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THE POSTAL SERVICE: PLANNING FOR THE 21ST

CENTURY

HEARING

BEFORE THE

SUBCOMMITTEE ON FEDERAL WORKFORCE,

POSTAL SERVICE, AND THE DISTRICT

OF COLUMBIA

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JULY 26, 2007

Serial No. 110–199

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

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

TOM LANTOS, California

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

JIM JORDAN, Ohio

PHIL SCHILIRO, Chief of Staff

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

DAVID MARIN, Minority Staff Director

SUBCOMMITTEE ON FEDERAL WORKFORCE, POSTAL SERVICE, AND THE DISTRICT OF

COLUMBIA

DANNY K. DAVIS, Illinois

ELEANOR HOLMES NORTON, District of

Columbia

JOHN P. SARBANES, Maryland

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio, Chairman

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

KENNY MARCHANT, Texas

JOHN M. MCHUGH, NEW YORK

JOHN L. MICA, Florida

DARRELL E. ISSA, California

JIM JORDAN, Ohio

TANIA SHAND, Staff Director

(III)

C O N T E N T S

Page

Hearing held on July 26, 2007 ............................................................................... 1

Statement of:

Siggerud, Katherine A., Director, Physical Infrastructure Issues, U.S.

Government Accountability Office; and Gordon C. Milbourn III, assistant inspector general for audit, Office of the Inspector General, U.S.

Postal Service ................................................................................................ 5

Milbourn, Gordon C., III, .......................................................................... 35

Siggerud, Katherine A. ............................................................................. 5

Waller, John D., director, Rates, Analysis and Planning, Postal Regulatory Commission; and William P. Galligan, senior vice president,

operations, U.S. Postal Service .................................................................... 72

Galligan, William P. .................................................................................. 73

Waller, John D. .......................................................................................... 72

Winn, Michael J., director of postal affairs and mailing operations, R.R.

Donnelley; Robert F. McLean, executive director, Mailers Council; Jerry

Cerasale, senior vice president, government affairs, Direct Marketing

Association, Inc.; and Timothy J. May, general counsel, Parcel Shippers

Association ..................................................................................................... 89

Cerasale, Jerry .......................................................................................... 109

May, Timothy J. ........................................................................................ 120

McLean, Robert F. ..................................................................................... 102

Winn, Michael J. ....................................................................................... 89

Letters, statements, etc., submitted for the record by:

Cerasale, Jerry, senior vice president, government affairs, Direct Marketing Association, Inc., prepared statement of .............................................. 111

Davis, Hon. Danny K., a Representative in Congress from the State

of Illinois, prepared statement of ................................................................ 3

Galligan, William P., senior vice president, operations, U.S. Postal Service, prepared statement of ............................................................................ 76

May, Timothy J., general counsel, Parcel Shippers Association, prepared

statement of ................................................................................................... 123

McLean, Robert F., executive director, Mailers Council, prepared statement of ........................................................................................................... 104

Milbourn, Gordon C., III, assistant inspector general for audit, Office

of the Inspector General, U.S. Postal Service, prepared statement of ..... 37

Siggerud, Katherine A., Director, Physical Infrastructure Issues, U.S.

Government Accountability Office, prepared statement of ....................... 8

Winn, Michael J., director of postal affairs and mailing operations, R.R.

Donnelley, prepared statement of ................................................................ 92

(1)

THE POSTAL SERVICE: PLANNING FOR THE

21ST CENTURY

THURSDAY, JULY 26, 2007

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FEDERAL WORKFORCE, POSTAL

SERVICE, AND THE DISTRICT OF COLUMBIA, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 2 p.m. in room

2154, Rayburn House Office Building, Hon. Danny Davis of Illinois

(chairman of the subcommittee) presiding.

Present: Representatives Davis of Illinois, Norton, Marchant, and

McHugh.

Staff present: Caleb Gilchrest, professional staff member; Lori

Hayman, counsel; Cecelia Morton, clerk; Ashley Buxton, intern; Ed

Puccerella, minority professional staff member; Benjamin Chance,

minority clerk; and Kay Lauren Miller, minority staff assistant and

office manager.

Mr. DAVIS OF ILLINOIS. Welcome, Ranking Member Marchant,

members of the subcommittee, hearing witnesses and all of those

in attendance.

Let me welcome you to the Subcommittee on the Federal Workforce, Postal Service, and the District of Columbia hearing entitled,

‘‘The Postal Service: Planning for the 21st Century.’’ Hearing no objection, the Chair, ranking member and subcommittee members

will each have 5 minutes to make opening statements and all

Members will have 3 days to submit statements for the record.

As I indicated, we are delighted that all of you are here, and I

will begin the hearing.

Ranking Member Marchant, members of the subcommittee and

hearing witnesses, welcome to the subcommittee’s hearing on the

infrastructure and realignment of the U.S. Postal Service. Today’s

hearing will examine the Postal Service’s efforts to update outdated

mail delivery standards and how it intends to realign its infrastructure through consolidating operations and closing annexes.

The Postal Service’s delivery performance standards and results

are central to its mission of providing reliable and efficient postal

service. Standards are essential to setting realistic expectations for

delivery performance and expectations. Timely and reliable reporting of performance results is essential for oversight transparency

and accountability.

Mail delivery standards are important, so the Postal Service and

officials can monitor the progress of mail delivery in cities like Chicago. They are working to improve mail service. The Postal Service

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has informed me that based on an increased focus on mail processing and delivery performance, Chicago performance scores are

showing a positive trend. The Postal Service, recognizing the importance of the timely delivery of mail, has integrated performance

targets and results for some types of mail into its performance

management system.

However, all mail should be subject to mail standards. A decline

in first class mail due to increased competition and shifts in population demographics has resulted in the Postal Service examining

ways to realign its infrastructure. I am interested in hearing how

the Postal Service intends to realign its work force, processing and

distribution infrastructure to address these concerns.

At the request of myself and other Members of Congress, the

Government Accountability Office [GAO], has completed its report

on the Postal Service’s realignment efforts. The report entitled,

‘‘U.S. Postal Service: Mail Processing Realignment Efforts Underway Need Better Integration and Explanation,’’ discusses, among

other things, the need for the Postal Service to establish measurable targets to meet cost savings goals and establish criteria for selecting facilities for consolidation and realignment. The report will

be released today and will contribute greatly to today’s discussion.

I want to thank you all again and look forward to testimony from

our witnesses.

[The prepared statement of Hon. Danny K. Davis follows:]

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Mr. DAVIS OF ILLINOIS. At this time I would like to yield to the

ranking member, Mr. Marchant.

Mr. MARCHANT. Good afternoon, and thank you, Chairman

Davis, for holding the hearing today about the U.S. Postal Service

Infrastructure and Realignment. I understand that with any organization as large as the Postal Service, changes take time and a

great effort from many diverse groups. As we continue our role on

the subcommittee in providing oversight of the Postal Service, I am

reminded it is not a perfect system, but one which is ever-changing

and expanding. We can’t expect a system which moves 213 billion

pieces of mail a year to be perfect or stagnant.

With the release and enactment of postal reform legislation, as

well as the current challenges faced by the Postal Service, today’s

Postal Service faces many more challenges than ever before. But

through such challenges come opportunity.

I look forward to hearing from all of the witnesses today and

learning more about the Postal Service and what it can do to maintain a viable delivery system in the 21st century. Thank you, Mr.

Chairman.

Mr. DAVIS OF ILLINOIS. Thank you, Mr. Marchant.

We will now hear from our witnesses. First I would like to introduce the first panel. Panel one is Ms. Katherine Siggerud, who is

Director of the Physical Infrastructure Issues Team at the Government Accountability Office [GAO]. She has directed GAO’s work on

postal issues for several years, including recent reports on delivery

standards and performance, processing that work realignment, contracting policies, semi-postal stamps and biological threats. We welcome you.

Mr. Gordon Milbourn III was named assistant inspector general

for audit of the U.S. Postal Service Office of Inspector General in

February 2005. He is responsible for all audits in the Postal Service areas of cooperation, financial management, technology and

headquarter operations.

If the witnesses would rise, it is the tradition of this committee

to swear in all witnesses. So if you would raise your right hands.

[Witnesses sworn.]

Mr. DAVIS OF ILLINOIS. The record will show that each one of the

witnesses answered in the affirmative. You may be seated.

Thank you very much, and we will begin with Ms. Siggerud.

STATEMENTS OF KATHERINE A. SIGGERUD, DIRECTOR, PHYSICAL INFRASTRUCTURE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; AND GORDON C. MILBOURN III, ASSISTANT INSPECTOR GENERAL FOR AUDIT, OFFICE OF THE

INSPECTOR GENERAL, U.S. POSTAL SERVICE

STATEMENT OF KATHERINE A. SIGGERUD

Ms. SIGGERUD. Chairman Davis, Ranking Member Marchant,

Mr. McHugh, thank you for your invitation to appear today at this

hearing on the Postal Service and its planning for the 21st century.

My remarks reflect reports we issued in 2005, 2006 and at this

hearing today. On that basis, my statement will focus on first,

major challenges affecting the Service’s mail processing operations

that have prompted the need for network realignment. Second, conVerDate 11-MAY-2000 11:56 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 U:\DOCS\52714.TXT KATIE PsN: KATIE
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cerns we raised in our 2005 report and today’s report about the

Service’s efforts to realign its mail processing network and implement its area mail processing consolidations. And finally, concerns

we raised in our 2006 report about the Service’s progress in implementing delivery performance information.

Mr. Chairman, there is broad agreement on the Service’s need to

realign its processing networks. In addition to many of today’s witnesses, the President’s Commission and the Service’s own transformation plan have called for action to assure that this network

meets current and future processing needs, reduces costs, improves

efficiency and eliminates redundancy.

The Postal Accountability and Enhancement Act reinforced the

urgency of this realignment effort. We found that several trends

have created excess capacity in the network and productivity variations across plants. First, the changing marketplace and shifts in

how customers use the mail, in particular, declining first class mail

volume and increasing standard mail volume.

Second, the changing role of mailers, as driven by work-sharing

discounts, which involve mailers preparing, sorting or transporting

mail to qualify for reduced postage rates. These activities allow

mail to bypass mail processing and transportation operations.

Third, evolutionary changes have resulted in a network of plants

that are markedly different from one another, making it difficult to

standardize operations. And finally, shifts in national demographics. Service facilities may not be optimally located due to

changing demographics and transportation modes.

Turning now to our concerns about the Service’s realignment efforts, our 2005 report concluded that the Service did not have answers to important questions about how it intended to realign its

mail processing networks. This conclusion still holds true today.

We find that the Service’s strategy for realigning its processing network first lacked clarity, criteria and processes for eliminating excess capacity in its network. Second, it largely excluded stakeholder

input from its decisionmaking processes. Third, it was not sufficiently transparent and accountable; and fourth, lacked performance measures.

Mr. Chairman, I want to emphasize that we support the Service’s

efforts to realign its processing networks, but we do have some concerns. The Service has started to implement several network realignment initiatives. Overall, progress has been somewhat slow.

These initiatives include area mail processing or AMP consolidations, development of a network of regional distribution centers,

and creation of surface transportation centers.

The realignment efforts are at different stages of implementation. For example, in February 2006, the Service said that it was

planning to develop a network of between 28 and 100 regional distribution centers that would serve as the foundation for its processing network. However, the Service is apparently reconsidering this

approach and Tuesday issued a request for information regarding

hiring private suppliers to handle some or all business mail. At this

point, it is not clear how these various initiatives are integrated or

whether they are meeting the realignment goals.

AMP consolidations focus on moving processing activities from

one plant to another to achieve efficiencies. Our report raises sevVerDate 11-MAY-2000 11:56 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 U:\DOCS\52714.TXT KATIE PsN: KATIE
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eral issues related to these consolidations. Concerns raised by us

and others include the Service’s unclear criteria for selecting facilities and deciding on AMP consolidations, use of inconsistent data

calculations, limited measures of the effect of changes on delivery

performance and lack of clarity regarding how stakeholder and

public input is solicited and used.

It is important to note that the Service is revising its guidelines

for AMP consolidations to address these issues. After reviewing a

draft of these changes, we made two recommendations. First, that

the Service ensure that the facilities plan required by the Postal

Accountability and Enhancement Act explains the integration of realignment initiatives and establishes measurable targets, and second, that the Service continue to improve the quality of public notices and engagement and increase transparency in decisionmaking.

We reported last year on the Service’s limited progress in measuring and reporting on its delivery performance. The report detailed the limited scope of the Service’s delivery measures, which

covered less than one-fifth of mail volume. We also covered the

need to update delivery standards to reflect current operations,

particularly for standard mail and periodicals.

We reported on impediments to progress and recommended the

Service provide clear management commitment and more effective

collaboration with mailers to implement delivery measurement and

reporting for all major types of mail.

In conclusion, the Postal reform law officers the Service opportunities to respond to our recommendations from all these reports

and requires the Service to submit a plan to Congress describing

the strategy, criteria and processes for realigning its network.

Also, the Service must develop modern service standards and annually report to the PRC on the speed and reliability of delivery of

most types of mail.

Mr. Chairman, this concludes my statement. I am happy to answer any questions the subcommittee may have.

[The prepared statement of Ms. Siggerud follows:]

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Mr. DAVIS OF ILLINOIS. Thank you, Ms. Siggerud. Now we will

turn to Mr. Milbourn.

STATEMENT OF GORDON C. MILBOURN III

Mr. MILBOURN. Mr. Chairman and members of the subcommittee, I appreciate the opportunity to discuss the Postal Service’s network and its recent realignment efforts. I will also address our

work in this important area and some of the challenges remaining.

We describe the Postal Service’s network in detail in our testimony submitted for the record, and an overview diagram is attached. As you know, the Postal Service has one of the world’s largest distribution networks, built on the premise that first class mail

volume and revenue will continually rise and cover costs.

However, in recent years, single piece first class mail volume has

decreased substantially. In addition, the increasing automation of

formerly manual processes and work-sharing discounts that keep

mail out of parts of the processing stream, have left the Postal

Service network over-sized.

In 2001, GAO placed the Postal Service on its high risk list, and

Congress asked for a plan to address GAO’s concerns. In response,

the Postal Service’s 2002 transformation plan included a redesign

of its logistics networks, called Network Integration and Alignment

[NIA]. Our NIA reviews identified the potential for stakeholder

concerns about the fairness and accuracy of the process and the

need for policies and procedures for independent verification and

validation of the project models.

In September 2004, the Postal Service announced the Evolutionary Network Development [END] initiative, as the next step in optimizing its networks. The Postmaster General indicated the

change to END was made because of the unpredictability of mail

volume and processing. A key feature of implementing END is the

Area Mail Processing [AMP] study, which is used to consolidate

mail processing functions, eliminate excess capacity and increase

efficiency.

Our END concerns have centered on the need for more effective

resolution of stakeholder issues for both a top-down and bottom-up

approach in using AMPs and for better project management. In reviewing some of the AMPs, we found their conclusions adequately

supported, but we reported concerns, such as data problems and incomplete service impact documentation.

The Postal Service is currently implementing our recommendations to improve the AMP process. Most recently, in October 2006,

Postal Service management announced a reexamination of the assumptions behind the END initiative. This was followed closely by

passage of the Postal Accountability and Enhancement Act, which

requires a realignment plan by June 2008. Planning for large-scale

projects can vary from long-range detailed plans with elaborately

sequenced steps to short-range incremental approaches. Each has

its merits and the Postal Service has chosen the incremental approach, which provides network flexibility as circumstances change,

reduces risks inherent in attempting to make all network changes

at once, allows testing via pilot projects in a more forgiving environment, generates incremental internal capital to cover the cost

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and tends to make the overall picture clearer as local problems are

resolved.

In recent years, this incremental approach has allowed the Postal Service to make progress in optimizing its network. For example,

it has eliminated over 180 million work hours and converted over

30 facilities to a new infrastructure.

This approach has also highlighted many significant challenges

still being faced in realigning the network. For example, not all

postal stakeholders share the same goals, as found in such fundamental issues as providing universal 6-day service, which may

not make economic sense in all locations, and eliminating mail acceptance points, which would streamline the network and save

costs, but often produces mailer opposition.

The mix of volume and types of mail is constantly changing. Relationships with mailers are continuously evolving in regards to

discounts and mail preparation and submission requirements. And

the velocity of the build-down must avoid protracted, anemic staffing of an over-sized network which can lead to operational and

service failures.

The act does not specify a planning model and the Postal Service

believes it is well served by using an order of battle approach that

incorporates flexibility and expects external change to occur

throughout the process. The Postal Service network much reach an

optimal size that still provides enterprise resilience in the event of

major disruptions, natural disasters or acts of terrorism.

Further, robust measurement is needed to monitor cost and service impacts as the plan unfolds. Finally, the plan must be effectively communicated to all stakeholders to prevent surprises and a

negative impact on customer service. The support of Congress and

the Postal Regulatory Commission is critical during this time of

great change in order for the Postal Service to continue providing

universal service at affordable prices.

We will continue to support postal efforts, and we are cognizant

of our responsibility to keep Congress fully and currently informed.

I will be pleased to answer any questions.

[The prepared statement of Mr. Milbourn follows:]

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Mr. DAVIS OF ILLINOIS. Thank you both very much.

I will begin questions. I will begin with you, Mr. Milbourn. You

just indicated that the Postal Service’s network should be resilient

to such things as natural disasters or acts of terrorism. Could you

enhance that for us?

Mr. MILBOURN. Absolutely. There are really two what I would

consider main considerations when we think about enterprise resilience with the Postal Service’s network. One involves what you just

alluded to, localized or regional catastrophes of one kind or another, such as Hurricane Katrina or the anthrax attacks that occurred here in the Washington area a few years back.

But there are also regular, significant events that affect the

whole country. And what I mean by that is what we call the annual Christmas surge that occurs in November and December. This

is one area that requires some degree of resilience in the network.

The other is being able to resume processing and delivery in the

event of a catastrophe such as a Hurricane Katrina that puts some

facilities or post offices temporarily out of operation.

The Postal Service has capacity in its network right now to handle these types of events. The challenge as we see it is that as they

begin to streamline the network, can they continue to build in some

resilience to handle the Christmas surge and to be prepared for catastrophes such as these. We think it is going to be very difficult

to find the right balance between the costs that would be involved

with that and the actual risk of a disruptive event.

Mr. DAVIS OF ILLINOIS. So are you suggesting in terms of planning that the Service might put additional emphasis or more emphasis on planning for these likelihoods?

Mr. MILBOURN. Absolutely. These need to be carefully considered.

The likelihood of the risk, which in the case of the annual Christmas surge is 100 percent. The likelihood of a Katrina is far less

than that, but the impact of a Katrina in a local area is very significant. So there are ways to address those risks. It doesn’t mean

you have to build a network that is constantly large and can handle them. But you need to think about ways of sharing the risk,

tying in with other networks that may be of assistance if something

like that occurs. It just needs to be carefully thought out and

planned for.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Ms. Siggerud, in the GAO report that you released today, GAO

recommended that the Postal Service enhance the planning, accountability and public communications related to its realignment

efforts. How did the Service respond to that recommendation?

Ms. SIGGERUD. We made observations in several different areas.

Let me start with the AMP consolidations themselves. I said in my

short statement that we had some concerns about the data analysis

and criteria used in that process. Because the Postal Service is in

the midst of revising those guidelines in ways that seemed largely

responsive to concerns raised by us, the IG and the PRC as well,

we didn’t make specific recommendations there.

Where we did make recommendations was in the communications side of the House. In particular, we have concerns about the

content of some of the material that goes out to explain what is

being studied and what actions might be taken. We thought those

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could be clarified and simplified in a number of ways. The Postal

Service did agree with that.

We also were concerned about this event called the town hall

meeting and its timing with regard to when it could best bring useful information to bear on the AMP consolidations. The Postal

Service also agreed that there would be some benefit to moving

that town hall meeting earlier in the process.

Finally, the Postal Service did not have, at the time we were

doing our work, any indication in its guidelines how it would actually use this information obtained from the public through the town

hall meeting or other sources. It has also agreed to clarify that.

Then finally with regard to talking about integration and planning, we view the report that is due next June as the Postal Service’s opportunity to respond to and explain what it plans to do in

a number of area having to do with realignment of the network.

Mr. DAVIS OF ILLINOIS. In 2006, GAO reported that the Postal

Service did not measure and report its delivery performance for

most types of mail and that its progress to improve delivery performance information has been slow and inadequate. Has the Postal Service made progress in measuring and reporting delivery performance since that time?

Ms. SIGGERUD. Yes, we have seen some progress, mainly in planning and thinking about how it is that it will accomplish those activities that you just mentioned. Because the Postal Accountability

and Enhancement Act called for development of modern service

standards and for information about that to be reported to the Congress this December, the Postal Service has put together a series

of work groups that are in fact making progress on those issues.

We have been observing those activities, and it looks like there are

a lot of ideas out on the table, and that this report that is coming

out this December is promising in terms of its responsiveness to

the issue on the standards.

With regards to measurement, there’s two activities going on.

The Postal Service will be required to report to the Postal Regulatory Commission on its delivery performance. It will take some

time before the information that is needed will be available on a

large scale basis to deliver on that. So there need to be some decisions made about whether there will be sort of interim measures

used before the concept of intelligent mail provides more widespread and reliable information.

In addition, of course, the Postal Regulatory Commission is setting up its own regulations about what would constitute the best

type of information in terms of delivery performance. There has

been a lot of activity on that front as well, in terms of comments

provided to the Regulatory Commission from mailers and other

stakeholders.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Mr. Marchant.

Mr. MARCHANT. Thank you, Mr. Chairman.

Ms. Siggerud, your report in 2005 and 2007 concluded that the

Postal Service is not sufficiently transparent and accountable on

how it intends to realign its processing network. Transparent and

accountable to who?

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Ms. SIGGERUD. Well, I would say of course to the Congress itself,

which has an interest in this area. To the public and as well to the

mailing industry which relies on the Postal Service for an important part of the economy.

What we are really saying here is that when there is a transformation effort of some kind, which is really what this is, that the

concept of transparency, and we have also said this in other areas,

of course, transparency is really what are we trying to accomplish,

what are our views on how we are going to get there. And then accountability is really then how do we know when we get there, how

are we going to measure our performance. There are a variety of

ways to accomplish this type of effort. The Postal Service is making

progress on those concepts with regard to some of these individual

efforts that I talked about. The plan as a whole, though, is still

somewhat in development and lacking in a few of those areas.

Mr. MARCHANT. Do you think that the fact that the major element that the labor negotiations and the contract with the letter

carriers, do you think it is possible for the Postal Service to make

those final changes and those final plans and make them available

until they finalize those negotiations and know what their work

force costs are going to be, etc?

Ms. SIGGERUD. Well, yes, we think it is. Clearly the waiver issue

and the cost associated with labor is very important in planning.

But I really, a lot of what we are talking about here of course is

also the network itself and the fixed costs associated with that. We

have seen a fair amount of progress in certain areas of this network planning. What we haven’t seen is an integration of what the

vision is and how we are going to get there. I understand that the

Postal Service places a very substantial challenge in this area. But

it has been clear from the transformation plan the Postal Service

put on itself, the President’s Commission and from the direction

from the Reform Act in December that there is a very strong interest in making progress and having some of the transparency and

accountability that we have been talking about.

Mr. MARCHANT. What would you consider to be your most important concern over at the Post Office, in their realignment?

Ms. SIGGERUD. In the realignment area, well, I think what we

would like to see is some clear goals set for this realignment effort

in terms of timeframes, in terms of costs to be achieved, for example. And if a plan could be put together, some vision, perhaps, even

for segments of the realignment that we are talking about, so that

the mailing industry, the public and the Congress have some sense

of what to expect, that would be, in our view, very good progress.

Mr. MARCHANT. Mr. Milbourn, what do you see as the biggest

network realignment challenge?

Mr. MILBOURN. I agree with Ms. Siggerud that the one she just

cited is enormous. I would add to that by saying, I think the ability

of the Postal Service to reduce its costs substantially while still delivering service equal to, if not better than, the service that it currently delivers, is an enormous challenge. And that incorporates

streamlining of the network. But you alluded to the work force and

union negotiations, it kind of goes beyond that. But I think the

streamlining of the network is a huge piece of that, and how they

are able to plan for and accomplish massive streamlining focused

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on costs and still be able to focus on and deliver the service at the

same time is a real challenge.

Mr. MARCHANT. Thank you, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Ms. Norton.

Ms. NORTON. Thank you very much, Mr. Chairman. I appreciate

this testimony.

I am interested in an overarching and I think obvious question,

in light of the fact that the Post Office is here, we in Congress are

quite pleased to look past, and that is whether essentially this

model gives the Postal Service today a mission impossible. First of

all, we are dealing with a model that we enacted, we passed in

1970, and of course, we updated the act most recently, and very recently have updated it.

But I have trouble finding any precedent for the model we are

dealing with. And I am very interested in your ideas on planning.

I would like to know if you can think of any comparable model

that, for example, presents the kinds of issues that have come before us. The Postal Service has been told to meet the same conditions that private mailers meet. We told them to do that in 1970.

Think of what 1970 was. It was pre-technology, no one even envisioned that there would be a faster, cheaper, way to communicate.

If you decide to cut out even one post office some place, it is a

major issue in that community, and Members of Congress will join

the community in saying, you had better not do it. Yet the Postal

Service has had some success in fighting through that. We think

they will perhaps have more success. Nevertheless, as an example,

that is an 18th century model.

Much of the Postal Service still is a model from this original act

passed, setting up the Post Office of the United States of America,

and it came in controversy, came before this committee on

outsourcing, major issue. Because postal workers, for reasons that

range from security reasons to their own employment object to

what looks like creeping outsourcing. Private mailers don’t have

that problem.

Even the Congress will take on the Postal Service on something

that it recognizes that half the time across party lines we don’t

even recognize. While I recall a few years ago when the Postal

Service did what every big private corporation does and got sponsorship of the Olympics, and so it was the Postal Service logo.

Members of Congress, I am telling you, Republicans as well as

Democrats, came forward and said, what in the world are you

doing sponsoring the Olympics? You know, gone from everybody’s

brain was the notion that this is what private corporations do, and

they don’t do it on a whim, they do market surveys.

We talk about major disruptions. Well, you know, private companies who go down the drain, we have had a major disruption of the

worst kind here, everybody has to prepare for that. They have to

prepare for it in a very special way, because nobody will accept we

have had a major disruption if we can’t deliver the mail.

The delivery times, each Member will hold the Postal Service accountable for delivery times within its jurisdiction. It is a major

problem here even in the Nation’s capital and this region. A number of years ago, they had to get their ducks in a row. We talk

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about stakeholder input. There is lots to be said to that. The more

you get of that, of course, the more demands there are going to be

on the Postal Service of the kind that everybody’s grandmama

made, got to have Saturday delivery, got to have what we have always had.

And finally, of course, I mentioned the granddaddy of them all,

whether you will think that the Postal Service is just a complete

and total anachronism based on technological changes and a generation that increasingly doesn’t even use newspapers other normal

contraptions of modern society, but depends on technology.

I am interested in an overriding issue that one, whether there

is any model like this in the world, and whether you think planning will overcome all of these obstacles. If I could name, the closest model I can think of is one that the Congress has completely

rejected, and that is that while we have a railroad system that

harks back to the 19th century, every modern society says if you

want to have a railroad system and you have to have one and you

want to have passengers, you have to massively subsidize it. Well,

the United States says, hey, we are not going to subsidize Amtrak

or anything else, you are on your own. And by the way, keep them

running and modernize the thing. So we just look away from the

obvious issues.

Well, you can do that on Amtrak and you will end up with what

we have today and people get on planes, buses or whatever. On the

Postal Service, the Congress won’t tolerate it. At the same time,

the Congress is saying, you do the same thing UPS does, you need

to do the same thing FedEx does, you do it without one cent from

us.

I for one find all this very intriguing, structurally and intellectually. But I need to hear from experts whether you think this is a

model that can survive the ages.

Ms. SIGGERUD. Ms. Norton, those are a lot of questions. I will answer what I can. I have to say that I think your observations——

Ms. NORTON. It really is one question. I just gave you examples

of what I think Congress just looks past and says, you all do it anyway, don’t tell us, just do it.

Ms. SIGGERUD. I think your summary of the challenge was right

on, that is that the Postal Accountability and Enhancement Act

said the Postal Service, in fact, harkening back to 1970, the Postal

Service should act as a business. This most recent act said that

postage rates need to be held, of course, to the rate of inflation. But

many stakeholders, including the Congress, have taken off the

table a number of cost control options that the Postal Service could

use to respond to that rate cap that you were mentioning.

Ms. NORTON. And you could depend on us not to put them back

on the table. [Laughter.]

Ms. SIGGERUD. I guess I want to focus on the issue of, is there

another model out there like that. Clearly, the Postal Service is the

biggest post in the world, and handles a larger volume than any

other country. But I want to focus my comments on this concept

of the network that we have been talking about and the costs associated with that. The closest model that we have in the United

States, to the challenges of right-sizing that network is really the

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ers who want a variety of different things and indeed, to cut costs.

To the extent that has been a successful approach, and there are

differing views on that.

There are a couple of things that have been key to that. One is

that the BRAC process set out principles, what are we trying to accomplish, what tools do we have. It named people that would be

important for making those decisions and then it laid out a process

for making decisions. Whether that is useful in thinking about the

costs the Postal Service faces may be worth considering.

Ms. NORTON. By the way, that is a very interesting and intriguing thing, given the experience with BRAC, one wonders how far

down the Postal Service would have to get before Congress politically embraced that model. But it is a very interesting and intriguing notion.

Yes, Mr. Milbourn.

Mr. MILBOURN. I have seen a couple of different models, one very

close over a fairly extended period of time and the other just from

some reading and research. But they both offer some lessons

learned, I think. One is the Internal Revenue Service. I spent a fair

amount of my career there, and both started there and then came

back to it after the Reorganization Act of 1998. They had a modernization program and a restructuring program that was on two

different levels.

One was to go from a regionally based structure to a taxpayer

type or a customer type driven structure. That was actually a fairly

easy thing to do. Commissioner Rosati took that bull by the horns

and did a very remarkable job of reorienting the people of the IRS

and the structure and some of the processes.

The very difficult part that they have been struggling with since

I first worked there in the early 1980’s is the issue of modernizing

their computer systems. They have been attempting to modernize

their archaic master file for 20 some years now, and are not dramatically close to finishing yet. And they have had a series of very

extensive plans. But as the plan unfolds, and time passes, technology changes, the world changes around them, much as you were

saying. So the plan has had to change and evolve over time. They

have had to basically retrench along the way.

I think that is a key lesson learned. If you are having a longterm restructuring that you need to be flexible enough to be able

to account for changes in the environment and new things that

come at you over time.

The other model, and this is one I am far less familiar with, but

some of the European posts, Deutsche Post, for example, it is my

understanding when they embarked on a modernization project,

and admittedly, it is dramatically smaller than what we are talking about here, they elected to do what amounted to shock therapy.

They just re-did everything at once, re-did their processing, re-did

their equipment. That is my understanding of it.

I don’t see that the Postal Service could do something like that

because of the enormous cost involved. But there certainly are

some lessons learned, good, bad and indifferent, from taking that

kind of approach.

Mr. DAVIS OF ILLINOIS. Thank you very much, Mr. Milbourn. We

will go to Mr. McHugh.

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Mr. MCHUGH. Thank you, Mr. Chairman.

Welcome. By way of editorial comment, I would say how much

I know we all appreciate the continued efforts of both the GAO and

the Inspector General. Over my 14 years of involvement in these

issues, we have called upon GAO repeatedly to guide us and to assist us. This is the latest initiative, and we are always not just very

happy but very much in need of your help and we appreciate that.

As someone who had a little something to do with the creation of

an independent inspector’s office, a few bumps and grinds aside, I

think it was a wise decision. We are seeing a little bit of that

today.

Mr. Milbourn, I hope I didn’t bob my head too hard in agreement

as you were talking about what perhaps is one of the most profound and yet in its structure one of the most simple challenges the

Postal Service faces, that is to cut costs but do it in a way that

hopefully enhances service. Yet as I look through the GAO report,

one of the more striking statements I saw, and probably because

it was bold headline, but it is also in the text, was that USPS does

not have a mechanism for determining AMP consolidation impacts

on delivery performance. And then they go on to talk about there

are some proxies, but proxies are not direct performance standards.

How do we help the Postal Service to develop that kind of process? And the second question is more rhetorical, how can you really

go through a very necessary and yet critically dangerous process

like the AMP without having some kind of performance standard

measurement? Do you have any answers to that or suggestions, either one of you?

Mr. MILBOURN. I do think it has to be something on a global

scale. In other words, I don’t think that the Postal Service can approach individual AMPs from the standpoint of trying to set performance or service standards for that individual consolidation. To

me, I tie this back to the requirements of the new act that says

they have to do this kind of thing globally for the different categories of mail. Once they have that, then they have the criteria

to use with each individual AMP.

What we have been finding in our reviews with the AMPs is simply the fact that they have to be very cognizant of and analyze

what are the expected changes when they make a consolidation to

the standards that they already have and ideally to future ones as

they become established. And that needs to be a critical part of the

decisionmaking on whether in fact to consolidate under any given

AMP.

Mr. MCHUGH. Ms. Siggerud, any thoughts on that?

Ms. SIGGERUD. I would agree wholeheartedly with what Mr.

Milbourn said. I think constructing some sort of delivery performance measurement approach AMP by AMP would be not a good use

of the Postal Service’s resources and probably not possible. We do

need to look to this time down the road when the reporting standards and the new technology will make such type and measurement available.

Mr. MCHUGH. So we can, I think, all agree it needs to be systemside and that we don’t really have the answers at the moment as

to what those are. This is a work in progress, but—and I hope the

Postal Service agrees—it is a work that has to be completed if you

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are going to have an efficient evolution to a new model and one

that enhances delivery performance, yes?

Ms. SIGGERUD. Yes.

Mr. MCHUGH. Well, that really, that was 4 minutes.

Mr. Milbourn, you talked about probably one of the best ways to

de-conflict the process, and the gentlelady from the District of Columbia was talking about some of the challenges of having Congress involved. But probably the best thing we could do is tell Congress you can’t contact the Postal Service, particularly in AMPs. I

just had two go through it, and I will tell you, I wrote a few letters,

and I am sure we all did.

But you talk in your testimony about reconciling what you defined to be the sometimes conflicting message, that is a very gentlemanly way of putting it, sometimes conflicting messages from influential stakeholders and mitigate their risk for possible to preclude

paralyzing inaction. Boy, how can we do that, because that is a

hard one.

Mr. MILBOURN. This is going to be really tough, because there

are so many important stakeholders out there. There is of course

Congress. But there are also mailers. And you and me receiving

mail at our house are an important stakeholder.

I think the Postal Service needs to reach out very broadly to all

possible groups to solicit this kind of input in an attempt to resolve

these kinds of conflicting views. The question I think that will remain is, is it within the Postal Service’s authority to elect to resolve some of these on its own, or will it be directed to do certain

things irrespective of what seems to be the best business decision

to make with all of the necessary input?

Mr. MCHUGH. Mr. Chairman, I should have left him alone, he

wasn’t paying attention to the clock. If I may, with your forbearance, just one what I hope will be a quick question. Ms. Siggerud,

you spoke about, and of course, the topic here today is the mandate

for modernizing service standards and measures. You talked about

the PRC involving itself in their necessary work of developing regulations.

I am just curious, did you have a chance to assess the PRC’s efforts there, or is that progressing in a sufficient manner, do you

think?

Ms. SIGGERUD. We have not assessed the PRC’s efforts in this

area at this time.

Mr. MCHUGH. Thank you, Ms. Siggerud. Mr. Milbourn, I don’t

expect you have an opinion on that?

Mr. MILBOURN. No, sir.

Mr. MCHUGH. OK, thank you.

Thank you, Mr. Chairman. I told you it would be brief.

Mr. DAVIS OF ILLINOIS. Thank you both very much. We may have

some additional questions that we would like to submit to you in

writing. But given the fact that we’ve got three panels, we will proceed and thank you very much for your testimony.

While we are getting ready to seat panel two, let me just acknowledge that we are always pleased to have present former

Members of Congress who have deliberated long and hard on these

issues. I see that former Representative William Clay. Sir, we are

delighted that you are here. Thank you.

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While you are being seated, I will go ahead and introduce the

witnesses. Panel two is Dr. John Waller, who has been director of

the Office of Rates, Analysis and Planning of the Postal Regulatory

Commission since February 2005. His primary responsibilities are

directing the technical advisory staff of the Commission in supporting the commissioners in all proceedings and the development of

commission reports.

Mr. William P. Galligan was named senior vice president of operations in May 2005 and reports to the Deputy Postmaster General

and Chief Operating Officer. Mr. Galligan has responsibility for the

Postal Service’s engineering facilities, network operations management and delivery and retail functions.

Gentlemen, we welcome you both and thank you very much. If

you would stand and raise your right hands.

[Witnesses sworn.]

Mr. DAVIS OF ILLINOIS. The record will show that each one of the

witnesses answered in the affirmative, and we will begin with Dr.

Waller.

STATEMENTS OF JOHN D. WALLER, DIRECTOR, RATES, ANALYSIS AND PLANNING, POSTAL REGULATORY COMMISSION;

AND WILLIAM P. GALLIGAN, SENIOR VICE PRESIDENT, OPERATIONS, U.S. POSTAL SERVICE

STATEMENT OF JOHN D. WALLER

Mr. WALLER. Thank you, Mr. Chairman. Thank you for the opportunity to be here today.

My remarks are based on the Commission’s 2006 proceeding on

the evolutionary network development plans of the Postal Service.

A copy of the Commission’s opinion is attached to my full written

statement.

The Commission endorses the Service’s goals to create a more efficient and flexible postal network that realizes cost savings while

maintaining service standards. The Commission also recognizes

both the value of using modern, computerized optimization and

simulation techniques to identify mail processing facilities for consolidation and the need to conduct site-specific reviews of individual facility consolidation plans as a reality check on the outputs of

the computer models.

However, the Commission’s analysis identifies significant problems that could result in a less efficient network with slower service. For instance, the emphasis on consolidating operations from

smaller plants into larger ones, rather than consolidating from less

productive plants into more productive ones. Focusing on more productivity holds more promise.

Transportation was not adequately considered in the END

plants. It was not clear how nationwide transportation would be realigned, since the backbone of the network, the regional distribution centers, is shrouded in uncertainty. The Postal Service estimated there could be anywhere from 28 to 100 such centers.

At the local level, only 6 of the 17 of the consolidation plans reviewed by the Commission revealed estimated transportation cost

savings.

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As of last year, network development plans did not consider the

significant changes in mail processing and transportation that will

occur with the introduction of the flats sequencing machines. These

machines are huge, expensive and were not incorporated in the

planning models.

The Postal Service recognizes that its network redesign program

could have a significant impact on service. However, in the proceeding, it did not provide a reliable estimate of the volume of mail

that would experience either a downgrade or an upgrade in days

to delivery. Nor did it estimate how often the Postal Service would

need to move up collection times from the blue boxes or require

earlier bulk drop-offs at their plants in order to meet performance

standards. Nor did it provide information on the impact consolidations might have on time of delivery during an individual day to

the homes and businesses.

The Commission also found problems in faulty assumptions in

the computer models; in particular, not using actual mail processing productivity and cost characteristics. Instead, the models assumed idealized operations that ignore currently wide disparities

in productivity among plants.

There is also assuming that unit costs decrease as plant sizes increase and this conflicts with evidence presented to the Commission. The site-specific development evaluation problems included

lack of consistency in review procedures, lack of criteria for approval or disapproval of proposed consolidations, lack of public and

mailer input and a severe tardiness in errors and analysis in the

post-consolidation reviews where the Postal Service would learn as

it goes forward.

While changes have been made and were made during the time

of the proceeding, it was questionable if flaws have been remedied,

particularly given the GAO report that has just been released.

In closing, let me emphasize that the Commission believes that

the Postal Service should have the flexibility and authority to adjust its operations and networks to meet its business needs and

create cost savings and efficiencies. However, the Postal Service

must be accountable and transparent to all postal customers and

be sensitive to the needs of the communities it serves.

Thank you. I will be pleased to answer any questions you may

have.

Mr. DAVIS OF ILLINOIS. Thank you very much, Dr. Waller.

Mr. Galligan.

STATEMENT OF WILLIAM P. GALLIGAN

Mr. GALLIGAN. Good afternoon, Mr. Chairman, Ranking Member

Marchant, members of the subcommittee. I am pleased to be with

you today.

As senior vice president of operations for the Postal Service, I am

responsible for engineering, facilities, delivery and retail operations

and most relevant to our discussion today, network operations.

There is a close and inter-dependent relationship amongst these activities. They have a strong influence on the viability of our network.

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Ultimately, our service standards and ability to meet them are

based on the effectiveness of the network. I look forward to discussing both of these important issues with you.

It is important that we view them within the context of the Postal Accountability and Enhancement Act, which was enacted last

December. The law resulted in major changes that affect not only

the Postal Service, but the entire mailing industry. One of the most

significant changes is the requirement that price adjustments for

our market-dominant products cannot exceed annual growth in the

consumer price index. These products represent 90 percent of our

business.

Unfortunately, some key cost drivers, such as energy and health

care benefits regularly exceed CPI growth. With this requirement,

the challenge for the Postal Service is to reduce costs and increase

productivity, while providing high quality, affordable, universal

service to our Nation. One approach we are pursuing is the examination of our processing and distribution and transportation network. Today’s network is a product of an evolutionary process that

began when our system was created over 230 years ago. It expanded to serve a Nation that was growing in population and territory. This infrastructure was adjusted over time to accommodate

steadily growing mail volumes, the latest trends in transportation

technology and specialized facilities to achieve greater efficiency.

In 1970, more than 2,000 facilities performed outgoing mail processing. Today, the number is less than 400. But in view of changes

in mail volume, and the types of mail entering our system, we

must continue to make our network even more efficient and capable of satisfying our customers’ needs. Since 1998, single piece, first

class volume has declined by almost 14 billion pieces, or 25 percent.

This erosion continues by 1.5 billion pieces each year. Without offsetting system adjustments, this volume erosion reduces network

efficiency and negatively affects our bottom line.

We have also seen a growing shift to pre-sort mail which enters

our system much closer to its final delivery point. In 1970, virtually

all mail moved in and through our system. Today about 40 percent

of the mail we handle no longer requires end to end transportation.

This decline in single piece first class mail and the entry of more

mail deeper into our system means that our network is not aligned

with current and future needs. Excess mail processing and transportation capacity drives up unnecessary costs and challenges our

ability to operate within the statutory limits of a rate cap.

As Postmaster General Potter testified here last week, our challenge is to close the gap between prices and costs while maintaining quality service. He explained that management could proceed

along any of three paths. The first is continuing status quo, which

is obviously unacceptable. The second path is extensive contracting

out of work now performed by our employees. But this could undermine labor-management and employee relationships that are so important to contributing the excellent service we provide our customers every day. We prefer a third path, working cooperatively

with our stakeholders to confront the critical issues we are facing

as an organization and as an industry.

The continuing modification of our network to reduce duplication,

increase efficiency, accommodate new equipment and meet changVerDate 11-MAY-2000 11:56 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00078 Fmt 6633 Sfmt 6633 U:\DOCS\52714.TXT KATIE PsN: KATIE
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ing needs of our mailers is a strategy we are pursuing along this

path. Network adjustments have contributed to our ability to

achieve record levels of service, customer satisfaction and unprecedented levels of productivity. Based on more recent stakeholder

input, we have been working to improve our business processes related to implementing network changes. These include expanded

public notice, expanded public input and increased transparency.

Through all of these changes, we remain committed to our customers by maintaining overall service responsiveness and to our

employees by not laying off a single career postal employee. The

new postal law also requires us to develop modern service standards and related measurement systems. Together with a large and

diverse group that represents all elements of the mailing community, we are working to identify what changes may be warranted.

We are on target to complete this process next month. We are already consulting with the Postal Regulatory Commission so that

new service standards can be published by late December.

In developing measurement systems, we are exploring the possible use of our intelligent mail bar code as part of an information

platform that will allow us to leverage internal passive data collection to efficiently measure actual service performance.

We look forward to working with our stakeholders, particularly

the Postal Regulatory Commission, in achieving agreement on revised service standards and measurement systems. I appreciate

having the opportunity to discuss these important issues with you

today and I would be pleased to respond to any questions you may

have.

[The prepared statement of Mr. Galligan follows:]

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Mr. DAVIS OF ILLINOIS. Thank you gentlemen very much.

Mr. Galligan, I think you present a rather comprehensive look at

some of the problems and difficulties which the Service is facing,

especially when you talk about the decline in first class mail and

decline in the number of pieces of mail that there is to be delivered.

Given these difficulties, or given these realities, redesigning and

streamlining the postal infrastructure has been under consideration for quite some time. When you consider service to customers,

the needs of mailers, the future impact of automation, and the entire environment in which you are working, what do you envision

the new network looking like? And when would you see it sort of

coming online in terms of saying, here is what we think it is really

going to have to be?

Mr. GALLIGAN. Mr. Chairman, I think that in much of the discourse around this subject, we have to look at it from two different

points of view. Our core competency as an organization is our network of delivery and retail facilities. That intact is a fundamental

strength of our organization.

Our processing and distribution centers, that are world-class,

with letter and flat automation and we are adding to that flat automation base as we move forward with the flat sequencing system,

form the backbone of our future network. We also have an excellent

air strategy that is part of that network, that moves mail in the

air via two very competent suppliers and a select number of commercial airlines.

Where we are right now, I know it has been called unclear, but

it is in fact part of a business concept that we are working through,

is what do we do with our long-haul ground network and what has

been called our bulk mail center network. We are working through

market research on that effort, and certainly we intend to be out

with our facilities plan in accordance with the new law by June of

next year.

So my vision of the future at this point in time is we are certain

that the erosion of first class mail continues. The consolidation of

outgoing facilities continues on a very evolutionary scale. Our air

network strategy is very clear. The work we are doing right now

that will bring certainty to our total ground network and our bulk

mail center network is still to be determined. It is a work in

progress.

Mr. DAVIS OF ILLINOIS. You gave great credence to the relationships between all components of the system, that is, management

and labor, working cooperatively together. What mechanisms do

you have in place to solicit input from the unions and management

associations relative to planning the new system or the new design?

Mr. GALLIGAN. We fully intend, as we move through examination

of any business process, to communicate to our impacted organization, union organizations, what it is we are looking at, research

and how that would play out. We have already been in communications, I personally, with leadership around where we are with our

business concepts. These are not plans, these are not decisions.

These are essentially steps forward for us to build a business case

that will ultimately bring to fruition a full-scale facilities network

plan for the U.S. Postal Service. I look forward to working with the

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leadership of all impacted labor organizations to be very up-front

in that regard.

Mr. DAVIS OF ILLINOIS. Dr. Waller, what are the PRC’s views on

the Postal Service’s strategy for realignment that you have heard

up to this point? How do you respond to what you have heard?

Mr. WALLER. Well, a lot of what we have heard is still similar

to what was there last year. It isn’t as if that much time has gone

by. So a lot of the reactions are the same that are in the report.

It has just been pointed out that particularly the big hole is the

BMC network, and what is the strategy going to be there for that.

I think new initiatives are being pursued by the Postal Service,

from what was just said, to try and firm that up. I think that is

a useful move because you can’t, unless you know what the backbone of the major transportation system is going to be, it is hard

to adjust and say anything more than we said before.

I think some of the criticisms still hold. I don’t know to the extent that they are going to revise their use of the models that were

a part of the END process. But to the extent there, they do need

some revisions to put in inputs that reflect more reality of what is

going on out there in the field right now.

There is a great diversity in the performance among the plants.

Until that comes before the Commission, a lot of times there is no

explanation of why that diversity exists. It is just said to be fixed

and persistent over time. Until some of those are understood better, it is going to be hard to understand how they are going to affect that ending up with a more productive network. Hopefully that

will be taken care of, too, and they will have more realistic models

if they continue to use that approach.

Mr. DAVIS OF ILLINOIS. Thank you gentlemen, very much. Mr.

Marchant.

Mr. MARCHANT. Mr. Waller, you said in the last part of your testimony that the PRC has brought transparency to the postal network development plans. But the previous panel specifically said

that was not the case.

Mr. WALLER. I think where we were when we started the case

to where we were when we ended the case, when the case started

and took a great deal of effort on the part of the people asking

questions to find out exactly how many of the facilities were under

consideration for modification, I think this enlivened the process

very much, the review of them that has been going on then across

the country right now.

We, I think through the asking of questions about the AMP process, got much more public input. There was a lot of forces causing

that to happen. But as it became apparent, as the case started,

that very little was out there in the public, including just what was

the list of candidate facilities that had come out of all this modeling

process, I think that helped add transparency. I think the AMP

process did improve with more public input. But just identifying

that was a need has, I think, been a value added.

Mr. MARCHANT. So you don’t view the Government Accountability Office, do you view them as an adversary or as someone who

is helping you?

Mr. WALLER. Oh, I think it is very useful. I think they endorsed

and reiterated a lot of the conclusions that were in our advisory

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opinion. I think there is a lot of similarity and they just picked it

up and said, yes, in the few months that have gone by, not much

has changed.

Mr. MARCHANT. I have a bulk mail facility in my district. When

it comes to the bulk mail facilities, is that really a public input

issue? Or are the retail facilities more of a public input?

Mr. WALLER. I think it is a public—any part of the node that

mail is particularly dropped off, there are particular discounts that

are for the BMCs. If you close or move them, people that are using

them as an input are going to have to adjust where they, and it

may be more expensive for them.

Mr. MARCHANT. So in this case, the public would be the retailers,

the mailers.

Mr. WALLER. It would be retailers, it would be the local communities, too, that would be affected. I think the broader you set a net

to get ideas, the better off you are going to be, because the more

people are going to understand the needs. So I would say both the

local community, the labor, people who understand the local issues.

But in particular, the mailers that actually use it have to, I mean,

it has been pointed out that the work sharing concept has evolved

to a large extent.

Well, that is where now the mailers are doing a lot of the work

previously done by the Postal Service and inserting it deeper into

the system. Those insertion points are very critical, both to the

mailer, what kind of service are they going to get at that insertion

point, etc., and if you start mixing those up, you have to examine

the impact it is going to have on them.

For instance, I would assume that there are a lot of possibly

mailers near you, consolidators near your center who have built infrastructure themselves. So it is not just the Postal Service that

would end up changing. There would be changes within the mailers

who would use it. If they can’t continue to use it in an efficient

way, then the system itself overall is not going to get more efficient. So it has to be considered as not just what is happening to

the Postal Service, but what is happening to the people who insert

mail into the system and then how fast it gets to the people who

are receiving the mail.

Mr. MARCHANT. Well, and every 2 years, all of us have the opportunity to get into the bulk mail business. [Laughter.]

Especially in media markets like Dallas, where that is the only

affordable way to communicate, whether it be campaign or MRA.

So it is a vital interest to all of us. But yes, my district is surrounded, DFW Airport. So yes, the bulk mail people have located

there, J.C. Penney, all of the major mailers.

I appreciate your efforts. Thank you.

Mr. DAVIS OF ILLINOIS. Thank you very much. You mean television is too——

Mr. MARCHANT. For my district it is. [Laughter.]

Mr. DAVIS OF ILLINOIS. So you can’t be doing much of that.

Let me just ask an additional question or so. Mr. Galligan, nobody likes to mention or make reference to, but I did note that Mr.

Milbourn in his testimony did suggest that there might be times

when you might have to look at the appropriateness of 6 day delivVerDate 11-MAY-2000 11:56 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00091 Fmt 6633 Sfmt 6633 U:\DOCS\52714.TXT KATIE PsN: KATIE
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ery in some instances, or some places. Is there much thought or

conversation given to that kind of thinking?

Mr. GALLIGAN. I know Congresswoman Norton mentioned mission impossible. I don’t share that we are on a mission impossible

course, but it is a mission challenged. My personal opinion, and I

think it is shared by our Postmaster General, is that the issue of

6 day delivery cuts to a public policy debate that goes to the notion

of universal service.

I can assure you that organizationally, in my delivery and retail

organization, we are not preoccupied at this point in time with any

notion around changing our days of delivery to a 5-day model or

an every other day model. There would be a point in time where

our cost burden against the top line revenue is so out of whack that

needs to be considered. I think it is a matter of public policy debate. I think it would cut through to the very notion of the mail

monopoly and universal service.

And not to pass a monkey off my back, Mr. Chairman, but I kind

of think that issue would probably fall up to your Chair.

Mr. DAVIS OF ILLINOIS. Well, I think it is something that certainly some people give thought and consideration to. And I think

it is something that we have to be cognizant of. I will agree with

your initial assessment that there are no simple solutions to very

complex problems. There are complexities which do in fact exist. I

think what we all want to do is try and make sure that we have

a viable Postal Service that does in fact embody the principles of

universal service and the principles of work opportunities and all

of those things that we have come to know it as being.

So let me thank you gentlemen for your testimony. I am sure we

will be continuing to look at all of that.

Let me also just indicate that Congressman Adam Schiff has

questions that he would like to submit as part of the record to the

Postal Service for answers. Without objection, that will be so ordered.

Gentlemen, thank you very much. We appreciate your being

here.

While our third panel is being seated, I will go ahead and introduce them. Panel three, Mr. Michael Winn, has served as the director of postal operations for R.R. Donnelley, who is a member of the

Association for Postal Commerce. Mr. Winn has been active in

many printing industry associations and has been a member of the

graphic arts industry for over 30 years. I might also indicate that

R.R. Donnelley is one of the major business operations in my congressional district. We are indeed pleased and delighted to have

them.

Mr. Robert E. McLean has been the executive director of the

Mailers Council since 1996. He furnishes management services for

the non-profit advocacy organization, serves as its public spokesman and represents the Council on Capitol Hill.

Mr. Jerry Cerasale joined the Directing Marketing Association

[DMA], in 1995. As senior vice president, Government Affairs, he

is in charge of the DMA’s contact with Congress, all Federal agencies and State and local governments.

And Mr. Timothy May serves as general counsel and postal counsel to mail order companies, mailer associations, publishers and orVerDate 11-MAY-2000 11:56 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00092 Fmt 6633 Sfmt 6633 U:\DOCS\52714.TXT KATIE PsN: KATIE
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ganizations of postal employees, including the Parcel Shippers Association, the National Association of Postal Supervisors, NetFlix

and Capital One.

Gentlemen, welcome. And if you would rise and raise your right

hands.

[Witnesses sworn.]

Mr. DAVIS OF ILLINOIS. The record will show that each one of the

witnesses answered in the affirmative. And welcome. Mr. Winn, we

will begin with you.

STATEMENTS OF MICHAEL J. WINN, DIRECTOR OF POSTAL AFFAIRS AND MAILING OPERATIONS, R.R. DONNELLEY; ROBERT F. MCLEAN, EXECUTIVE DIRECTOR, MAILERS COUNCIL;

JERRY CERASALE, SENIOR VICE PRESIDENT, GOVERNMENT

AFFAIRS, DIRECT MARKETING ASSOCIATION, INC.; AND TIMOTHY J. MAY, GENERAL COUNSEL, PARCEL SHIPPERS ASSOCIATION

STATEMENT OF MICHAEL J. WINN

Mr. WINN. Thank you, Mr. Chairman.

Mr. Chairman and members of the subcommittee, thank you for

providing me this opportunity to testify on behalf of the Association

for Postal Commerce [PostCom]. I am a member of PostCom’s

board of directors and the executive committee of the board. On behalf of PostCom’s membership, we appreciate the opportunity you

have provided PostCom to submit our views on the significant postal issues that you are examining in this hearing.

PostCom’s membership consists of businesses and organizations,

large and small, that use the postal system to communicate with

their customers, donors and constituents. PostCom membership

also includes the printers, logistics companies, fulfillment houses,

software providers and others to make use of the postal system

possible. Collectively, our membership is estimated to account for

in excess of 70 percent of all the revenues the Postal Service receives from the standard mail sub-classes.

But our interest in the postal system goes far beyond these subclasses. It is estimated that PostCom members accounted for about

50 percent or more of the total volume of catalogs weighing over

one pound, books, audio and video materials and parcels that the

Postal Service handles each year. Our membership also makes extensive use of first class mail and of both domestic and international shipments handled by alternative service providers, such

as UPS, FedEx and DHL. PostCom thus has a vital interest in assuring the existence of an efficient, responsible, financially stable

and competitive Postal Service.

My company, R.R. Donnelley, is the largest printer and postal logistics provider in the United States. As a mail service provider, we

work with our customers to prepare enormous amounts of mail in

all classes: periodicals, catalogs, parcels and letter mail. R.R.

Donnelley produces a very significant portion of the mail pieces

that are processed by the Postal Service and provides logistics for

even more.

The passage of the Postal Accountability and Enhancement Act

was a critical step to enable the Postal Service to address the difVerDate 11-MAY-2000 11:56 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00093 Fmt 6633 Sfmt 6633 U:\DOCS\52714.TXT KATIE PsN: KATIE
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ficult issues that it confronts in the current market environment.

The Postal Service faces the continued expansion of postal delivery

points, which increases its costs and at the same time, a decline

in the rate of growth of mail volume, which adversely affects revenues.

With the passage of this act, Congress altered the regulatory

framework in a comprehensive manner that strengthens regulatory

oversight and enhances transparency, while providing the Postal

Service the necessary management incentives to meet these challenges through greater operational efficiency and high quality service standards. PostCom supported the passage of the Postal Accountability Act and we are deeply grateful for the hard work that

this committee put into that effort.

Mr. Chairman, we submitted detailed written testimony, so I will

give a summary today. First, on postal realignment or END, Evolutionary Network Development, PostCom members support the realignment of the network, because we need an efficient, cost-effective method of delivering our message to the consumers. However,

there is room for improvement in the way the realignment process

is operating. That is really around communications.

The ultimate objective of the network redesign is to have an efficient network based on the needs of delivery, the new automation

that is being deployed to efficiently process the mail, and to control

costs. However, if it is done without a proper communication plan,

which any good business should have, it is going to be incurring

costs that are unnecessary. I will give you an example.

If we do not have a transparent view of how the network is going

to be realigned, as logistics providers, we quite often have trucks

redirected in transit from one facility to another. Our customers

make mail plans to meet in-home dates months, sometimes weeks

in advance. So we depend on the communication from the Postal

Service as to where we are going and how to most efficiently get

it there. Redirections increase costs and possibly even create delays

for our customers.

Let’s talk about another thing under the banner of network realignment, and that is, as the Postal Service is deploying new automation and changing the mail preparation requirements that are

put on mailers and mail service providers, we have to be careful

not to just shift costs out of the Postal Service out of the private

sector, we look at total system costs to our customers, the mailers,

as the correct way to be realigning the network and changing requirements for mail preparation and delivery.

A little bit on service standards. Service standards are absolutely

vital to the mailers, along with good measurement and reporting.

The reason is that an entire business decision is based on an inhome date. A mailer needs to know when their message is going

to reach the consumer, so they can respond accordingly. I will give

you two brief examples. Periodicals, subscribers buy periodicals because they expect to receive the periodical at a certain time. If that

is not maintained, it is very likely that the subscriber will not resubscribe. So the business decision there is, how do you produce

the periodical with a dependable service standard and measurement to reach a certain in-home date.

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Even more challenging is on the side of the catalogs. Catalogs

start with an in-home date and from there they develop their mail

plan, when they are going to drop the mail. From there, they tell

their printer when they are going to be able to print. Then there

is a decision on the inventory and the content of that catalog. Coordinating the in-home date with inventory on hand and a staff call

center is the challenge. And it all stems from service standards

with critical entry times.

Critical entry times can also be affected by the automation that

is being deployed. If that changes, we need transparency in seeing

how that is going to change, so we can adjust our mail plans and

other planning accordingly.

In conclusion, I would like to thank you, Mr. Chairman, and the

subcommittee, for allowing me to testify today on behalf of

PostCom. We appreciate your accepting of our written testimony.

[The prepared statement of Mr. Winn follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much.

Mr. McLean.

STATEMENT OF ROBERT E. MCLEAN

Mr. MCLEAN. Thank you, Mr. Chairman, Mr. Marchant.

The Mailers Council is the largest group of mailers and mailing

associations in the Nation. We represent for-profit and non-profit

mailers, both large and small, that use the Postal Service to deliver

correspondence, publications, parcels, greeting cards, advertisements and payments. Collectively, the Council accounts for approximately 70 percent of all of the Nation’s mail.

The Mailers Council believes that the Postal Service can be operated more efficiently, supports efforts 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 that many people on this dais had something to do with. Whatever differences mailers may have had on other sections of the 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 interested in new delivery

standards. For many mail classes, the Postal Service today has delivery guidelines, not standards. And its measurement systems fail

to measure the type of mail that compromises 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. First, because of improvements in the

technology found in every mail processing facility, much of the data

needed to determine delivery performance already exists. Second,

data collection for delivery measurement in classes that affect the

larger mailers can be developed without large new expenses. Third,

any additional cost 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 make management more efficient and hold down postage

costs.

As for the features we expect to see in the new delivery standards, they must be realistic and reliable. The Postal Service must

avoid lowering existing service standards. We need new and more

complete reporting of delivery performance as well. 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.

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New delivery performance reports must be timely and 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 the creation of new executive compensation systems that reflect management’s ability to meet those standards. These systems must offer

greater compensation where consistent, on-time delivery is met.

You also asked us to comment on the closing and consolidating

of postal facilities. In its efforts to improve delivery performance

and in response to ongoing changes in mail volume and composition, the Postal Service will need to consider consolidating some of

its facilities. We will support the Postal Service in realigning its

mail processing and delivery networks. We recognize that closing

a postal facility is difficult, because it affects the lives of so 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 decision that are essential to improving postal efficiency nationwide.

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 delivery and transportation changes. Where such consolidations have

been handled poorly, postal managers have moved too quickly and

failed to sufficiently discuss the implications with its customers,

like Mike, and its 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 discussions earlier and

that we will be assured that managers in the field will have the

resources they need to be able to implement such difficult changes.

Mr. Chairman, thank you again for this opportunity to represent

our views on these important postal issues. We will gladly answer

any questions you and your colleagues have.

[The prepared statement of Mr. McLean follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much.

Mr. Cerasale.

STATEMENT OF JERRY CERASALE

Mr. CERASALE. Thank you, Mr. Chairman, Mr. Marchant. It is a

pleasure to be here. Thank you for inviting the DMA to give our

comments on this important matter.

I am Jerry Cerasale, the senior vice president for government affairs for the DMA. DMA is an association, the largest American association of multi-channel marketers, using the mail, internet, television, radio, telethon, to reach customers and potential customers,

and also those who support those marketers. Mail is an important

cog in the direct marketing industry in the United States, which

has an effect of over $1.4 trillion on the American economy.

The Postal Service needs flexibility in order to create an efficient

transportation, sorting and delivery network. We support the Postal Service in those efforts and we supported the Reform Act giving

the Postal Service management those tools to try and reach an efficient system. But we cannot and we must be vigilant against allowing realignment to become a hidden rate increase, a rate increase

to mailers beyond the CPI cap.

I will give you a couple of examples. One, change the time of delivery for bulk mail to a facility from 6 p.m. to 6 a.m. Think about

a magazine that is necessary to get information out quickly. That

is a huge cost to them, because that eliminates an entire day. They

have to change their entire operations.

Think about changing where you have to drop ship your mail. An

example, an absurd example, but interesting example, you require

J.C. Penney in Texas to enter their mail not in Dallas, but in Chicago, or R.R. Donnelley to enter not in Chicago but in Dallas.

Those are huge increases, and just changing where you have to

enter the mail can in fact be a hidden increase toward mailers. So

we have to be aware of that as you look at realignment as well,

although the Postal Service is required and must work to realign

the network, especially with diminishing first class mail volumes.

The Reform Act also talked about service standards, and that is

one of the things that you wanted to hear about today. We hope

that we are very cooperative with all the players in setting up

these service standards, including the Regulatory Commission. I

think we must start where we are, where the guidelines are, where

the standards are now. That is a good starting place on where the

negotiations should begin. But it is important to note that smaller

mailers that mail nationwide that are the bulk of DMA membership, and especially the non-profit mailers, receive very, very poor

service for mail that is going across the country. Standard mail can

be 2, 3 weeks for delivery. In this day and age of our transportation

networks, the Postal Service can and must do better.

But again, in setting the goals, setting the standards which have

to be met, that is only half the way. We have to have performance.

The Postal Service must meet those standards. That is important,

because as you have heard, mailers rely upon when the mail will

go into the home. And the Postal Service’s goal should be not to

meet them 95 percent of the time, they should meet them 100 percent of the time. That is success, not 95 percent.

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These measurement standards should be open for all to see. It

is important to understand that they meet them.

Operators are hired, fulfillment people are hired, e-mail messages, Web page advertisements, in-store advertisements are all

geared to when the mail is going to reach the potential customer.

And it is important that they meet them. We know it and the Postal Service meets its.

And standard mail is unique, direct mailers are unique. Because

you have to meet it, not beat it. The same problems occur if the

mail gets to the home before expected. The ads aren’t there, the operators aren’t there, the inventory may not be there. So in our

view, you have to meet it, not beat it, not miss it, meet it.

We think it is important that the measurement standards, you

can’t have a measurement for each piece of mail. But it has to be

regionalized, it has to be disaggregated enough so it is not just the

entire Postal Service. We have to be able to measure and see where

the problems are. Marketers have to know where the issues are,

where do they have to change their entry. Maybe you get better

service in one region than another, and you have to change your

pattern, your mailing pattern, in order to have the in-home date

the same.

I thank you for this opportunity and am willing to answer any

questions you may have.

[The prepared statement of Mr. Cerasale follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much.

We will go to Mr. May.

STATEMENT OF TIMOTHY J. MAY

Mr. MAY. Thank you, Mr. Chairman. My name is Timothy May,

I am a partner in the law firm, Patton Boggs, and am general

counsel of the Parcel Shippers Association, on whose behalf I appear today.

Parcel Shippers is an industry association whose membership

packages, largely from businesses and consumers, and companies

that support those activities. Our main objective is to encourage a

competitive environment that results in the best possible service at

the lowest possible cost. Our members use all the private carriers

as well as the Postal Service.

Our members have a hand in the vast majority of the Postal

Service’s products and the package services class, which is now categorized as competitive products under the new law. They also ship

and consolidate for delivery to the Postal Service hundreds of millions of packages such as first class mail parcels, standard mail

parcels, bound printed matter and media mail. Those are now categorized as market-dominant products. It is for those products that

the Postal Service must in the future develop measurement standards and reporting systems.

At the moment, for most other mail, the market-dominant mail,

Postal Service really only has guidelines, if you can call them that,

rather than standards. And it doesn’t really measure mail that consists of the most substantial volumes it delivers. For example, for

most packages, the delivery is anywhere from 2 to 9 days, depending upon where you put it in and where it is going. In the case of

standard parcels, those less than a pound, the standard delivery is

in 3 to 10 days, depending upon how far it goes.

But again, those really aren’t standards. It is kind of a guideline

and we hope it gets there. There is very little measurement of that.

What our members want is a consistency of speed and reliability.

We are particularly concerned about products that are delayed beyond the expected time of delivery, which we all refer to as the tail

of the mail. Those are the several percentages of mail that just

don’t get there on time. The customers are irate, all kinds of business is lost, there are a lot of costs involved in reshipping to them.

But as far back as 2000, parcel shippers asked the Postal Service

for delivery standards, performance measurements and reporting

for a new category of package services called Parcel Select Service

that was approved in 1999 by the Postal Rate Commission. That

began a collaboration between our association and the Postal Service’s Mailers Technical Advisory Committee, to resolve issues such

as how to start and stop the service clock, and critical entry times.

Those issues are now resolved today. We have excellent Parcel

Select delivery standards, 1 day for parcels entered at the destination delivery unit, 2 days for parcels entered at the destination sectional center facility and 2 to 3 days for parcels entered at the destination bulk mail facility. That is excellent service, and we are

getting very high performance, upwards of 98 percent on time.

Last year, the Government Accountability Office, and you had

testimony today, issued a generally critical report on Postal Service

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delivery performance standards, but said that a noteworthy exception was the standards that evolved through the collaborative efforts of parcel shippers and the Postal Service for parcel select parcels. While these standards and reporting techniques were developed for what are now deemed to be the competitive products, we

see no reason why that same or similar standards are not reasonable as well for market-dominant packages.

The Postal Service now measures and reports for us using delivery confirmation data that allows the service to be accurately

measured and reported at a very detailed level. Parcel Select shippers can get detailed summary reports regarding the performance

delivery on their own parcels and can compare that with reports

of aggregated data to see how they are doing compared to their

peers. Much-improved technology is now available such as intelligent mail bar code, and that provides transparency, such as tracking and tracing.

Unique identification of mail pieces should be the norm in the future, not the exception. Also in the future, any good performance

measurement system, to be effective, will have to disaggregate data

on the tail of the mail, that mail that is there too late, how much

is it, where is it, so those packages are delivered later than the

standard.

The law now requires that 6 months after the development of the

standards and measurement system, after that, the Postal Service

has to file a plan to meet these standards. Also, a central part of

that plan deals with postal facilities. Congress found, as you know,

that there were more facilities than the Postal Service needs, and

that streamlining of the distribution network could pave the way

for potential consolidation of sorting facilities and the elimination

of excess costs. The Postal Service must detail its plan for this rationalization of the infrastructure.

The Postal Service was already at work on that prior to the enactment of the recent reform law, and even adopted a proceeding

at the Postal Rate Commission called the Evolutionary Network

Development changes [END]. You had some testimony just prior to

this from the director at the Postal Rate Commission about that

proceeding and the deficiency they found in the Postal Service’s approach. Interestingly enough, Congressman, one of our large members, we developed this information to give to the Postal Rate Commission, one of our large members in Dallas, that ships out of the

bulk mail center in Dallas, one of the proposals, but again this was

all very sketchy, one of the proposals of the Postal Service was to

do away with the bulk mail facilities and substitute in their place

up to perhaps 100 regional distribution centers.

In Texas, if that were to happen, there would likely be five distribution centers in Texas instead of the one bulk mail center. They

are not going to move it to Chicago, but they did have plans to

move it out of the BMC and to move it into these new regional distribution centers.

Our member calculated the additional costs to them of having to

bring their parcels to five distribution centers around the State

rather than the one BMC in Dallas, and also to have to do away

with bed-loading, because they were going to require

containerization, and the amount of the cost to that mailer for

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those packages being shipped out of Texas, they estimated it to be

an increase of anywhere from 16 to 26 percent in their total costs.

Now, the Postal Service had given no consideration to that whatsoever, the impact of that on mailers, the cost to mailers. So that

is simply unacceptable, and that has to be considered.

We have been working with the Service, again through the

MTAC process, on END. Our committee has formally presented a

position paper to MTAC on this restructuring. That is attached to

my testimony as Exhibit 1. That paper explains the principles we

believe should guide the Postal Service as it realigns its network.

Consistent deliveries, lower end to end cost in service, enhancing

work-sharing discounts, visibility, effective containerization, not

just—not eliminating bed-loading, unless that is necessary, and

maximum automation. The Service needs to heed advice from committees such as ours and we believe that the success that we had

and that can solve the process on standards can be a model for the

facilities streamlining that has to take place.

Obviously that process requires consultation not only with mailers, but with the communities affected and employees of the Postal

Service who will undoubtedly be affected. We hope that the subcommittee will continue to scrutinize carefully the progress the

Service makes in rationalizing its infrastructure and in formulating

and implementing new standards and measurements of service and

reporting systems comparable to what we now have for Parcel Select.

Thank you for this opportunity.

[The prepared statement of Mr. May follows:]

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Mr. DAVIS OF ILLINOIS. Thank you very much.

Mr. Marchant, do you have any questions?

Mr. MARCHANT. Yes. Last week the subcommittee looked at the

issues concerning outsourcing on the part of the Postal Service. Do

you or your members or your clients have any views on the whole

concept of outsourcing and independent contractors?

Mr. MAY. We are not, per se, opposed to outsourcing. But to us,

we think you have to make the case for it. You have to demonstrate that it really cannot be done effectively in-house and that

indeed, you will save money by going out of the Service. And also,

there are important considerations you have with your employee

agreements. The contract the PMG just signed with the Letter Carriers Union, for example, does not allow them to surplus any existing Postal Service carrier routes by outsourcing them.

So they don’t have a free hand in this. But as in private industry, labor and management collectively bargain and they agree.

The Postal Service is somewhat handicapped, because under the

present system, in an impasse, they have to go to impasse arbitration. That has often been not satisfactory. Happily this time, for example, with the Letter Carriers contract just consummated, they

were able to reach an agreement without having to go to arbitration.

But certainly there will be occasions when there will be

outsourcing. But we don’t have a position per se on it. We are not

urging that it be done. If it makes sense, do it. But make the case

that it does.

Mr. MARCHANT. Mr. Cerasale, do you see the effective future of

the Postal Service’s being effective using some kind of outside contractors, do you see that as an essential part of an effective delivery system for your clients and customers?

Mr. CERASALE. The Postal Service has historically used contractors for transportation and so forth in the past. I agree with Mr.

May that they have to make a case for it.

One of the things for an efficient Postal Service and how it

works, however, is that the labor management climate within the

Postal Service, the Postal Service has to work and work well, and

that means management and their employees working together

and working well. That is part of an efficient Postal Service as

well. We are not opposed to contracting out. But we are not saying

that you have to contract out. We think that right at the moment,

it is part of the collective bargaining agreements, I think, with all

the unions. The Postal Service has to work within that framework

that it currently has.

I don’t think you take it off the table. I don’t think you say, it

is not there. I think it is part of what the Postal Service has in

front of it, part of the tools it has to work with and with its employees. But an efficient Postal Service, one that works efficiently for

us is one that works with its employees who are, where there are

customers, are they both employees and Postal Service. So it has

to work together. So that is a part of what efficiency is as well.

Mr. MARCHANT. Thank you, Mr. Chairman.

Mr. DAVIS OF ILLINOIS. Thank you very much.

Gentlemen, during this part of the discussion, on two or three occasions I heard differentiation between guidelines versus standVerDate 11-MAY-2000 11:56 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00140 Fmt 6633 Sfmt 6633 U:\DOCS\52714.TXT KATIE PsN: KATIE
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ards, or I heard mention that in some instances, the Service has

guidelines but not standards. What is the difference?

Mr. MAY. Well, Mr. Chairman, a standard is something you have

committed to, that you will get delivery. For example, the commitment we have for Parcel Select standards is if we drop our packages at the destination delivery unit, that is the standard, which

means we have been guaranteed and our customers can rely on

that, that is going to be delivered in 1 day and with a 98 percent

success rate. So that is a standard.

A guideline says, well, it will take anywhere from 2 to 9 days,

depending on where it is in the system. That is a guideline. Frankly, to the extent that they even measure it at all, it is less than

50 percent accurate. So lots of work has to be done there. There

is no reason why everybody can’t have the same kind of standards

and reportability and reliability that we have been able to achieve

for Parcel Select by cooperating with the Postal Service.

Mr. DAVIS OF ILLINOIS. And you are wanting the Postal Service

to move closer to a level of exactness?

Mr. MAY. Exactly. And we see no reason why, within some tolerance, they can’t have the same quick delivery, quick certain delivery guidelines and reporting systems for all of the mail, not just

Parcel Select.

Mr. CERASALE. From our view, what you measure is what you receive. So the real key for these standards is, we have to have measurement of those standards. That is where management will put efforts and make sure they meet them. So the big key in service, creating service standards, is the measurement and the guidelines

that we have. There really is not measurement there.

Mr. MCLEAN. The other key to this is that performance measurement that we are discussing today will be much more detailed and

will be made public. The standards that are being established are

a fine idea, but without the measurement, they would essentially

be meaningless. Today the Postal Service has two measurement

systems involving outside auditors. One measure the general public

attitude toward the Postal Service, and the other measures the

very small percentage of a specific type of mail. These standards

will be much broader, as will the performance measurement systems.

So we will get a much better sense of how the Postal Service is

doing when it comes to delivering large chunks of the mail that

really provide almost 80 percent of their revenue throughout the

year, not just the revenue that comes from a very small subset of

a single class of mail.

Mr. DAVIS OF ILLINOIS. As the Postal Service goes through its

thinking about realignment, are you all satisfied that you have an

opportunity for input into the process?

Mr. MAY. Well, we certainly have. We have no complaints about

that. That doesn’t mean they are going to listen to us and agree

with everything we have said. But we have, largely through the

Mailers Technical Advisory Committee process, we have had and

are continuing to have the opportunity to present our views on

standards for other package services and measurements, how they

will be measured, and also our views, and we will put it in writing

eventually, what our position is on the restructuring of the infraVerDate 11-MAY-2000 11:56 Nov 16, 2009 Jkt 000000 PO 00000 Frm 00141 Fmt 6633 Sfmt 6633 U:\DOCS\52714.TXT KATIE PsN: KATIE
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structure of the Postal Service. As I say, we have gone into print

with that. It is attached to our testimony.

Mr. DAVIS OF ILLINOIS. Mr. Winn.

Mr. WINN. I would have to answer that question as no, we have

not had sufficient communications nor been really allowed to provide good input from our perspective. I will give you the example.

We have consolidation facilities all over the country where we consolidate mail and then we drop ship it certain times at certain locations in the Postal Service. The location of those facilities is critical

to where we are entering mail. So if the network is realigned without visibility into what it is going to look like in the future, our

consolidation facilities may be in totally the wrong places. We will

have to move, increased costs to our customers, again, total system

costs.

Mr. DAVIS OF ILLINOIS. Mr. McLean.

Mr. MCLEAN. I think that where the Postal Service could improve in this area is by talking to us more often and giving us more

lead time when it plans on changes, whether they are closing or

consolidation. Mike, in his testimony, gave a great deal of attention

to the in-home delivery date, and that is what is really affected, as

well as the transportation costs that mailers will be required to

pay.

Mr. Galligan, the witness who testified earlier today, has been

very accessible to us. We are in the process of trying to schedule

a meeting with the Postmaster General and our entire membership

some time between now and the end of the year. The network realignment will be one of the topics that we will talk with him

about.

So we are seeing more accessibility. We just hope that we will

see more information a little farther ahead than we have in the

past.

Mr. DAVIS OF ILLINOIS. Mr. Cerasale.

Mr. CERASALE. The accessibility is there. I don’t necessarily

think that we have seen all the information that we think we

should receive and that is a really important part of the discussion,

is to take a look at the plans and then listen to us as we talk on

them. I think we are encouraged by where the Postal Service is

moving on this. But the jury is still out whether or not they really

are giving us the plans and having some meaningful discussion on

them.

Mr. DAVIS OF ILLINOIS. Well, it looks like our timing is perfect.

Gentlemen, I want to thank you all for your testimony, for being

here with us. I want to thank all of the witnesses for appearing

and all of those who have come.

Of course, we have a vote on and I have to go and vote, so this

hearing is adjourned.

[Whereupon, at 4 p.m., the subcommittee was adjourned.]

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