mail. I do. I think we all do. The Postal Service 

will need to be more competitive, though, in order to bring in the 

kind of volume and revenue necessary to cover the cost of providing 

the universal service that our economy and our communities count 

on, depend on. 

The service standard provisions in the Postal Accountability and 

Enhancement Act are also important because the Postal Service is 

going to need to use the standards it sets to realign its workforce 

and to rationalize its network of processing and retail facilities. 

A large percentage of the Postal workforce, as is the case 

throughout the Federal Government, is close to retirement, or closer to retirement. That is everywhere except the U.S. Senate, and 

here in this body, they tend to go on forever, or it seems that way. 

In addition, the network of logistics centers and post offices the 

Postal Service depends on each day is something that has grown 

organically over the course of many years. It is not necessarily designed, to meet current needs. 

So I think a lot is at stake here. I know that and you know that, 

as well, and we look forward to hearing from our witnesses, our 

first panel and our second panel, too. 

General Potter, I never wanted to be a general. I was in the 

Navy and I would like to have been a commodore. It is a rank we 

have in the Navy, but nobody is a commodore. You go from being 

a captain to being a rear admiral, a one-star admiral. You are 

never a commodore. That was the rank I had aspired to. I would 

have been the only one in the Navy who would have been that. 

But you got to be general, our Postmaster General. You have 

been that since, I think, 2001. You took over your job about 4 or 

5 months after I came on board in my new responsibility. I think 

3

1The prepared statement of Mr. Potter appears in the Appendix on page 37. 

you have done a very fine job. But you are, I am told, the 72nd 

Postmaster General and began your career with the Postal Service 

in 1978. I kid him that in 1978, he was a 12-year-old clerk, and 

over the years presided over, among other things, as our Chief Operating Officer at the Postal Service, Vice President for Labor Relations, and a number of other senior positions at the Postal Service’s 

headquarters in Washington and out in the field. 

Dan Blair, welcome. Dan Blair comes before us today as the very 

first Chairman of the Postal Regulatory Commission, which is the 

successor, as we know, to the old Postal Rate Commission. Mr. 

Blair was confirmed by the Senate as a Commissioner on the Rate 

Commission last December and was named Chairman by President 

Bush later that very same month. Chairman Blair previously 

served as the Deputy Director of the Office of Personnel Management and put in 17 long, hard, arduous years here on Capitol Hill. 

We welcome you both. Your entire testimony will be made part 

of the record and feel free to summarize. If you can stay fairly close 

to 5 minutes, that would be fine. If you run a little long, we will 

give you some leeway. Thank you. 

General Potter, would you like to begin. 

TESTIMONY OF HON. JOHN E. POTTER,1 POSTMASTER 

GENERAL, UNITED STATES POSTAL SERVICE 

Mr. POTTER. Good morning, Mr. Chairman and Members of the 

Subcommittee. I am pleased to be with you to discuss one of the 

most difficult challenges faced by the Postal Service, the need to 

balance rising costs within a rate structure defined by a price cap. 

By law, we are required to keep price adjustments at or below 

the rate of inflation for market dominant products, which represents over 90 percent of our revenue base. Unfortunately, our 

costs are not governed by the same standard and many have been 

rising faster than the Consumer Price Index. Like other employers, 

we have been affected by sharp increases in the cost of energy and 

health benefits, and for the Postal Service, cost per work hour for 

our career employees has been growing at a rate above inflation. 

At the same time, First-Class Mail volume, which represents 

over 50 percent of our revenue base, is declining. The number of 

addresses we serve, as mentioned by the Chairman, is increasing 

by almost two million each year. This means, on average, even with 

the recent rate change, we are delivering fewer pieces of mail to 

each address and revenue per delivery is decreasing. This is not a 

formula for long-term success. The challenge is to close the gap between prices and costs while improving our quality of service. 

How do you do that? As I see it, management can proceed along 

three paths. First, we can continue to operate as we have been for 

decades. After all, that brought a level of success no one anticipated when the law was passed in 1970. Service rose to record 

heights. We achieved our break-even mandate, and we reached unprecedented levels of efficiency. 

But the environment in which we achieved that success has 

changed and it is continuing to change. The business model that 

was created in 1970, in my opinion, is broken. We can no longer 

4

depend on mail volume growth to produce revenue needed to cover 

the costs of a growing delivery network. That model helped us to 

limit increases in postage rates to the rate of inflation over the 35 

years prior to the new law, but the mail volume growth necessary 

to do that is no longer there. 

To proceed along the path of business as usual would be inconsistent with our rate cap obligations or the expectation of the 

American public. We no longer have the option of just adjusting 

rates if our costs get out of balance. We have to do more, much 

more, if we are to keep costs in check with the overall growth no 

higher, as I said, than the rate of inflation, but we must continue 

to provide universal service. We understand that is our primary 

mission, is to deliver universal service to the American public. 

The second path to closing the gap between rates and costs 

would be wholesale, and absolute expansion of outsourcing of work 

now performed by Postal Service employees and use that as a cost 

reduction strategy. But there is much more at stake than simply 

costs. Pursuing this strategy could come with its own costs, and 

those costs would be a lost focus on service and damage to our 

brand. 

That is why I prefer a third path, working directly with our 

unions and customers to confront the critical issues that we are 

facing as an organization, to address the demands of growing our 

business and the needs of our customers to better serve America 

and to protect universal service for the next generation. I am personally committed to the process of collective bargaining as an important tool in achieving these goals, and I have seen time and 

again that it works. 

The latest example is the tentative collective bargaining agreement we reached with the National Association of Letter Carriers. 

It keeps the most important focus where it must be, on our customers, by helping us to improve service and operational efficiency, 

and it provides our employees with a fair wage. This is more important than ever as we operate in a competitive environment in 

which customers vote with their feet, no longer bound by a monopoly that is meaningless in today’s world. 

We were successful in reaching negotiated agreements with all of 

our major unions this year in this round of bargaining. We don’t 

expect to agree on every issue, but we have demonstrated our ability to overcome our differences, confront our shared challenges, and 

negotiate bargaining agreements that benefit everybody—the Postal Service, our employees, and most importantly, the people we 

serve. 

I strongly believe that we should rely on the collective bargaining 

process going forward and that the parties should be challenged to 

make the collective bargaining process work. The continued viability of the process requires that we retain our ability to bargain on 

a level playing field and that we have agreements that allow management certain rights and we shouldn’t tinker with those. They 

have worked for us in the past and we would prefer that all parties 

to the collective bargaining agreements to continue to focus on that 

process and not focus on a change in the law. 

Before I close, I would like to discuss our progress in developing 

modern service standards. Both of these and the related measureVerDate 0ct 09 2002 09:30 May 01, 2008 Jkt 037367 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 P:\DOCS\37367.TXT SAFFAIRS PsN: PAT
5

1The prepared statement of Mr. Blair appears in the Appendix on page 43. 

ment systems, are required by the new Postal law, as you mentioned, Mr. Chairman. Since early this year, we have been working 

with a large and diverse group representing all parts of the mailing 

industry to identify what changes in standards are warranted. We 

are on target to complete this process this summer. We are already 

consulting with the Postal Regulatory Commission so that the new 

service standards can be published by December. 

In developing measurement systems, we are exploring the possible use of our new Intelligent Mail bar code. It is a passive internal data collection capability which will allow us to efficiently 

measure actual service performance, not in an aggregate way, by 

individual mailers, because at the end of the day, mailers care 

about their own mail. It is nice to know that we are performing at 

95 percent, but if their experience is 75 percent, it doesn’t matter 

to them. So our goal is to get as granular as we possibly can and 

give the people who are paying for postage information about their 

mail. 

We look forward to working with all of our stakeholders, in particular the Postal Regulatory Commission, in achieving agreement 

on revised service standards and a measurement system. I appreciate the opportunity to testify today and would be happy to answer any questions you may have. 

Senator CARPER. General Potter, thank you very much for your 

testimony and for being here with us again today. 

Mr. Blair, you are recognized. Again, your full statement will be 

entered into the record and feel free to summarize as you see appropriate. 

TESTIMONY OF HON. DAN BLAIR,1 CHAIRMAN, POSTAL 

REGULATORY COMMISSION 

Mr. BLAIR. Thank you, Chairman Carper. I appreciate this 

chance to come before the Subcommittee. I ask that my full statement be entered in the record and I am prepared to summarize. 

First, I would like to acknowledge my fellow Commissioners with 

me here today, Commissioners Goldway, Tisdale, Acton, and Hammond. I appreciate their attendance and their support——

Senator CARPER. Could I ask you a favor? Would you just repeat 

those names slowly, and as you repeat those names, I am going to 

ask each of the Commissioners to raise their hand. 

Mr. BLAIR. Yes. Commissioner Tony Hammond is in the audience, and also Commissioner Dawn Tisdale, Commissioner Mark 

Acton, and Commissioner Ruth Goldway. 

Senator CARPER. Welcome. Thank you. 

Mr. BLAIR. Since I last appeared before the Subcommittee in 

April, the Commission has put into place what I call a 360-degree 

approach in soliciting public input on both the new rate system and 

service standards. First, in February and May of this year, we published Federal Register notices seeking public comments on how 

best to structure the new ratemaking system. The public response 

has been extremely gratifying. We received approximately 100 separate responses in all. 

6

Although the Commission has until next June to develop the new 

system, we are moving quickly to beat this deadline. We hope to 

have in place a basic ratemaking framework by this October, which 

would provide the Postal Service with the flexibility to use the new 

system, a new streamlined system, should it need to raise rates. 

Second, as you pointed out, the Act requires the Postal Service 

to consult with the Commission on the establishment of modern 

service standards for market dominant products. To fulfill this requirement, and as part of our ongoing outreach, we published a 

Federal Register Notice of Public Inquiry in June soliciting input on 

service and performance standards. The Commission received 35 

comments in response to this notice. Further, we reached out to 

Postal stakeholders outside Washington, DC through field hearings 

in Kansas City, Los Angeles, and Wilmington, Delaware, where we 

ran into Brian Bushweller, your State Director. 

Both the formal comments received in response to our notices 

and the testimony we heard during our field hearings share a number of common themes. Our written statement discusses these comments more fully, but let me give you some of those highlights. 

In general, the mailing community is eager to move to a new system with the expectation of more stable and predictable rates. I 

know that you, Chairman Carper, and Senator Collins, are also 

very interested in seeing the new system set up as quickly as possible. You have my personal commitment that this goal is met. 

Senator CARPER. Thank you. 

Mr. BLAIR. We also heard that consistent and reliable mail service is critical. Most mailers consider the existing Postal Service 

standards acceptable, but insist that these standards should be a 

floor for all mail within a class. Further, there needs to be systemwide performance measurements that provides detailed information 

and is available to the public. Specifically, we heard that mailers, 

their customers, and the Postal Service would best be served by 

publicly-available reports listing the service performance regionally 

and possibly in greater detail. Moreover, details such as between 

specific three-digit ZIP code pairs or zones should be available to 

mailers on request. 

Several mailers listed measurement of what is called the ‘‘tail of 

the mail’’ as being especially problematic and noted that product 

delivery delayed beyond the expected time frame results in decreased customer satisfaction and increased costs of shipping of replacement goods. Mailers also believe information beyond days to 

delivery are important components of service standards. 

For instance, the critical entry or cut-off time for business mail 

and the last collection time from neighborhood mailboxes are important, as well as the length of the ‘‘tail of the mail.’’ Another 

issue is whether there should be separate service standards for 

non-contiguous areas like Hawaii and Alaska. 

While the current performance measures for First-Class Mail are 

generally considered adequate, measurement tools for other classes 

of mail are lacking. The new law requires measurements for all 

classes of mail. The Commission is encouraged by plans to implement the Intelligent Mail initiative over the next several years. 

Until it is widely operational, however, an interim system of measurement is needed. We do not believe that the Act envisioned modVerDate 0ct 09 2002 09:30 May 01, 2008 Jkt 037367 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 P:\DOCS\37367.TXT SAFFAIRS PsN: PAT
7

ern service standards being enacted but with a 2 to 3-year delay 

in their measurement. 

Regarding our consultation with the Postal Service, we appreciate that the Postmaster General has sent a strong team to work 

with us and has designated Deputy Postmaster General Pat 

Donohoe to lead these efforts. To date, the Commission and the 

Postal Service have engaged in three substantive standard-related 

meetings. We anticipate another meeting later this month, culminating in a final formal consultation toward the end of September. 

Based on the cooperative tenor of the meetings thus far, the Commission has every reason to believe that its input will be reflected 

in the final regulations adopted by the Postal Service. 

Clearly, the Commission has its work cut out for it. The coming 

12 months will be a time of intense work at the PRC as we move 

to carry out our new responsibilities. 

Again, thank you for inviting me to testify, and I am ready for 

any questions you might have. 

Senator CARPER. Mr. Chairman, thank you for that testimony. 

Chairman Blair, I am going to ask you to go back and just briefly 

give us a little primer on how the rate-setting structure used to 

work for the Postal Service up until the enactment of the legislation last fall, how it is going to be working going forward into the 

future, and particularly go back to the first paragraph or so of your 

statement and just give us the status report of where we are. And 

then I am going to ask General Potter to react to that, if you will. 

Mr. BLAIR. We have a lot of lawyers in this room. There might 

be second-guessing my answers on this, but I will give it my best 

try. 

Senator CARPER. I see some of them. They are already at it. Go 

ahead. 

Mr. BLAIR. Under the old system, there was cost-of-service pricing in which the Postal Service priced its products according to the 

costs of delivering those services. The Postal Service would come 

before the Commission with a request to raise rates in an omnibus 

case. That case would take 10 months. There were hearings on the 

record. Witnesses came before the Commission. They were subject 

to cross-examination. Briefs were filed. Reply briefs were filed, and 

after a period of 10 months, the Commission would come forth with 

a recommended decision which was based on that record. That decision would then go to the Governors of the Postal Service who 

could adopt it, send it back, or take other options. 

Oftentimes, the Commission recommendations did not mirror the 

initial Postal Service request. It was a lengthy, litigious, and costly 

process that took place before the Commission. 

Congress recognized that. Congress also recognized that mailers 

were saying that they need more stable, predictable rates. That 

every 3 to 4 years, when the Postal Service came in for rate increases, many times, mailers would see their rates jump, for which 

they were not prepared. And so Congress took action, which resulted in the legislation passed last year, the Postal Accountability 

and Enhancement Act. 

Under that legislation, the PRC was charged with devising regulations that would allow the Postal Service to seek yearly rate increases subject to a CPI cap per class. 

8

Senator CARPER. And now fast forward, if you will, to where we 

are at the current time——

Mr. BLAIR. Well, at the current time——

Senator CARPER [continuing]. In implementing the legislation. 

Mr. BLAIR. At the current time, Congress gave us 18 months, 

until June 2008. When I came into office at the middle of December, we were in the midst of a very contentious—it was the first 

litigated rate case, I believe, since 2001. We gave our recommended 

decision back in February, but there was also talk that the Postal 

Service would have to seek another increase in order to cover its 

costs within a short time frame, as well. 

In order to avoid another lengthy go-around, although the Congress clearly contemplated there could be another cost-of-service 

rate case, the Commission thought it was in the community’s best 

interest and in the public’s best interest, that we try to get our regulations in place sooner rather than later. That is why we are targeting October of this year. 

We have gone through two Advance Notices of Proposed Rulemaking, back in the spring and then again in June, in which we 

asked the community to give us ideas on what these regulations 

should look like. We had good responses to those. We also had the 

field hearings in which we went to three different places across the 

country and heard from stakeholders. We also looked at service 

standards during both proceedings, and for service standards, we 

put out a Notice of Public Inquiry. So we have been very engaged 

with the public and the community on what these new regulations 

should look like. 

Senator CARPER. This is August. This is the first of August. 

What happens next? 

Mr. BLAIR. The next public step would be for the Commission to 

publish the Proposed Rules for notice and comment. We hope to do 

that soon. 

Senator CARPER. OK. General Potter, would you care to just 

weigh in and share some thoughts, reflections, on what Chairman 

Blair said, particularly as we go forward? 

Mr. POTTER. Maybe I would respond from kind of a Postal Service business perspective——

Senator CARPER. Sure. 

Mr. POTTER [continuing]. In the sense that the big changes that 

in the past, under the old rules—I don’t disagree with anything 

that Chairman Blair said—the difference for us from a business 

perspective is that under the old rules, the Board of Governors determined what the revenue requirement was. So they looked out 

into a future year and said, this is how much money we are going 

to need to operate the business, and then they suggested rates to 

the Commission and the Commission made comment, but ultimately, the Board of Governors could decide whether or not—had 

the ultimate decision about what the revenue would be, the revenue stream, and obviously the Commission could make recommendations around it, but the Governors could overrule it. 

Going forward, there is a very hard rate cap for market dominant products, which is 90 percent of our revenue. It is not just——

Senator CARPER. Could I interrupt for just a second? Excuse me, 

but 90 percent of the revenue is market dominant products. What 

9

percent of the volume are represented by those market dominant 

products? Do you have any idea? 

Mr. POTTER. I would venture to say it is about 98 percent, because the competitive products we are talking about are package 

products. We are not talking about significant volumes of packages. 

Maybe 99 percent. It is very high. But you get much more revenue 

per package than you do for a letter, whether it is an advertising 

letter or a First-Class letter. 

Senator CARPER. Alright. 

Mr. POTTER. But the real change is that we have this rate cap 

now for market dominant that says we have to operate at the rate 

of inflation, but even more difficult than that, the cap is at the 

class level, and we have never managed an organization by class 

of mail. We have managed product by shape. If it is a letter, we 

manage it as a letter. A flat is a flat. 

Now we are going to have this rate cap by class, so it is going 

to introduce a whole new layer of complexity that we have never 

seen before. I talked to other business leaders and said, how do you 

do that in the business world, and they say, we don’t. So this is 

kind of a real unique situation that we are going to have to attempt to manage. 

In addition to that, going forward, then, we have the competitive 

product arena and we are going to have to—obviously, the intent 

was that we become even more competitive and grow our revenue. 

The key factor there for us is going to be what is the required cost 

coverage, because at a minimum, those products have to cover attributable costs. In addition to that, they have to make a contribution to overhead to be determined by the Regulatory Commission. 

So that is a key element of us understanding what that is. We 

have had discussions with numerous mailers who are looking to us 

to work with them on offering discounts and other things. It is kind 

of, until we see the rules, we really can’t make decisions around 

what is going to happen with that product line. So we are very anxious and we are very appreciative that Commissioner Blair and the 

other Commissioners are looking to accelerate the pace at which 

they promulgate rules, not only for the market dominant products 

but for the competitive products, as well. 

Senator CARPER. Alright. Thank you. 

Let me just change our focus a little bit. General Potter, I think 

it was the last time you came before the Subcommittee, I think you 

indicated that the Postal Service was on track to suffer some very 

substantial losses, report some very substantial losses this year, 

and I believe you said the loss was projected at the time to be a 

little over $5.5 billion. It is my understanding, however, that most 

of the loss is not a real loss in the traditional sense but really a 

one-time accounting charge that relates to the passage of our Postal reform legislation and the treatment of funds that have been deposited in the former escrow account. 

I think I have that right, but I want us to compare apples to apples if we can here for a moment. But how much worse off is the 

Postal Service at this point on a cash basis compared to your plan 

for the year, and is there anything new that you can tell us about 

the impact that the recently-implemented rate case has had on 

your finances? 

10

Mr. POTTER. In terms of financial impact, obviously, there is going to be a—we are looking at about a $5.5 to $6 billion loss this 

year on paper. We are also looking, because we are taking what 

was planned to be restricted cash this year for escrow contributions 

in 2006 and 2007, and now they become an outflow of cash. So we 

don’t have that cash. Borrowing is going to probably go up above 

$4 billion this year, which is not something we are proud of, but 

when you are in a restricted cash mode, you have cash at hand and 

so you don’t need to borrow——

Senator CARPER. That is borrowing from the Treasury? 

Mr. POTTER. Yes, borrowing from the Treasury. So in terms of 

where we expected to be, probably the best thing to do is look forward and look at 2008, and so the cost of the new law is going to 

be about $800 million. Our plan was to break even next year. We 

are probably going to lose $800 million to $1 billion. 

But I am glad you mentioned the recent rate case because there 

has been rate shock in the sense that people are trying to react to 

changes that were made and the recommendation of the Governors 

by the Commission, and so certain classes of mail got hit very hard 

by recommended changes and our volume, I will just talk to this 

month, or last month, the month of July, it looks like our revenue 

is probably going to be about $100 to $150 million off of plan. And 

a lot of it has to do with the fact, in my opinion, that the mailing 

community is trying to respond to the higher growth in revenue, 

in cost for certain classes of mail than they anticipated, so they 

have budgets for the year, the calendar year in a lot of cases. They 

don’t have the ability to go back and increase their budget by 20 

percent or 30 percent to account for the new rate. So it appears 

that they are holding back mailings and are coming up with new 

strategies on how to approach the use of mail as part of their advertising dollars and it has hurt us. 

My hope is that they don’t walk away from the mail, that they 

are just recalculating what their plan for this year is. We will have 

a better handle on that in the fall. If mail has migrated away from 

us, if people have made permanent decisions to get out of the mail, 

then the estimates for next year of an $800 million to a $1 billion 

loss could grow rather dramatically. 

Senator CARPER. Alright. Thank you. 

Chairman Blair, would you just weigh in on this, as well? 

Mr. BLAIR. Well, the recommended decision that came forward 

was the first litigated case since 2001, and both the Commission 

and the Governors are on record as saying that a litigated case was 

going to cause some rate shock for mailers. I don’t want to mitigate 

it. I don’t want to in any way disparage the rate shock that mailers 

are experiencing. 

However, again in this last case, the full revenue request was 

granted to the Postal Service. Particularly with regard to letter 

mail, efficiencies were rewarded and there was a rebalancing that 

took place that didn’t occur in the previous two settled cases. 

But I think that more than anything, this underscores the fact 

that the old system was, indeed, broken. If we continue under an 

old cost of service requirements, I think history would have repeated itself over and over again. You and your colleagues wisely 

chose to take a different path, and that was to impose a different 

11

type of pricing system on the Postal Service. It was a historic step 

that Congress took, and I look forward to implementing that new 

system with my colleagues. 

Senator CARPER. Alright. Thank you. 

General Potter, I want to take a moment to follow up on some 

testimony we heard at our hearing last week with the Postal 

unions and some of the management organizations. You may have 

gotten some feedback on this already. But more than one of our 

witnesses testified that there has been an erosion of service in recent years, at least in their view, if not nationwide, in at least some 

pockets of the country they mentioned. We talked a bit about Chicago. They talked a bit about L.A. The erosion was blamed in part 

on the incentives that the pay-for-performance system used to 

make decisions on managers’ pay. 

Our witnesses said that some managers—not all, but some managers were sometimes incentivized to sacrifice service to meet costcutting goals, and I just want to ask you to take a minute, or 

maybe a minute or two, and tell us your thoughts on this issue and 

what you might be doing to address it. 

Mr. POTTER. Well, first of all, let me talk a little bit about that 

incentive system. It is a balanced system. People are rewarded for 

service. They are rewarded for costs, and they are rewarded for 

people, and by people I mean safety, our Voice of the Employees 

Survey, where we take—every employee has the opportunity to fill 

out a survey once a year to talk about the workplace, the workplace 

environment. They are rewarded equally. So, when I look at the 

three categories, I think we have been successful in all three. 

We are going to report for the Postal Quarter Three service results next week. Those who are at the Board of Governors meeting 

will hear a report about our Postal Quarter Three service results. 

They are at a record level. We broke through some barriers. They 

are at record levels for service. When it comes to cost, our productivity is at an all-time high and we are very proud of the fact that 

productivity has gone up in each of the last 7 years and will continue to go up. 

When it comes to people, our Voice of the Employees Survey said 

despite the fact that we have downsized considerably, our employees are satisfied, our safety record is impeccable. We have brought 

OSHA in to help us with our ergonomic issues that have affected 

a number of our employees over the years. We have Voluntary Protection Program participation on the part of the Postal Service. It 

is an OSHA program to make sure that the workplace is safe. We 

have more Voluntary Protection Program sites than any other organization in America, private or public. Our grievances have been 

dropping dramatically and will continue to do it. And we have 

moved aggressively on equal employment opportunity. 

So when I think if you step back and look at this compensation 

system, it is a balanced system, and yes, there are cases where we 

are asking people to do more with less, but given the fact that the 

revenues of the Postal Service are challenged and the volumes are 

challenged, people are just going to have to do that. 

Now, that is not to say that we are perfect and that every manager manages each of those categories equally. But the fact that 

the bottom line results are there speak for themselves. We do have 

12

people who are not effective when it comes to service and we do 

have slippages, and when we do, we move in and we look to resolve 

them. When we have issues where there are cost overruns, we 

move in and take care of those. And in cases where we have workplace issues, we have intervention teams that go in and review 

workplace problems because there are some. 

Despite the fact that there is an overall good record, there are 

pockets of problems within each of those three categories, and with 

an organization our size, I don’t expect it to be perfect, but I expect, 

when problems do occur, for us to react and we are doing that as 

best we can. 

Senator CARPER. One of my credos when I was in the Navy and 

as governor and today is, ‘‘If it isn’t perfect, make it better.’’ I always say that to my team, whatever team I happen to be leading 

at the time. And obviously, you and the folks that you work with 

and lead at the Postal Service, have realized that your operation 

wasn’t perfect and you sought to make it better in a lot of different 

ways and I commend you for that. I know we all do. I would just 

urge you, as you find those pockets, whether it is Chicago or L.A., 

where you find that folks aren’t measuring up or your leaders 

aren’t measuring up, that you act expeditiously to address those 

and I am confident you will. 

Mr. POTTER. Well, I think when you see the service results for 

Chicago, you will see that there has been a lot of progress made. 

Senator CARPER. That is good to hear. 

Another question, if I could, for General Potter, and then Chairman Blair, I will probably pick on you for a little bit. 

About a year or so ago, General Potter, the Postal Service announced a number of processing facility closures and consolidations. It has been unclear, at least to me, where the process is at 

this point. I understand that some announced closures and consolidations are going forward and some apparently are not. 

In addition, there was language in the Postal reform bill that you 

may recall required that the Postal Service comply with certain disclosure and consultation requirements before doing anything with 

a facility. And then there is the fact that you must come up with 

a new strategy for handling your facilities by next spring based on 

the outcome of the service standards project that is currently underway. 

Could you just take a minute and give us an update on what 

your current plans are in this area and what you plan on doing to 

incorporate community, employee, and customer input into those 

plans? Go ahead and answer that one, and then I have just a related follow-up, please. 

Mr. POTTER. OK. Well, we have guidelines that we follow and we 

have revised them to provide for more input at the local level, particularly community input. The fact of the matter is that the Postal 

Service is in a constant state of evolution and so people are always 

asking me what is your facility game plan? As if we have some 

exact science when it comes to that, and you can’t have an exact 

science because our business is related to and responds to the use 

of our systems by mailers throughout the country. And it also involves the introduction of new technology over the years. 

13

Right now, we are planning to introduce a flat sequencing machine that will make the sortation of flats to delivery order much 

more efficient than it is today. Today, it is in a manual mode. It 

is going to go to an automated mode. That piece of equipment is 

going to require a lot of space. We are reevaluating our facility 

plans based on, again, revised projections in volumes as a result of 

some of the rate changes that were made because we anticipate a 

change in shape use by mailers as described by Chairman Blair. 

There are incentives now to use letters versus using flat mail. We 

anticipate the introduction of the FSS, as I said, and we look to 

greater mailer adoption of drop shipment, which means they bring 

mail closer to the destination. So we are constantly evolving our 

network. 

Suffice it to say the migration of mail to automation and the migration, which means we are more efficient and can do things in 

less places, the migration of mail to destination means that we 

have the ability and the opportunity to shrink our network somewhat, and over the course of time, we are going to do that, but we 

are going to do it in an evolutionary kind of way, not in any kind 

of dramatic way. 

The last factor that has to be built into the plan that we are 

going to submit next June are the standards for service, and those 

are in the process of being discussed with a number of folks in the 

Postal community and we will be prepared to present that to the 

Postal Regulatory Commission and they will have final say on that. 

I think we have, as Chairman Blair said, I think we are well along 

our way there in terms of progress. 

But let me assure you, we understand that the closing of a facility has a major impact on the community, a potential loss of jobs, 

although our employees won’t lose jobs. Our employees will probably be relocated to different locations, and that can disrupt their 

family life. So we take these things very seriously. We do seek 

input, as you said. There were some plans. When we do a study, 

oftentimes people conclude that the outcome of the study is predetermined, but I think over the course of the last year, as you 

mentioned, some facilities are closed, others are not, and it is a factor of looking at all the different elements involved and taking the 

input and then factoring in changes that happen, such as introduction of new equipment. 

So there is no static answer. You can’t draw a chart and say, 

here is what the place is going to look like in 10 years, because 

quite frankly, there is nobody on the face of this earth who can predict what Postal volume is going to look like in 10 years, what 

mailer behavior is going to look like in 10 years, what printing 

presses they are going to use, and so it has, as it has since Ben 

Franklin, it evolves to meet the needs, the changing needs, of the 

American public using the best tools available to the managers who 

try to perform the service. 

Senator CARPER. Alright. Thank you. 

I am going to ask Chairman Blair, do you think the Postal Service is doing enough to solicit input and to take it into account? 

Mr. BLAIR. Before I joined the Commission last December, the 

Commission issued an advisory opinion on these issues and basically said that the Postal Service needed a better defined strategy 

14

on how they were going to go about this process. Better management of these plants is a good idea. What is needed, however, is 

a more definable, more transparent, auditable, and consistent 

strategy in which the public, mailers, employees, and communities 

can understand and rely upon. 

The new law requires a consultation akin to the service standards on this, and after we establish the service standards, we will 

be entering into another similar consultation preluding up to a 

2008 report that the Postal Service will be issuing. 

What is important here is looking at, from a service standard 

viewpoint, the closures of these facilities and what impact closures 

would have on delivery. How does it impact the time for delivery? 

Are we tracking that, and those types of things. Those are answers 

that we will be looking forward to when it comes to that consultation. 

Senator CARPER. Alright. Thank you. 

The next question I ask, I am going to initially direct it to General Potter, to you, but Chairman Blair, I would appreciate your responses, as well. General Potter, I understand that the Postal Service does not currently have performance standards in place for 

most of its market dominant products. If that is the case—and if 

it isn’t, tell me, but if that is the case, what are your plans for developing a useful system for tracking performance under the new 

set of service standards that you are due to issue at the end of, I 

believe, this year? 

And second, how are you measuring, or how are you going to 

measure, the impact that decisions in areas like facilities closure 

and consolidations will have on service? 

Mr. POTTER. Let me address the second part of your question 

first. 

Senator CARPER. OK. 

Mr. POTTER. When we close a facility or consolidate, our goal is 

not to shrink service. In many cases, service improves because you 

get greater reach, and that is an element of the review, And again, 

it is auditable by our Inspector General. They look at the finances, 

whether or not they are met. They also look at the service performance and they do an after-implementation study. Occasionally 

when we do the consolidation, there might be some mitigation in 

service, but it usually quickly comes back. In fact, I haven’t seen 

a case where it hasn’t. 

But we don’t go in with this notion of downgrading service to any 

party. Again, that is not—an element of the review is to make sure 

that we are not doing that. We don’t design a system to reduce 

service levels, either standards or performance. And so, again, that 

is an important element of the study. 

What was the first part of your question? 

Senator CARPER. The first part of my question is if you don’t 

have performance standards in place just yet, what are your plans 

for developing a useful system really for tracking performance? 

Mr. POTTER. Well, our discussions right now with all parties, 

what we are basically planning to do is lay out a three-digit to 

three-digit service performance matrix for all classes of mail. So 

you enter the mail in any one location, pick any three-digit ZIP 

15

code in the country, and there will be a service standard for that 

origin to that destination. 

I think we are all pretty much agreed on where we are going to 

go long-term. Again, the feedback that I have gotten is we are all 

pretty much agreed that in the long-term, our intent is to put a bar 

code on each piece of mail that has the 11-digit bar code—in other 

words, our ability to allow us to walk-sequence mail for that piece 

of mail. It will have the class of mail. It will have any special service that is required—that could be a signature or address change 

service. It will also have the sender of the mail, so we will be able 

to track mail by sender. And it will have a unique identifier for 

every piece. 

So if you think about it, it is every piece of mail that enters the 

system where people pre-bar code mail, we will create the ultimate 

transparency. You will see that mail every time we touch it. We 

will also put bar codes on containers and trays of mail. People will 

have this ultimate transparency, because I believe when it comes 

to service standards, yes, it is nice for me as the Postmaster General or Mr. Blair to know as the Chairman of the Regulatory Commission what the average is, but at the end of the day, what counts 

is what you experience as an individual mailer, and that is what 

is going to keep you in the system and give you confidence that this 

system works. 

So we are going to move to this new Intelligent Mail bar code in 

January 2009. We are going to make it a requirement for everybody to use it that qualifies for a discount from the Postal Service. 

My intent is that even people who don’t have automated mail use 

that code so that we will be able to provide service tracking for 

them. 

So ultimately, everything will be tracked. Anything can be aggregated in any form that anyone would like it to be aggregated in. 

What do we do between now and the time that code becomes mandatory and we begin providing those systems. As I said, my intent 

is to push so that in January 2009, that code is there and we are 

able to use it. In the interim, we are going to have to have discussions with the Regulatory Commission about what it is that will 

satisfy the bridge between now and the time that we introduce this 

new system, and I would hope it will be some subset of that, but 

we will have to have those discussions. Our intent is to track the 

mail as required by law, but ultimately we want to give each user 

of the mail an opportunity to see what happens with their individual mail. 

My expectation is, once that comes to pass, there are going to be 

a lot of problems, because I am sure there are deficiencies in our 

system. One of the things that we have learned from using this, we 

have all the systems are in place. They have to be upsized so that 

we can do it, but we have done this already with several mailings. 

The beauty of this system is it will allow us to receive electronic 

manifests of mailing. Today, they are paper-based. We have to 

count mail on acceptance. In the future, we will be able to count 

it as we sort it. We will eliminate a lot of redundancy and work 

burden for the Postal Service as well as the mailers when it comes 

to acceptance. And we will be able to give people feedback on their 

mail. 

16

Today, we have a bar code that is simply a bar code. So if somebody has the wrong address, has a missing directional, we can’t 

give them feedback. The beauty of the Intelligent Mail bar code is 

we will be able to give them feedback. My hope and my thinking 

is that it will improve the quality of mail. It will allow mailers to 

make changes that will improve their service experience as well as 

improve the efficiency of mail, because today, a lot of our cost is 

associated with mail that has a wrong address, missing directional, 

or an old bar code because somebody has moved, and this will 

speed up the process of, again, giving feedback to mailers, improving the quality of their mail base, taking what is largely a manual 

process today and automating that process. 

So there is a huge opportunity, a huge upside for improved service, improved efficiency with the Intelligent Mail bar code and improved value to customers. And I don’t want this organization to 

get distracted by moving into a different direction. We are going to 

work with the Regulatory Commission to find a way to see whether 

or not we can use some elements of that to bridge ourselves to 

when this is ultimately required. 

Senator CARPER. Thank you. When do you expect to go live nationwide with the intelligent bar code? Did you say early 2009? 

Mr. POTTER. January 2009 is what we have told mailers, that we 

want everyone who seeks a discount to put that code on the mail. 

Senator CARPER. Good. Thank you very much. 

Chairman Blair, do you want to share a comment or two on what 

the General has just said? Then I am going to turn to our colleague, Senator Akaka, for whatever questions he might have. 

Mr. POTTER. Thank you, Mr. Chairman. Intelligent Mail really 

does hold out a lot of good prospects for reporting on service. However, as the Postmaster General just said, it is going to be operational in 2009, so what do we do in the interim? Also, we need 

to identify what gaps there may be in which Intelligent Mail won’t 

measure and make sure that we have some kind of system in place, 

whether it be seeding or something else, in which we can report 

service on that. 

Those two points were driven home, not only from our comments 

that we received according to our Notice of Public Inquiry, but also 

during the field hearings in which mailers expressed some concern 

as to what are we going to do in the interim and are they going 

to measure us. For instance, how are we going to treat local newspapers? Those are things that we will be working out over the period of consultation. 

But the bottom line on this is what gets measured is what gets 

reported, and it is vitally important that mailers have access to 

this information and the public have access to this information, because if you don’t have access or if it is not publicly available, it 

doesn’t do anyone any good. 

Senator CARPER. Thank you for those comments. 

I am happy to welcome my friend and colleague, Senator Akaka, 

for whatever comments you might have and any questions you 

might have. Welcome, my friend. 

17

OPENING STATEMENT OF SENATOR AKAKA 

Senator AKAKA. Thank you very much, Mr. Chairman. It is good 

to be here with you today. I would also like to add my welcome to 

the Postmaster General and also Chairman Blair. 

Service standards are an important piece of the Postal reform bill 

that we worked so hard to pass and an area that is important for 

both Postal consumers and for the mailing community. 

Currently, the Postal Service has vague standards that don’t give 

customers or the mailing community any reliable measures to 

know when mail may arrive. In addition to the vague standards, 

there are no mechanisms in place now to reliably measure performance against service standards. 

With that, I would like to start out, Mr. Chairman, by asking a 

question about service standards in offshore States, such as my 

home State of Hawaii. Postmaster General, will the Postal Service 

be taking geography into account when developing these delivery 

standards? For example, is there potential that Hawaii or Alaska 

could have vastly different delivery standards than the mainland? 

Mr. POTTER. Well, geography, Senator, is a very important element when it comes to the ability to deliver. In Alaska today, there 

are no overnight standards. It is basically a two-day standard because of the difficulty of getting mail in from the bush and then 

turning it around and getting it back out. 

In terms of service from the Lower 48 to either Hawaii or Alaska, 

in both cases, we attempt to get the mail there within 3 days. However, we do run into transportation issues. For example, in Hawaii, 

we have over the course of time had a lot of trouble getting lift out 

of the United States, the Lower 48 out to Hawaii, and we work 

with everybody to try and figure out how we can best get the mail 

there, and we are very grateful, as an example, that UPS has 

stepped in and been very helpful in terms of us moving mail to Hawaii. 

So, yes, geography does count and available transportation is an 

issue, has been an issue, and unfortunately will continue to be an 

issue. 

Senator AKAKA. In developing these standards, what do you 

think the Postal Service can do to balance the reality that Hawaii 

and Alaska are geographically far away from the mainland and 

your commitment to consistent universal service? 

Mr. POTTER. Well, Senator, we have, again, the same standard. 

Our maximum standard is 3 days to anywhere in the United 

States, and as I said, there are some challenges in meeting that 

standard to Alaska and Hawaii, largely driven by transportation 

out of the Lower 48 as well as transportation between the islands 

and in particular between the cities and the bush in Alaska. Our 

experience has been that we are very effective in getting it there 

in 4 days, and some of the mailers have suggested to us that they 

would prefer that we lower our standards than move from 3-day to 

4-day so it is more predictable to them. 

Right now, for example, in Hawaii, our 3-day service is about 77 

percent, and so that will be one of the decision points that we will 

look to have the Commission help us with regarding what is a reasonable service expectation between the mainland and Hawaii and 

Alaska. But as of today, we hold ourselves accountable for a 3-day 

18

standard, and as I said, given the difficult logistics, we don’t always make it. 

Mr. BLAIR. Senator Akaka. 

Senator AKAKA. Mr. Blair. 

Mr. BLAIR. If I could just follow up on that, in our discussions 

with the mailing community at this point, we haven’t had anyone 

urge us to relax any of the service standards for Alaska or Hawaii 

when it comes to First-Class Mail or mail transported by air. But 

when it is transported by boat, that does pose significant geographical and time problems, as well, and so we will be looking to 

working with the service on establishing or reestablishing what 

those standards are. 

I think this underscores, however, the need for good, accurate, 

timely information on how long it actually takes, because if it falls 

outside the standard for how long does it actually take, how far 

outside the standard is it, and those types of transparency and accountability issues are things that we hope to shed light on in our 

consultation and in reviewing the maintenance of the service 

standards in our annual reports, as well. 

Mr. POTTER. If I could, Senator, one of the factors that has to be 

considered is cost. We can look to create the best measurement system in the world and measure Aunt Minnie’s mail, and we can 

build the best service by buying planes and flying them into Alaska 

and Hawaii and other places, but at the end of the day, we are trying to operate under a rate cap, and so there is always this balance 

between what is an effective service and what is, I guess, a pricey 

service. 

So you have to find a balance there, and the notion of finding 

that happy medium is one that I think is going to take us several 

years to work out. But this notion that somehow because we are 

now going to create standards that snap your fingers and we are 

going to do it and do it without some cost, once we start to measure 

these things, I am not going to be surprised that we have problems. 

We are going to work very hard to fix those problems, but I think 

if we create expectations that are too high, we will do what Great 

Britain did, and what Great Britain did was they created very high 

expectations and then for the first 6 or 7 years, all they did was 

talk about how bad the Postal Service was. 

Well, I have to tell you that we are in competitive environments 

for every type of mail that we deliver and the worst thing that 

could happen to us is that we spend more time focused on defending ourselves than on fixing what is broken and that we hurt our 

brand by bringing too much negativity to the table. So there is a 

need for balance here. That is not to say our goal isn’t to provide 

the best service we possibly can to everybody and do it as quickly 

as we can, but we can’t lose sight of the fact that we are now operating under a rate cap that we didn’t have before and it is going 

to be a learning experience in terms of how we do that. 

Senator AKAKA. General Potter, at a hearing last week, the 

American Postal Workers Union advanced the idea of mandating 

collective bargaining on contracting out instead of opposing outright the contracting out of deliveries. Does the Postal Service believe that bargaining over contracting should be on the table? 

19

Mr. POTTER. Senator, there is a provision in our contract that 

deals with contracting out. That provision was negotiated in, so obviously the people who preceded me believed that there was a need 

to bargain when it came to contracting out. That provision calls for 

the sharing of information between management and the unions, 

and any time we share information is an opportunity for the parties to get together and work on issues. 

So I personally don’t see the need for any legislation. It is part 

of the collective bargaining process. I think I would recommend 

that you encourage the parties to work through the process. This 

is an issue that has come up recently and it has come up because 

there is a group of people whose work has not been contracted out 

in the past while others have, and there is a process. There is a 

collective bargaining process. 

The Postal Service’s challenge going forward, to pick and choose, 

to put constraints on the system, I think is problematic for us. I 

think the negotiated settlement that we have at the NALC shows 

that the parties can get together, can work through things that will 

help make the Postal Service more productive, that will drive revenue, and that, bottom line, will serve the American public. 

I think I would really caution you to allow the collective bargaining process to do its job and challenge us as a mailing community, challenge us as the Postal Service management, and the 

unions to make this system work. The law was not passed because 

the system is some kind of panacea. There was a change in the law 

because everyone recognized that there were challenges going forward. And I would caution you to push back on the parties to have 

the system, have us work together to improve the system and let 

us use the mechanism and our employees. The collective bargaining process, the contracts that we have with each union, that 

is the place to work out the issues between management and labor. 

Senator AKAKA. Thank you very much, Mr. Chairman. 

Senator CARPER. Senator Akaka, thank you so much, and I hope 

we have time to come back just a little bit later to the contracting 

out issue, which dominated, as you probably know, most of our 

hearing last week, but we will see if time permits that. 

We have been joined by Dr. Coburn fresh from the floor and we 

welcome you here and you are recognized for as much time as you 

wish. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. Thank you, Mr. Chairman. Thanks for having 

this hearing. I ask unanimous consent that my opening statement 

be made a part of the record. 

[The prepared statement of Senator Coburn follows:] ?? 

Senator CARPER. Without objection. 

Senator COBURN. I apologize to our panelists for not being here. 

I was on the floor. I thank each of you for your service. 

I want to get down to the contracting issues just for a second. 

In your opinion, is the security of the mail in any way jeopardized 

by using contracted services? 

Mr. POTTER. No. From a Postal Service standpoint, no, it is not. 

There have been issues raised about the background checks that 

we do on some employees versus what we do with contractors. With 

20

the exception of drug screening, the background checks have been 

similar for both. We have now updated our rules and we have updated our contracts so drug screening is a requirement for contractors. 

At a House hearing that I had recently, the Inspector General for 

the United States Postal Service was asked, what is the experience 

with contract employees versus the Postal Service employees, and 

in terms of investigations, it is basically the same. And in my opinion, as I said, human beings are human beings. There are good and 

bad amongst us at every level with the organization, of the social 

stratosphere. Just because you make a little less money doesn’t 

mean that you are more prone to be a thief or a terrorist or any 

other of the wild allegations that are made against somebody who 

happens to make a little less than others. So our experience has 

been that they are the same. The Postal Service contracts for some $14 billion in goods and 

services and those people have been reliable over the years and 

done a fabulous job. So, again, I don’t see the risk as has been described by others. 

Senator COBURN. Mr. Blair, any comments on that? 

Mr. BLAIR. That is really largely outside the purview of the Regulatory Commission, so not at this time. 

Senator COBURN. Mr. Potter, what would happen to you if Congress stepped in and shut down your ability to contract out? 

Mr. POTTER. Well, as I said earlier, we contract for some $14 billion in goods and services. If they shut us down completely, we 

would probably be hampered from moving the mail because all the 

mail that flies is done on contract planes. Most of the trucks moving around the country is highway contractors. When it comes to 

delivery, we have some 7,000 routes that are done by contract employees. 

If you just looked at the cost of moving from contract delivery 

and brought that in-house as part of a law, over the course of a 

10-year period, the cost would be over $1 billion. So there would 

be a cost associated with the change and, in some cases, I don’t 

know how we would have to buy our own fleet of planes. There are 

just some things that have been done for years. It would be impractical. 

I think the notion of, and where the Postal Service has evolved 

to looking at the least-cost alternative, whether it is outsourcing or 

use of our employees, is one that has worked and one that needs 

to continue to evolve. 

Senator COBURN. You all have contracted for a long time, correct? 

Mr. POTTER. Since 1785, we have—at the behest of Congress——

Senator COBURN. So why all of a sudden is this a big issue now? 

Mr. POTTER. It is a big issue because, Senator, there is a group 

of employees that had not been touched in the past and that was 

city delivery employees, and for the first time, the Postal Service 

began to look at areas that were traditionally served by city carriers and looked at a contracting alternative for them. That is, I 

think, what created the big stir in the recent months. 

Senator COBURN. Is it true that the average difference between 

a contract employee and a Postal Service employee is $17 an hour? 

21

Mr. POTTER. On an hourly basis, yes. And again, it is—one of the 

things we look at is what is the cost per delivery, and so—because 

I was asked in the House, well, what is the difference, and I said 

it depends, and it does depend on the situation. So if you look at 

our average cost for city delivery, it is $215 delivered to a city delivery address. It is $164 to deliver to a rural, if we have our rural 

carriers doing it. And contract delivery is $106. So there is quite 

a bit of difference in terms of cost when it comes to what type of 

delivery is chosen. 

Senator COBURN. Senator Akaka was talking about standards. It 

is pretty hard for me to figure out why we haven’t had measured 

performance standards against your standard in the past. Talk to 

me about that and explain it because I don’t know any other business that is operating out there that sets a standard and then refuses to measure itself against the standard. Explain that to me. 

Mr. POTTER. Well, we have standards for Express Mail. We have 

a network that says if you deposit it, we are going to get it there 

overnight. We measure that. We offer that measurement as part of 

our guarantee. 

Priority Mail, we have standards and we have measurements. In 

the past, we have used outside concerns to measure that. But since 

that time, we have moved to using delivery confirmation because 

people put codes on their mail and then we tell them, we report 

back to them when it is delivered. It made no sense to use an outside party to do a sampling system when we had people actually 

putting codes on mail and so we use that now as our measurement 

system. 

When it came to First-Class Mail, which is our premium product, 

that class of mail is measured. We use IBM. They do a sampling 

system where they deposit mail in collection boxes and they have 

reporters who come back and tell us when that mail is delivered. 

So we have standards there and we have measurement systems. 

For other classes of mail, to be quite honest with you, in my 

opinion, the reason we haven’t done it is because those other classes of mail initially were to take advantage of capacities that existed 

in our mailstream. So advertising mail—initially, all we had was 

First-Class Mail. In the 1970s, we started to put advertising mail 

in. It was a deferred product. There was no service guarantee. 

There were service expectations. And so because of that, over time, 

we never put in measurement systems. Now, our customers have 

put in systems where they measure when it is deposited and when 

it comes back to them, and we have put in a confirm system that 

allows people to track—put a code on their mail and track the mail 

through our system as a service measure. 

But it is largely because of the way other classes of mail came 

into being that they weren’t measured, and so now, today, Standard Mail or advertising mail is our largest volume of mail and the 

Postal Service is not opposed, as I said earlier, to the introduction 

of service standards. We are by law. We are intending to have a 

three-digit matrix for depositing any of these classes of mail anywhere and there will be a service standard and we intend to move 

to a measurement system, and our measurement system ultimately 

will track every piece of mail that has the potential to do that and 

aggregate that data. That is where we are headed. 

22

Senator COBURN. Is that going to be transparent? In other words, 

are you all going to publish that data? 

Mr. POTTER. We are going to publish that data. It is going to be 

so transparent, again, that every mailer can look at their own experience and they can use that to work with management to fix service problems that they have. Again, but that is subject to review 

by the Commission and agreement by the Commission. 

Senator COBURN. When I say transparent, website searchable 

and accessible? 

Mr. BLAIR. Exactly, Dr. Coburn. That is exactly what we are 

looking for, and I think it highlights the new environment in which 

the Postal Service will be operating in. When you apply a rate cap 

as a way of adjusting rates, there may be a temptation on the part 

of the regulated entity to either cut service or shift costs to customers in order to operate within that cap. That is why you want 

to strengthen the regulator, which the reform legislation did. Analyzing these costs and numbers are part of the reporting requirements. It will be part of our annual report. It will be part of the 

complaint process. 

I think it is important to understand that Congress chose a CPI 

rate cap that over the last 37 years, has pretty much tracked or 

fallen below the CPI the rate changes a little bit. So the index that 

Congress has chosen was very carefully chosen. There were other 

indexes that had been proposed in past reform bills that were 

much more stringent. A number of times when you go to a price 

cap regimen like there is a productivity factor that is then taken 

away from that index, as well. There was no productivity factor reduction in the legislation. So CPI really tracks the Postal Service’s 

costs over the last 3 decades. 

That said, the Commission is going to be very vigilant in reporting on the service standards and that is why our consultations are 

so important. I think what the Postmaster General said today is 

reflective of the consultation so far. The idea that it is transparent, 

the granularity, I think, is most important to allow mailers an idea 

of the level of services that they are receiving. 

Cost is important, but I also think it is important—and it is a 

balancing factor and I think that there are ways that we can do 

it that the service standards and measures can be established in 

such a way that mailers have that transparency, and that is something the Commission is committed to. 

Senator COBURN. Thank you very much. Thank you, Mr. Chairman. I have a Judiciary markup I have to go to. 

Senator CARPER. Dr. Coburn, we are glad you are here and thank 

you for your participation today and in a lot of other areas that we 

are working on. 

I have more questions to ask, but I am not going to delay you 

here. What I would like to do is submit those for the record. Senator Akaka, is that all right with you, because we have another 

panel we want to hear from and Dr. Coburn tells me we are still 

probably going to vote before 12 o’clock. 

I want to thank you both for being here and thank you for your 

testimony, thank you for straightforward answers. We look forward 

to following up with some questions and would appreciate your 

timely response to those. Thank you very much. 

23

1The prepared statement of Ms. Berenblatt with attachments appears in the Appendix on 

page 50. 

Mr. BLAIR. Thank you, Mr. Chairman. 

Senator CARPER. Thank you. 

And with that, I am going to invite our second panel of witnesses 

to come forward, and as they come forward, I am going to go ahead 

and begin introductions of them. 

Jody Berenblatt is the Senior Vice President of Postal Policy at 

the Bank of America. Ms. Berenblatt has worked on Postal policy 

issues for more than 25 years at the Bank of America and elsewhere and serves in a number of leadership positions in the mailing industry. 

Joining her is Anthony Conway. He is the Executive Director of 

the Alliance of Nonprofit Mailers. Before joining the Alliance, he 

served for 34 years at the Postal Service. That is quite a record. 

Bob McLean is the Executive Director of the Mailers Council. He 

has served in that position for the past decade. Prior to joining the 

Council, he worked for the National Association of Postal Supervisors at the Postal Service. Welcome. 

And James West joins us from Williams–Sonoma, where he 

works as Director for Postal and Government Affairs. He began 

with Williams–Sonoma in 1975 as a mail order manager and has 

been with the company working on Postal issues ever since. My 

thanks to the Direct Marketing Association for recommending him 

and his expertise to us for this hearing today. 

To our panelists, it is good to see you all. Thanks for coming, for 

preparing for this hearing, and we will recognize you all for about 

5 minutes. I will ask you to keep your comments pretty close to 

that so that we can have a chance to ask you some questions and 

make the vote that is scheduled here for about 30 or 40 minutes 

from now. 

Jody Berenblatt, welcome. We are happy that you have come. 

Thank you. You are recognized at this time. For each of our witnesses, your entire statement will be part of the record and you are 

welcome to summarize as you see fit. Thank you. 

TESTIMONY OF JODY BERENBLATT,1 SENIOR VICE PRESIDENT 

OF POSTAL STRATEGY, BANK OF AMERICA 

Ms. BERENBLATT. Thank you very much. I appreciate the opportunity to provide comments at today’s hearing. I would also like to 

thank Senators Carper and Collins, along with the other Members 

and Subcommittee staff for their leadership in shepherding the enactment of the Postal Accountability and Enhancement Act late 

last year. Properly implemented, it offers the opportunity for 

sounder finances for the Postal Service, a more streamlined regulatory system, and a more reliable and economical service. 

Bank of America is headquartered in Charlotte, North Carolina. 

We provide a full range of financial products and services to individual customers, small and middle-market businesses, local and 

State governments, and large corporations. We are the 12th largest 

firm on the Fortune 500 list for 2006. We are also the No. 1 overall 

Small Business Administration lender and the No. 1 SBA lender to 

minority-owned small businesses. 

24

Bank of America uses the mail for operations and marketing to 

both our existing and prospective customers. In 2006, we mailed 

roughly 1.4 billion pieces of First-Class Mail and 1.9 billion pieces 

of Standard Mail, 3.3 billion pieces of mail is a lot of mail. The mail 

delivery system is very important to us. Also, financial institutions 

are subject to regulatory constraints on the timing of our customer 

communications, so we must plan our production and entry schedules to avoid both early and late delivery. Reliable and timely service is equally important to our customers. 

We support the new law’s objective of achieving service performance that is both cost effective and consistent with best business 

practices. Current service performance is inconsistent nationally, 

and, therefore, improved service standards and measurements to 

enhance performance is very important. 

For example, while current service standards require all domestic First-Class Mail to be delivered in 3 days or less, it often is not. 

Standard Mail, likewise, requires improvements to standards and 

measurements to enhance U.S. Postal Service performance. I include more on this topic in my written testimony. 

The Postal Service’s existing service standards for First-Class 

Mail and Standard Mail, if consistently met, are an excellent starting point. Future changes to the standards need to balance between service quality and cost, and incorporate mailer needs. Any 

change in the service standards should be publicly announced well 

before the effective date of the change to allow mailers adequate 

time to make necessary adjustments. Timely and consistent communication facilitates a good partnership between the Postal Service and its customers. 

Major changes in service quality need to be linked to the indexbased rate cap established by Congress. The cap will be meaningless if the Postal Service is permitted to satisfy it by reducing the 

quality of service offered. In fact, Postcomm, the U.K. regulator for 

Royal Mail, does adjust the price cap to reflect service degradation. 

Developing an effective system for performance measurement is 

as important as the standards. What is measured is attended to. 

Credible public data on service performance provides the necessary 

information for Postal Service managers to prevent and eliminate 

service problems. This is a more effective incentive for change than 

fines or penalties. 

To accomplish these purposes, however, data on actual performance must be detailed, geographically disaggregated, accurate, reliable, and current. The Postal Service should provide web-based access to performance data at a high level of granularity. Allowing 

mailers to access raw data is much less costly than requiring the 

Postal Service to develop and distribute detailed measurement data 

reports. More importantly, it facilitates communication and discussion, which leads to improved performance. 

Now I will talk a little bit about the special concerns of the remittance industry. Detailed performance data is especially important for businesses that receive remittance mail. Remittance mail 

contains checks, either big or small. Notwithstanding electronic bill 

payment, remittance mail totaled over nine billion pieces of mail in 

fiscal year 2006 for the Postal Service and it represents over 20 

25

1The prepared statement of Mr. Conway appears in the Appendix on page 103. 

percent of total First-Class single-piece mail volume. On an average day, it accounts for $20 billion of commerce in transit. 

Bill payers often believe the payment processor is responsible for 

any delays in payment posting that cause late fees. Regardless of 

whether the payment processor caused the delay or not, such delay 

requires us to accommodate the bill payers and make customer satisfaction adjustments to their accounts. 

The remittance industry needs a reporting system that provides 

transparency about the extent of lateness. We recommend a system 

that not only discloses the average days to deliver, but also shows 

the cumulative percentage of delivery by post-entry day. 

Next, I would alert you to a promising related development. On 

February 7, 2007, Bank of America and the Postal Service jointly 

requested approval from the Postal Regulatory Commission for a 

proposed Negotiated Service Agreement. This is precedent setting. 

Among other things, it will commit Bank of America to using Intelligent Mail bar codes on all 3.3 billion pieces of letter mail. Intelligent Mail bar codes provides additional security over older generation PostNet bar codes. It improves operational efficiencies for 

the Postal Service, and Bank of America, and improves customer 

service. We look forward to jump starting the large-scale use of Intelligent Mail bar codes. 

Senator CARPER. Alright. As usual, you are right on the money. 

Thank you very much. 

Mr. Conway, you are recognized. Again, your entire statement 

will be made part of the record. 

TESTIMONY OF ANTHONY W. CONWAY,1 EXECUTIVE 

DIRECTOR, ALLIANCE OF NONPROFIT MAILERS 

Mr. CONWAY. Thank you, Mr. Chairman. Before I begin, I would 

like to acknowledge three members of the Board of Directors for 

the Alliance who are here with me today, Steve Johnsen, Laura 

Grafeld, and Steve Smith. 

Senator CARPER. Steve Johnson is also the Administrator for the 

Environmental Protection Agency. I am not sure how he balances 

all of his obligations, but that is impressive. 

Mr. CONWAY. He is quite busy. 

Senator CARPER. He must be. You must have cloned him, too. 

[Laughter.] 

You are recognized at this time. Thank you. 

Mr. CONWAY. Thank you, sir. Thank you for inviting me here 

today. The Alliance is a coalition of nonprofit organizations that is 

dedicated to the preservation of affordable postage rates and dependable mail service. Established in 1980, the Alliance is comprised of over 300 nonprofit organizations and commercial service 

providers that have an interest in nonprofit mailing issues. Our 

members include many of the Nation’s best known charitable, religious, educational, scientific, and other nonprofit organizations. 

Consistent, predictable, and measurable delivery of mail is critical to the mission of nonprofit organizations. Like most businesses 

that use Standard Mail to solicit actions from the public, nonprofit 

mailers have learned that the response rate to a mail campaign deVerDate 0ct 09 2002 09:30 May 01, 2008 Jkt 037367 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 P:\DOCS\37367.TXT SAFFAIRS PsN: PAT
26

pends on delivery within a predictable window of time. This is particularly true for campaigns that are coordinated with follow-up 

campaigns or seasonal events. The same is true of nonprofit publications. The timeliness and predictability of mail delivery not only 

affects the timeliness of our members’ publications for the readers, 

but is also critical to the effectiveness of advertisers’ campaigns. 

The Alliance recently surveyed our members about service issues 

and received reports of unevenness in service. Here are some of the 

comments from some of our members in the nonprofit community. 

We offer them not in a spirit of criticism, but to illustrate the importance of reliable and predictable service to mailers. 

Boston University reports that letter-shaped nonprofit Standard 

Mail can take 5 to 20 days for delivery. 

Consumers Union reports they occasionally must notify Postal officials about a mail problem. Consumers Union generally finds the 

Postal staff to be responsive and attentive, but resolutions or explanations are often elusive. 

Easter Seals, headquartered in Chicago, Illinois, reports that 

service problems in Chicago result in significant delivery delays for 

their February and March mailings of the organization’s signature 

Easter Seals. With the delivery delays, response rates and revenues were down almost 30 percent this year. 

The Elks Lodge Number 46, Milwaukee, Wisconsin—the Lodge 

mails about 500 copies of its monthly newsletter. The Lodge formerly sent the newsletter by nonprofit Standard Mail, but as delivery performances deteriorated in recent years, the Lodge was 

forced to switch to First-Class Mail in order to receive acceptable 

service performance. 

Marian Helpers Center, Stockbridge, Massachusetts, reports that 

despite the time sensitivity of its direct mail campaigns, the organization cannot project an in-home delivery date. The seed pieces 

from a given mailing can arrive up to 2 weeks apart, even to residences in the same town. 

The Marist Brothers, Chicago, Illinois—the organization reports 

that it experienced delivery times of more than 6 weeks for standard nonprofit mail. In other instances, delivery can take only 6 

days. 

Pepperdine University of Malibu, California, reports that delivery times for mailings of nonprofit Standard Mail to addresses in 

the L.A. area have ranged from 1 day to a full month. The unpredictability of nonprofit Standard Mail delivery times has caused 

many departments to use First-Class Mail more often. 

Word and Way is a biweekly newspaper published by the Missouri Baptist Convention, entered in Columbia, Missouri, on Tuesday and Wednesday in order to achieve delivery by Thursday. Subscribers often report, however, they don’t receive the paper until 

the following week. With individual Baptist churches printing specific information about upcoming weekend events on the back page 

of Word and Way, delayed delivery results in subscribers missing 

events. 

These illustrations of service problems at multiple locations 

throughout the United States underscore the importance of establishing a more current and granular measure of actual service performance than is now available to mailers. Data should be broken 

27

1The prepared statement of Mr. McLean appears in the Appendix on page 110. 

down by three-digit ZIP code pairs or at least the ones carrying 

sizeable amounts of volume. Frequent reporting of service performance data by geographic region will not only help nonprofits plan 

their mailings, but will also allow them to work with the Postal 

Service to resolve service performance issues. 

Thanks again for inviting me here today and I will be pleased 

to answer any of your questions. 

Senator CARPER. Thank you for sharing those vignettes with us 

today, Mr. Conway. 

Mr. CONWAY. Thanks. 

Senator CARPER. Mr. McLean, you are recognized. Welcome. 

Thank you for joining us. 

TESTIMONY OF ROBERT E. McLEAN,1 EXECUTIVE DIRECTOR, 

MAILERS COUNCIL 

Mr. MCLEAN. Good morning, Mr. Chairman. The Mailers Council 

is the largest group of mailers and mailing associations in the Nation. We represent for-profit and nonprofit mailers, large and 

small, that use the Postal Service to deliver correspondence, publications, parcels, greeting cards, advertising, and payments. Collectively, the Council accounts for approximately 70 percent of the Nation’s mail volume. 

The Mailers Council believes that the Postal Service can be operated more efficiently, supports efforts aimed at containing Postal 

costs, and has the ultimate objective of lower Postal rates without 

compromising service. We welcome this opportunity to testify on 

the creation of delivery service standards and performance measurement systems. These were issues of singular importance to 

mailers who lobbied for their inclusion in the Postal Accountability 

and Enhancement Act, the Postal reform bill signed into law last 

December with a lot of help from you, Mr. Chairman. Whatever differences mailers may have had on the other sections of this bill, 

our members were and are unified in their support for standards 

and a meaningful performance measurement system. 

There are several reasons why we are so interested in new delivery standards. For many mail classes, the Postal Service has delivery guidelines, not standards, and its measurement systems fail to 

measure the types of mail that comprises most of the volume it delivers. 

Although Title 39 directs the Postal Service to operate like a 

business, in this area, the Postal Service is doing quite the opposite. Private sector companies would not conceive of functioning 

without standards for one fundamental reason. Setting standards 

and measuring the organization’s success in achieving them makes 

the organization better. Only by measuring performance can an organization identify where problems exist and then correct them 

and reward managers for their improvements. 

We believe that creating new delivery service standards and performance measurement systems can be done in a way that will satisfy mailers for four reasons. 

28

First, because of the improvements in technology found at every 

mail processing facility, much of the data needed to determine delivery performance already exists. 

Second, data collection for delivery measurement and classes 

that affect the largest mailers can be developed without large new 

expenses. 

Third, any additional costs would be an insignificant portion of 

the Postal budget. 

And fourth, mailers will dedicate their time to working with the 

Postal Service to design these processes because they will help 

management improve its efficiency and hold down postage rates. 

As for the features we expect to see in new delivery standards, 

they must be realistic and reliable. The Postal Service must avoid 

lowering existing service standards. We also need new and more 

complete reporting of delivery performance. Mailers are interested 

in the speed and consistency of delivery, so we need a system that 

will tell us if the Postal Service is achieving both goals. New delivery performance reports must be timely, and as my two colleagues 

have already mentioned, detailed by geographic location. 

The Mailers Council opposes the concept of fining the Postal 

Service should it fail to meet delivery standards. Because the Postal Service receives 100 percent of its revenue from mailers, the imposition of a fine would actually be a fine on mailers. 

The Postal Service’s Board of Governors must encourage creation 

of new executive compensation systems that reflect management’s 

ability to meet these standards. These systems must offer greater 

compensation where consistent, on-time delivery is met. 

You also asked us to comment on closing and consolidating Postal facilities. In its efforts to improve delivery performance and in 

response to ongoing changes in mail volume and compensation, the 

Postal Service will need to consider consolidating some facilities. 

We will support the Postal Service in realigning its mail processing 

and delivery network. We recognize that closing a Postal facility is 

difficult because it affects the lives of many individuals. However, 

right-sizing the Postal network is an essential step to keeping 

down the cost of postage. Therefore, we hope Members of Congress, 

including Members of this Subcommittee, will support such decisions that are essential to improving Postal efficiency. 

Where consolidations have been handled successfully, Postal 

managers communicated with mailers, employees, and the public 

served early and often. They also allowed sufficient time to plan related delivery and transportation changes. Where such consolidations were handled poorly, Postal managers moved too quickly and 

failed to sufficiently discuss the implications with its customers 

and employees. 

The Mailers Council members have spoken with senior Postal officials, including Postmaster General Jack Potter, about how network realignment will be handled in the future. As a result, we are 

confident that mailers will be brought into the process earlier and 

that field managers will receive the timing resources needed to 

manage such difficult yet necessary changes, and it is our hope 

that we will be meeting with Mr. Potter between now and December on this issue. 

29

1The prepared statement of Mr. West appears in the Appendix on page 114. 

Mr. Chairman, thank you again for this opportunity to present 

our views on these important issues. I will gladly answer any questions you may have. 

Senator CARPER. Mr. McLean, thank you very much. 

With that, I am going to turn to Mr. West and ask him for his 

statement at this time. Thank you. 

TESTIMONY OF JAMES WEST,1 DIRECTOR OF POSTAL AND 

LEGISLATIVE AFFAIRS, WILLIAMS–SONOMA, INC. 

Mr. WEST. Thank you, Mr. Chairman, and thank you for the opportunity to present testimony on the implementation of the new 

regulations as required by the Postal Accountability and Enhancement Act. We highly commend the Subcommittee on this continuing attention and interest in this legislation and the Postal 

Service in general. In addition to this hearing, I have submitted 

written testimony that I request be entered into the official record. 

My company, Williams–Sonoma, is a nationwide retailer of home 

furnishings and was founded in 1956. When we first started mailing catalogs 35 years ago, we were doing about $4 million in annual sales and had just one store in San Francisco. Since then, we 

have grown to annual sales of approximately $4 billion and become 

an internationally-known brand with 585 stores in the United 

States and Canada and employing approximately 45,000 associates. 

We have achieved this growth in large part by using catalogs as 

our exclusive advertising vehicle, and our strategic partnership 

with the Postal Service is an essential part of the execution of our 

marketing strategy. This year, we will mail approximately 390 million catalogs, making us one of the largest catalog mailers in the 

United States. Our annual postage expense is approximately $140 

million and the Postal Service is our largest single vendor. 

Our growth and continued success depends largely on the continued ability of the Postal Service to provide effective and cost-efficient mail delivery. Essential to making this happen, we believe 

that the Postal Service must focus on three key areas: Customer 

service, management of its operating infrastructure, and service 

standards and measurement. 

First, the Postal Service must become a customer-centric organization by being responsive to its customers’ changing needs. Our 

own response to our customers’ needs, as well as maintaining the 

highest level of customer service, has been the key reason for the 

success of Williams–Sonoma. We listen and make every effort to 

understand and anticipate what our customers will need next. The 

Postal Service now has the tools to do the same and must begin 

to put its customers’ changing needs ahead of its own. 

Second, the requirements that are placed on the Postal Service 

by both commercial and private mailers are changing faster than 

ever before. As such, the Postal Service must be allowed greater 

flexibility to change and modify its own operating network and 

services. Without the ability to manage its infrastructure free of 

the influence of outside bodies, it cannot be expected to fully control the costs which have a direct impact on its ability to continue 

to offer efficient and cost-effective services and products. 

30

Third, in order for any business to know how well it is doing, it 

must have effective measurements by which to judge its performance, and we believe that measurement of performance provides a 

direction for improvement. The service standards that the Postal 

Service are now required to put in place must be fair, accurate, and 

achievable. The measurement of performance against these standards must be timely and actionable to the extent that it can consistently maintain and improve the service performance that is realized by its customers. The performance evaluation of this process 

should not be focused on penalty, but rather be designed to encourage and reward improvement. 

The Postal Service has a long and admirable history. It has 

grown to become the largest postal service in the world. Both private and commercial mailers have contributed and benefited from 

this growth. But as its customers’ needs are changing, so must the 

culture and the operating focus of the Postal Service. The greatest 

promise of PAEA is it encourages the Postal Service to evolve into 

a truly customer-oriented organization. It raises the standards and 

provides the tools to meet this challenge. We hope that the Postal 

Service fully realizes the opportunity it is presented. 

Thank you, Mr. Chairman. I appreciate the opportunity to be 

here and I will look forward to any questions. 

Senator CARPER. Mr. West, thank you, and my special thanks to 

each of the witnesses for coming in within their 5-minute time line. 

Ms. Berenblatt, you mentioned in your testimony that the Bank 

of America is currently working with the Postal Service on something that we call a Negotiated Service Agreement, and what I 

would ask you to do is just take a minute, if you will, and discuss 

how an agreement like the one you all negotiated can benefit your 

company, your bank, and others. 

Ms. BERENBLATT. The negotiated deal that we have is the first 

proposed for the entire basis of the deal to be ‘‘cost-based,’’ as opposed to previous negotiated service agreements that were entirely 

based on volume and then some operational requirements. This is 

very unique partly because of the ‘‘cost-based’’ approach and then 

partly because of the Intelligent Mail roll-out. So in addition to the 

Intelligent Mail roll-out, we will be using basically every tool the 

Postal Service has to improve its network in the future. There are 

several other operational requirements. 

This will benefit the Postal Service, Bank of America, and our 

customers because we will now have visibility as to the status of 

the mail piece in the mail stream at all times. As General Potter 

has acknowledged, we expect to see some things that need to be attended to and we intend to be good partners in making improvements with the Postal Service. 

For the balance of the community, it offers the opportunity and 

the possibility that in the future the Postal Service will operate 

similar to private businesses in crafting appropriate proposals for 

each individual customer and the Postal Service, without harming 

the balance of the community. Our learnings, the test bed from this 

Intelligent Mail experiment, will benefit all of the other mailers 

and the users of the system. By us going first and understanding 

where the problems are and how we can resolve them will clear the 

path for the balance of the system. 

31

Senator CARPER. You said by going First-Class, is that what you 

said? 

Ms. BERENBLATT. It is not only helpful by going First-Class, but 

also by having 3.3 billion pieces of mail and enabling an ongoing 

dialogue between the two very large organizations on very complex 

aspects of those various mailings. So we will be testing their systems not only through the Intelligent Mail piece, but also in terms 

of the dialogue. 

Senator CARPER. Will any of those mailings emanate from Wilmington, Delaware? 

Ms. BERENBLATT. Yes. A significant amount of volume will be 

emanating from Delaware. We have both production facilities for 

First-Class Mail, and our acquisition mail personnel are headquartered in Wilmington. They also use outsource providers 

throughout the United States. 

Senator CARPER. Every State has a slogan. In Delaware, our 

State slogan for the last several years, at least, has been ‘‘It’s Good 

Being First,’’ and in one more way, it looks like we may be the 

first. We will see. There are some things you don’t want to be first 

in. 

Ms. BERENBLATT. This will be a good one. 

Senator CARPER. But do you think there is a need to do something to make these negotiated agreements a little easier to reach? 

Ms. BERENBLATT. Most certainly. The process involved with the 

previous negotiated service agreements were lengthy and costly, 

and there was a significant amount of uncertainty in the process. 

Our experience has been perhaps less lengthy than others, but still 

the same amount of uncertainty and a significant amount of cost. 

We are hoping that under the new law, these deals would be able 

to be made between the customer and the Postal Service without 

any interference from parties that are not stakeholders in that 

deal. 

Senator CARPER. Alright. Thank you. 

Several of you said a fair amount in your testimony about what 

you would like for the Postal Service to do with the service standards that they are developing. What is it that you would like to see 

them not do? 

Mr. WEST. Mr. Chairman, if I may, I want to be sure that they 

do not establish standards that are so lenient that they can consistently exceed the delivery goal. Early delivery has as much negative 

impact on my company’s operations as does late delivery. We need 

to have accurate and fair, but very accurate standards that give us 

accurate guidance in order to enter our mail into the Postal stream 

to be delivered to our customers as close as possible to the day that 

we need them to receive it. 

Senator CARPER. Alright. Thank you. 

Mr. MCLEAN. We also share your beliefs on that, but we also 

stress that we do not want to see the Postal Service use this as an 

opportunity to diminish existing service standards. We also don’t 

want to see broad national averages that would fail to reveal problems in delivery that are very specific to an individual, Postal area 

or Postal district. 

One of the problems that we have today is isolating service difficulties to specific Postal facilities. Our reports to the Postal ServVerDate 0ct 09 2002 09:30 May 01, 2008 Jkt 037367 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 P:\DOCS\37367.TXT SAFFAIRS PsN: PAT
32

ice are sometimes treated as anecdotal, the experience of an individual mailer. The reports that would come from new delivery 

standards, we hope would help identify where there are broad systemic delivery problems that cut across every class of mail coming 

from a particular geographic area. 

Senator CARPER. Mr. Conway, same question, if you would. 

Mr. CONWAY. Yes, sir. Our perspective is that the standards 

themselves are less important than the measurement systems. 

Senator CARPER. Say that again. The standards themselves are 

less important than——

Mr. CONWAY. The standards themselves are less important than 

the establishment of measurement systems. 

Senator CARPER. OK. 

Mr. CONWAY. The measurement systems will give the picture, 

hopefully, of what reality is and that will allow our members to 

plan around that reality, and that will also help, I think, the focus 

to improve the service within that particular class of mail. 

In terms of what we don’t want to happen, or perhaps what we 

don’t want the Postal Service to do, is to hold off establishing measurement systems until the Intelligent Mail bar code system is fully 

operational throughout all classes of mail. 

Senator CARPER. Alright. Thank you. 

Ms. Berenblatt, did you want to comment on this, as well? Again, 

the question was, what is it you would like to see the Postal Service not do in this regard. 

Ms. BERENBLATT. Frist, I wouldn’t want them to sacrifice service 

for cost, as we have heard discussed earlier. 

And second, I would like them to not gear themselves to actually 

meet the standards or meet the law but work to exceed and improve at all times. 

Senator CARPER. Alright. Thank you. And a related follow-up to 

this is what mistakes do you think are being made—and some of 

you actually spoke to this a little bit, but I will ask it nonetheless—

what mistakes do you think are being made or could be made that 

would make the service standards less effective or fail at making 

Postal products more relevant and valuable. Some of you have spoken to this already, but does anybody want to take a shot at that? 

Mr. Conway. 

Mr. CONWAY. Yes, sir. I did mention some mistakes that have occurred amongst our members, and again, I think it is owing to a 

lot of factors, not the least of which is, as General Potter said earlier, First-Class Mail and the Preferred Mail products in the Postal 

system are the ones that have been focused on for years. The advent of Standard Mail, as Mr. Potter said, occurred in the early 

1970s as a filler product. So historically, there has not been the 

focus on that type of mail and other types of mail that are called 

non-preferred mail in the Postal system. 

So I think it is a rebalancing of focus. Standard Mail now represents the largest mail volume percentage in the Postal system. 

It is the biggest growth product in the Postal system. I think it is 

something that deserves greater focus, as well as other products, 

too. 

Senator CARPER. Alright. Thank you. 

33

What problem does the fact that the Postal Service does not have 

a performance measurement system in place for most of its products cause for your businesses or for your members’ operations? 

And also, how can these problems best be addressed? Mr. McLean. 

Mr. MCLEAN. Well, as Mr. West said, knowing the timeliness of 

delivery is as important as the speed of delivery in some situations. 

Being too soon is oftentimes, as he said, as difficult as being too 

late. 

Senator CARPER. I think the same about trains departing——

Mr. MCLEAN. Exactly. 

Senator CARPER [continuing]. On their schedule. If I get there for 

a 7:15 train and they left a minute early, it doesn’t do me any good. 

Mr. MCLEAN. So I think that one of the things that we are hoping for is to have a better understanding so that we can plan our 

mailings better. We can work cooperatively with the Postal Service 

if we have a genuine and accurate understanding of the delivery 

standards that are involved. If we know that it is going to take 3 

days, we will plan accordingly. But without the consistency of delivery that we are expecting standards to provide, oftentimes, our 

mail campaigns are unsuccessful, or you have periodicals that are 

typically delivered on a Tuesday showing up on a Thursday, which 

will generate hundreds of phone calls to a magazine from customers who want to know why their magazine is not arriving consistently and who shortly thereafter will wind up not subscribing 

to that publication. 

So retaining customers is essential to having this kind of information so that we can plan accordingly to ensure that mail is delivered when customers not only want the mail, but expect the mail. 

Mr. WEST. Mr. Chairman——

Senator CARPER. Mr. West. 

Mr. WEST [continuing]. I would like to add that what we would 

really like to see is, and I mentioned timely reporting in my testimony. What I meant is information that we can react to in time 

to affect the mailing, and this goes to the granularity of the performance measurement. If we know where the Postal system is experiencing a backup or issues with delivery, we can react if we 

have enough time to do so. If we need an additional day in the 

Postal system, we can plan for that if we know in a timely manner. 

Currently, that is, for the most part, unavailable. If we see issues 

in the Southeast, for example, we know the issue is there, but the 

post office comes back to us saying, well, exactly where is the 

issue? We will go out and try to see what we can do about it. But 

that does not allow us time to react in a timely manner and satisfy 

our customers’ expectations. 

Senator CARPER. Alright. Any thoughts, Mr. Conway? 

Mr. CONWAY. Yes, sir. Well, predictability and a good measurement system are key in the nonprofit mailing stream, both for 

Standard Mail, nonprofit Standard Mail, as well as periodicals. 

Whether it’s as I mentioned, Word and Way, church bulletins that 

are obviously related to weekend events, or fundraising campaigns 

by nonprofit organizations, whether they be a small local nonprofit 

organization or a big nationwide organization, a measurement system will give those mailers an understanding of what to expect and 

what the predictability is so they can plan around that. Now, they 

34

don’t know what to expect. It is a wide spectrum of unpredictability. By having a system and having expectations and knowing 

what the reality is, you can plan around that. So it is going to be 

extremely helpful to have this system in place. 

Senator CARPER. Ms. Berenblatt. 

Mr. BLAIR. The absence of a system has often previously been referred to as the black box, where you give the Postal Service a 

piece of mail and you just hope it comes out and gets delivered ultimately. 

In the case of Bank of America, as in all of the other participants 

here today, consistency and reliability is key for us to be able to 

maintain a dialogue with our customers and to meet their expectations and exceed their expectations where it is possible to do so. 

The Postal Service can’t actually properly manage its own system 

in the absence of a measurement system, and most importantly, 

the Postal Service and its customers, such as Bank of America, 

can’t engage in dialogue for improvement without a system. So we 

very much look forward to doing that with the Postal Service in developing our partnership for the benefit of our mutual customers. 

Senator CARPER. Well said, a good note on which, I think, to 

close. 

I am reminded of something that Vince Lombardi, I believe it 

was Vince Lombardi used to say, legendary football coach for the 

Green Bay Packers. He used to say, unless you are keeping score, 

you are just practicing. So what we need to do is not just practice, 

but to keep score. And I have always found in my own life that the 

organizations I have been a part of, the things that we measure are 

the things that we do best, and that is probably the case in delivering mail. 

We are about to start our vote on the floor and I am going to ask 

each of our witnesses to take maybe no more than 60 seconds for 

a closing thought that you might have to share with me, kind of 

reflecting back on this panel’s presentations and some of the earlier 

comments from our first panel. But just take maybe a minute, no 

more than a minute apiece, if you have any closing thoughts. If you 

don’t have anything further to add, that is quite alright, as well. 

Mr. West, I will let you have the first shot, if you would like. 

Mr. WEST. Thank you, Mr. Chairman. I would like to make a 

closing comment sort of in line with what Ms. Berenblatt said. The 

NSA process, which we are also examining right now, is a long and 

kind of arduous, expensive, and unpredictable process. Using that 

as an example, I would say that the post office has got to evolve 

into a much more customer-centric organization, and again to refer 

to the NSA, it is kind of backwards to the way my business and 

the private sector is used to doing business. The vendor comes to 

us with a proposal as opposed to us going to them. They are going 

to have to learn to start reaching out to their customers and be 

proactive in selling their—in looking to their needs and designing 

a program that is going to meet their requirements. 

Senator CARPER. Thank you. Mr. McLean, any closing comment? 

Mr. MCLEAN. Thank you, Mr. Chairman. There is a comment 

concerning a topic that both Postmaster General Potter and Chairman Blair both addressed, and that is the new rate setting process. 

Currently, the Postal Service’s Board of Governors is contemplating 

35

whether to implement the next increase in postage rates under 

what we now affectionately call the old rules, the old lengthy, litigious rules, or set rates——

Senator CARPER. Not much affection. 

Mr. MCLEAN. Yes, sir—set rates under the new system. It is obviously our preference that the next increase would be set under 

this new system. Mr. Blair has indicated that those rules will be 

published shortly and in place by October, thereby giving the Postal Service, we believe, adequate impetus to avoid filing a rate case 

and instead have a rate increase. 

We also hope that the Postal Service will, in its new process, 

allow mailers a published implementation period of at least 90 

days between the time that a rate increase is announced and implemented so that mailers have as much time as they need, and as 

Postal managers need, to implement new rates. 

Senator CARPER. Good. Thank you. Mr. Conway. 

Mr. CONWAY. Yes, sir. Nonprofits in this country are highly dependent on the U.S. Mail, have been for years and, I think, will be 

for a long time into the future. It is the lifeblood of the nonprofit 

community, both in terms of fundraising, reaching out to its supporters, its members, and as a communication tool. The advent of 

the Internet is impacting mail use in the financial services industry 

and it is changing a lot of what is done in this country, but the 

mail is still the go-to medium in this country for nonprofits in 

terms of communication and fundraising. 

So with that said, I want to thank you and your colleagues for 

passing the Postal reform legislation. We think it is going to go a 

long way towards helping solve many of the problems the Postal 

Service now faces and we look forward to continuing to work with 

you and your colleagues to making sure that is the case. 

Senator CARPER. Good. Thank you, sir. Ms. Berenblatt, you get 

the last word in and then I will give the benediction. 

Ms. BERENBLATT. OK. Well, rather than summarize, as my colleagues have done so well, I will add an additional idea——

Senator CARPER. Alright. Sure. 

Ms. BERENBLATT [continuing]. And that is to point out to you 

that Accenture has done a study on high-performance in the postal 

industry, specifically looking at the E.U. countries as there has 

been liberalization of the posts there, and there have been three 

identified areas that need to be addressed in order to have a highperforming post. The first is a market focus and a strategy. The 

second is technical capabilities and improvement. And the third is 

a cultural change in the organization. I would point out that we 

need to support the Postal Service in all of these three areas so 

that it can grow and be successful. 

Senator CARPER. Thank you. Well, folks, it is not every day that 

things work out this well, that you conclude your testimony and responses to our questions literally at the time that the bell sounds 

for us to go to the floor and start casting our votes. 

This has been a good hearing and I very much appreciate your 

being here, the time and the thought that has gone into the preparation of your testimony, and for the way you have presented it 

and responded to our questions. 

36

One of the things that Senator Collins and I indicated when we 

worked with our colleagues and a lot of you in passing Postal reform is that once we enacted the legislation, we weren’t going to 

just ignore it. We are going to come back and perform our appropriate oversight role to see how we are doing, see what we have 

done well, and to see what could be done better to make sure that 

the Postal Service is doing its best to comply, the Commission led 

by Chairman Blair is doing its role, and to find out how we can 

help, what else the Congress needs to do to be of assistance. 

So this is, again, our third hearing for the year and we will hold 

more. I don’t know that we will hold more in this calendar year, 

but we will certainly be following up. In the meantime, we would 

welcome continuing dialogue with you outside of the hearing forum. 

Let me just close by saying the service that the Postal Service 

provides as it enters this new regulatory system that we have established will go, we hope, a long way toward determining how successful the Postal Service will be in remaining relevant in the 21st 

Century. At least some of the customers that we have heard from 

here today, and offline, as well, have other options now, or they 

will. If not today, they will have them someplace down the road. 

So we need to make sure that the service standards that are set 

by the Postal Service in the coming months are strong and that 

they take into account the views expressed here today and in recent months by the mailing community to make sure that the performance of those standards are attempting to meeting those 

standards, that we measure it well and respond to those measurements. 

We also need to make sure that the Postal Service continues to 

take the steps that it needs in order to modernize its operations, 

and I was very much encouraged by some of what we heard from 

the Postmaster General today. I am excited about this prospect of 

Intelligent Mail bar coding and some other things, as well, some of 

the mechanization that he talked about with respect to more expeditious processing of some of the flats. 

This service standards exercise gives Postal managers, I think, 

the opportunity not necessarily to close a lot of processing centers 

and post offices, but to make sure that the system we now have 

is what it needs to be. 

I think we will keep our hearing record open for the next 2 

weeks. There may be some follow-up questions from my colleagues 

either who were here or who were unable to join us, and I would 

just ask those of you that are here that have been on this panel 

and our first panel just to respond to us as promptly and as fully 

as you can. 

Again, thank you very much for joining us on this occasion and 

for your working with us. 

With that having been said, this hearing is adjourned. Thank 

you. 

[Whereupon, at 11:58 a.m., the Subcommittee was adjourned.] 

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