Posts Tagged "postal service"

Who Are You?

on May 29, 2012 in Strategy & Public Policy | 1 comment

When online, how do you know who you’re really communicating with? Does that affect your shopping or banking habits? Do you know people who don’t use the Internet much because they are afraid of identity theft?

The latest statistics from a Pew Research Center study demonstrate the pull of the Internet:

• 80 percent of Americans are users, whether through personal computer, tablet, or smartphone;
• many of those users do not conduct any kind of commerce;
• 30 percent have not made a purchase online;
• and 40 percent do not bank online.

Would a more secure approach to online identity raise those figures?

The Office of Inspector General’s new paper Digital Identity: Opportunities for the Postal Service examines the world of digital identity as well as many existing digital authentication solutions, including pilot projects, and potential roles for the Postal Service in the digital identity ecosystem.

The Costs, Should They be a-Changin’?

on Apr 30, 2012 in Finances: Cost & Revenue | 9 comments

As the Postal Service struggles to survive, it needs to take a good look at the financial health of its products. However, ascertaining the financial health of a product line requires an accurate estimate of the cost of providing that product. The Postal Service is moving into an increasingly data-driven future; thus, the timeliness and accuracy of cost measurement will continue to grow in importance. The Postal Service has not changed its cost system fundamentally in many years, though it updates significant inputs annually. There have been calls for an examination of the accuracy and relevance of the system and implementation of specific changes. In order to inform the dialogue and debate, the OIG published A Primer on Postal Costing Issues, a discussion of postal costing, including the most salient of the concerns the Postal Service and its customers have raised.

Should the Postal Service Post its Rates in Post Offices?

on Apr 23, 2012 in Post Offices & Retail Network, Pricing & Rates | 9 comments

Generally, most consumers know the rates for mailing a 1-ounce First-Class® letter. However, many don’t know the prices of other postal service offerings, such as certification, insurance, or return receipt. In some instances, some of these services must be bundled with the mailing type.

Posting the rates for the more commonly used services in a convenient spot in the Post Offices would let customers know approximately how much services cost, allowing them to make informed decisions. For example, displaying rates for the first several ounce increments of First-Class mail, as well as the most commonly used rates for Express Mail and Priority Mail along with the rates for certification, insurance, and return receipt, would help mailers calculate the total purchase price.

What should be done about overfunding, overpayment, and other unfunded federal mandates?

on Apr 2, 2012 in Five Elements of a Postal Solution | 1 comment

This is the fifth topic in our “Five Elements of a Postal Solution” blog series. Link to last week’s topic.
Link to the blog by Elmar Toime.
Link to the blog by Jim Sauber.
Link to the blog by Roger Kodat.

Elmar Toime

There is nothing new in the U.S. Postal Service’s concern about retirement liabilities, but this is part of a larger issue of employee compensation. In developed economies around the world, postal employees enjoyed or still enjoy civil service labor conditions. This is not just about take-home pay. Civil servants typically have better leave and medical arrangements, better working hours, and importantly, more generous pension and medical schemes. This is my first point. Comparisons of postal compensation to compensation in other industries must be made on the value of total remuneration.

In itself, higher compensation need not be a problem. The crucial element is whether superior remuneration can be matched by superior productivity. If it can, then the labor cost is justified. And to be fair, in this context, productivity should include both efficiency (as measured for example by labor cost per postal item) and service (for example timely delivery of mail). Whatever the situation, postal services have to be paid for, either by users (when they buy postage) or by the government through subsidies and market protection for mail services. That’s a public policy choice that governments cannot duck. If you want users to pay, then either postage prices have to increase, or services reduced, or labor productivity improved, or assets worked harder. We see all approaches being implemented in other countries.

In some places, total labor remuneration growth has been slower than the market, rebalancing in that way. We have seen dual pay structures emerge – existing civil servants retain all benefits, new employees simply don’t get them. We have seen service quality change, through post office closures or a five day service. Everywhere there has been investment in new sorting technology and work practices that require less labor for the volume of mail processed. And we have seen governments allow prices to rise more than inflation, protecting the postal company from competition at the same time. New services have emerged, such as banking in post offices, in order to better use assets or fixed costs.

It’s an optimization problem that can’t avoid difficult decisions. Want my 5 cents worth? Transfer existing pensions and medical insurance liabilities to the federal government. That is soon going to happen in the United Kingdom. Separate these ‘old’ benefits from a new employment contract based on existing conditions but which can be allowed to evolve with the business. Implement five-day a week delivery (Monday to Friday), accept private sector provision of retail services, rationalize the sorting center network, and increase prices to provide a 5 percent return on capital invested for the first three years. Announce that market liberalization will occur in the third year. In other words, do what most other countries have done!
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Jim Sauber

Legacy costs: The Postal Service’s hidden strengths

I often joke that the Postal Service is the most financially sound ‘failing business’ in the country. It has two overfunded pension plans (FERS and CSRS), even with the application of grossly inequitable cost allocations methods in the postal portion of the CSRS fund and it has pre-funded nearly 50% of its future retiree health liability when the median level of funding for such benefits among Fortune 1000 companies is zero (0%), according to an annual survey by Towers Watson.

These strengths suggest that the financial crisis at the Postal Service is not hopeless. Smart policy on pensions and retiree health costs can help save one of America’s greatest economic assets, a last-mile delivery network that links 150 million households and businesses for an industry that employs 7.5 million Americans.

One solution already proposed would be to suspend the retiree health pre-funding during the near term emergency. Restructuring must take priority over pre-funding now. No other agency or private company faces such a mandate. The remaining unfunded liability for retiree health could be covered by implementing the recommendations of the PRC/Segal company audit of CSRS benefits as called for by H.R. 1351, a bill with bipartisan majority support in the House of Representatives.

Although the October 2011 GAO report on this issue backed the OPM’s interpretation of the law, and the methods it used for allocating pre-1971 pension costs between USPS and the Treasury, it also concluded that the methods endorsed by the OIG and PRC audits were “reasonable” and that the choice of methods is essentially a “policy decision.” I agree – Congress should make the policy decision, not OPM.

There is more that can be done to handle future legacy costs.

First, Congress should allow USPS and its employees to invest the assets in the Postal Service Retiree Health Benefits Fund (PSRHBF) in a more appropriate manner. A fund with $45 billion in it, operating on a 75-year time horizon that will pay out $3 billion per year for retiree insurance premiums, should not be invested exclusively in low-yielding Treasury securities. The group of diversified index funds in the Thrift Savings Plan (which also invest for employees’ retirement years) have earned 7.3% annually since their inception. Raising the returns in the PSRHB to this level would cut prefunding cost significantly.

Second, legislation to facilitate the intelligent integration of FEHBP and Medicare benefits as well as bargaining between the Postal Service and its unions on health benefits within a FEHBP context could dramatically reduce future retiree health benefit costs. NALC is aggressively exploring the options right now.

Of course, these policy changes alone won’t be enough to save the USPS. NALC knows that costs must be properly aligned with the economic realities of the 21st Century through pain-staking collective bargaining – a process that is still underway. More importantly, the Postal Service needs a new business model and a growth strategy that will preserve a robust national network to serve the nation. That will require Congress and all the stakeholders in our industry to come together to reach a consensus on a vision for the future.
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Roger Kodat

The legislative process often leaves us wondering if form trumps substance. Take the Postal Accountability and Enhancement Act of 2006, particularly Section 803. This section requires the Postal Service to make cumulative $58.8 billion of specified annual pre-payments from 2007-2016 into a Retiree Health Benefits Fund (CBO report on HR 6407); over $5 billion per year for 10 years in a row. In hindsight, we know now that the law’s payment schedule has since been modified – to date, the Postal Service has been permitted to pay $9.5 billion less than the amounts called for in the bill, but payments totaling $11.1 billion are now due by the end of this year. Even so, the question still remains: How could the Postal Service possibly survive such financially crippling, front-loaded, payments to cover unfunded retiree health liabilities?

As legislation was drafted, OPM estimated the Postal Service’s accrued unfunded retiree health liabilities to be about $64 billon; it is now calculated to be around $90 billion. Given the legal requirement for the Postal Service to meet all of its obligations through operating profits, it was deemed prudent that the Postal Service incrementally prefund such an enormous future cost to its employees. As a finance guy, I preferred a 30-year straight-line amortization schedule for Postal to incrementally prefund this future obligation, in keeping with how a private sector corporation might operate. Smooth and steady contributions help ensure a more secure future for the Postal Service and its employees – a key policy objective.

Due to budget rules, government does not always work this way. Enter CBO (and don’t forget fiscal constraints the nation faced at the time). In order to gain congressional and administration support to enact a Postal Service reform bill, it was imperative to structure the financial flows in order to minimize, or even zero-out, net cost to the unified budget over the 10-year period following enactment (CBO’s analytical scope in calculating budget cost impacts).

Once it was decided by congressional leaders to use this bill also to return the cost of military service retirement credits back to the Treasury (previously a Postal Service obligation), a balancing cash inflow had to be structured to gain support for the legislation. Credit those in Congress who worked creatively and tirelessly to weave a passable reform bill – we needed one. Also remember: the Postal Service had minimal debt at that time; and we could not know how extensive electronic diversion of mail would be; nor the depth of the economic downturn we would face.

The $5+ billion yearly obligation, passed with bipartisan support by Congress and the White House, kept the reform budget neutral and did not result in increased costs for the taxpayer.

What can be done? Remain vigilant to identify and implement cost savings; expand operating flexibility to drive greater efficiencies; evaluate whether excess CSRS and FERS account balances could be applied to satisfy a portion of this obligation (bear in mind that OPM, in future, could change its long term assumptions, which might result in the Postal Service having a negative fund balance); and ask Congress for a more smooth and steady prefunding schedule. As for the last prescription, I have come full circle.

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As the Postal Service’s financial crisis deepens, we often hear about overfunding and overpayments by the Postal Service for retiree benefits. This issue is complex and controversial. While some argue that there are overpayments, others respond that the Postal Service has not overpaid but simply paid what is required to ensure that taxpayers are not burdened with future Postal Service liabilities.

Postal employees participate in federal pension and retiree health programs, and the Postal Service must set aside money to fund these obligations. On the pension side, the Postal Service has covered the obligations accrued to date. According to the most recent projection by the Office of Personnel Management, the Postal Service’s 2011 pension surplus was over $13 billion. (Most of this surplus was for the newer FERS pension plan.)

The Postal Service has only partially funded its retiree health obligations. The federal government does not prefund retiree health benefits, and the Postal Service only started funding these obligations in 2007. Since 2007, the Postal Service has amassed $44 billion, 49 percent of its $90 billion in current liabilities. However, because of its financial problems, the Postal Service is having difficulty making its annual payments to fund retiree health benefits. Last year, Congress delayed the $5.5 billion payment due at the end of September 2011 until August 2012. The Postal Service does not believe it will be able to make the $11.1 billion in retiree health payments it owes for both this year and last year. What should be done about these looming bills?

This issue is part of a broader issue of entanglements with the federal government. As part of the federal government, the Postal Service uses federal benefit programs but has little control over their structure; as a self-financed entity, the Postal Service is expected to set aside funds to pay for obligations incurred by these programs. In fact, to gain more control over the cost of health benefits, the Postal Service has proposed moving to a health benefit plan that it operates rather than using the federal plan.
Any effort to set the Postal Service on a course for financial sustainability will need to address the question of how to approach retiree benefit funding and federal entanglements. This week, we’ve asked the following guest commentators to discuss the topic over the next few days:

• Roger Kodat, former official at the Department of the Treasury.
• Jim Sauber, Chief of Staff, National Association of Letter Carriers.
• Elmar Toime, independent advisor to the postal sector.

We hope you can join the debate. Please check in throughout the week for their thoughts, and share your comments along the way. On Friday, April 6, we will summarize and conclude the discussion.

Our Guest Bloggers

Roger Kodat	Jim Sauber	Elmar Toime

Roger Kodat was Deputy Assistant Secretary of the Treasury from 2001 to 2007 and logged more than 130 different postal-related meetings while working on the reform bill enacted in 2006. In addition, he has over 20 years of investment and commercial banking experience with JPMorgan in Europe, NYC, and Washington, DC. He is currently Principal of The Kodat Group, a consulting firm specializing in helping businesses expand international markets, finance exports, and mitigate risk..

Jim Sauber is the Chief of Staff to President of National Association of Letter Carriers (NALC), where he served many years as its Research Director. He joined the staff of the NALC as an economist in 1985 and has participated in seven rounds of collective bargaining with the United States Postal Service. He is responsible for coordinating the research, collective bargaining, public policy and legislative activities of the union.

Elmar Toime is an independent advisor to the postal sector based in London. He is chairman of Postea, Inc, a postal technology group, and a member of the Supervisory Board of Deutsche Post DHL, the world’s leading logistics company. Elmar was the chief executive of New Zealand Post Limited from 1993 to 2003 and Executive Deputy Chairman of the Royal Mail Group from 2003 to 2004. In 2004 Elmar was awarded a life-time achievement award for leadership in the postal industry.

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What Opportunities Exist for the Postal Service to Integrate Its Traditional Role in the Digital World?

on Mar 19, 2012 in Five Elements of a Postal Solution | 16 comments

This is the third topic in our “Five Elements of a Postal Solution” blog series. Link to last week’s topic.

Link to Friday’s recap.
Link to Thursday’s blog by John Payne.
Link to Wednesday’s blog by Dan Combs.
Link to Tuesday’s blog by Steve Ressler.

This week our panel of prominent commentators examines whether or not the Postal Service can integrate its potential digital role(s) with its physically-based business. The Postal Service has been a trusted third party intermediary since the eighteenth century. But now, in the twenty-first century, it faces unprecedented challenges. Digital technology is developing rapidly and changing the nature of communications and of many businesses, especially those based in brick and mortar. As a brick and mortar-based communications backbone of the nation, the Postal Service is doubly affected by the disruptive technologies of the digital revolution.

While approaching the question from different perspectives, our guest bloggers are adamant: They all agree that there are multiple digital roles for the Postal Service in this brave new world. Further, they state that without taking on these new roles, the Postal Service will not survive. Among opportunities discussed are:

o Digital communication and storage
o Digital identification as well as digital and physical authentication
o Enforcement against digital fraud
o Other mobile applications to minimize customer time in Post Offices

Tactically, they suggest that lessons can be learned from retail banking, which has responded to customer demand for more mobile applications, and the Internal Revenue Service (IRS), which partnered with private sector providers to help individuals transition to digital transmission of tax returns.

Strategically, the Postal Service must become more customer-focused and work on short-term opportunities leveraging and protecting its traditional role, while looking for longer-term opportunities. Steve Ressler, Founder and President of Govloop.com, says that “the future is moving online” and that the health of the US Postal Service depends on its becoming a provider of trusted delivery solutions regardless of channel. He also advocates secure digital storage for sensitive information, an application which is being requested by some consumers now. Dan Combs, CEO of eCitizen Foundation, highlights new uses of the Postal infrastructure and the Postal Service’s legal standing in offering both secure communications and specific credentialing services. He stresses enforcement as being a unique competitive advantage. John Payne, CEO of Zumbox, urges the Postal Service to “remember the consumer”—and consumers’ needs for convenience—or face extinction.

Comments on this week’s blog to have to date offered a range of ideas, but most have had a common theme: The Postal Service has to change with the digital age and take advantage of at least some of the opportunities that leverage its core strength as a trusted branch of government with a wide-ranging geographic presence and long history of delivering secure communications from point-to-point and person-to-person. However, not every commenter agreed that public-private partnerships are an effective tool for implementation or that the Postal Service culture can adapt to its potential digital roles.

The OIG would like to thank this week’s guest bloggers for their key insights on digital issues. In next week’s blog we will discuss what should be the appropriate pricing regime for the Postal Service.
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John Payne

Remember the Consumer!

For most people, their relationship with the USPS is as follows:

1. The USPS puts some unknown quantity of mail into your mailbox six days a week
2. You periodically check your mailbox
3. You sift through your mail, pulling out the important items and trashing or recycling the rest
4. Rinse and repeat

The really sad thing about the process above is that it hasn’t improved . . . . ever. In fact, if anything, we simply have more unwanted mail to deal with today, which just exacerbates the problem. In an age where consumers are demanding that more information be delivered digitally, across multiple devices, can the USPS improve the aforementioned experience?

For the USPS to stay relevant in the digital age, the answer has to be YES. The USPS needs to think more about what the consumer wants, and let that line of thinking dictate future product strategy. Today’s consumer wants to visit the post office less (or any store, for that matter), and do more on the go, at their convenience.

One industry that has similar features, and has embraced this line of thinking, is the retail banking industry. The retail banking industry has seen its customer base demand more and more products that keep them away from branches. It is natural to fight this change, but the retail banking industry has instead, developed extensive mobile applications to help its customers reduce their visits to branches. A recent report from comScore supports this view. Today, you can deposit checks, pay bills, transfer money, check balances, etc., all from the comfort of your phone.

While the USPS has a mobile application, it is generally limited to shipping information, or looking up the nearest post office location. With all due respect, 99% of my interaction is with my USPS delivery representative at my home. If the USPS wants to spend time on mobile applications, or new features on their website, ask this question first, “how is this feature materially improving the consumer experience?”

A recent article with the title “Three keys to saving the U.S. Postal Service” misses the mark as its three keys are all non-consumer centric. In contrast, an opinion piece in the New York Times summed it up nicely. “Like other retailers, the Postal Service needs to sit down with its customers and talk to them about how it can serve them better, then come up with new, innovative products and services that will be competitive in today’s marketplace. If it does not do this, it will not survive, whether it cuts costs or not.”
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Dan Combs

Answering the title question requires a couple of precursor activities. First is accepting that any separation between the digital and physical worlds is artificial and misleading. There are numerous reasons that we want the physical and digital worlds connected, for instance enforcement. When someone does bad things in the digital part of our world we want to be able to find the physical person responsible. The two, the physical and digital, for some time to come, are inextricably bound together. Second, the “traditional role” of the Postal Service needs re-conceptualization. While the Postal Service receives and delivers physical packages, letters and others, this concept is too narrow and simplistic to capture the value provided by the Postal Service. More appropriate would be a concept that includes creation and operation of an infrastructure for secure, enforceable communication among the U.S. population.

Based on the above, the Postal Service is faced with a number of opportunities. The focus here is on near term opportunities building on existing work or capabilities. There are a number of gaps and needs between the physical and digital portions of our world. Currently, one area of particular focus is the identification and authentication of individuals. Generally, this involves the collection and verification of information, attributes about an individual, issuance of perhaps a credential or token such as a password or smart card, and some activities binding or connecting the token to the holder. The Postal Service has an organization, personnel, infrastructure, enforcement capability, and current operations to meet several related needs. Some of these are as follows:

1. Intake and/or Registration
2. Attribute verification
3. Binding of attributes to individuals
4. Enforcement

Intake and registration: current practices often include the checking of physical documents in a person’s possession, sometimes the scanning of documents, collection of a picture or other biometric, and the checking of this and other information. The Postal Service has lots of physical infrastructure, established locations that could serve well to play some role in intake/registration processes for credential issuance perhaps building on current Passport related services. This infrastructure could fill a gap by providing a trusted institution that is relatively very accessible for the U.S. population.
Attribute verification: much work is underway to develop the means for verification of attributes of individuals, the connecting of those attributes to individuals, and use of such attributes in transactions. One critical attribute is the address, especially connecting a physical address to an individual or transaction. The Postal Service acts as an authoritative source for U.S. addresses and could well provide address related value added services for digital interactions. It also does not seem a huge leap to anticipate that there may well be a need for parallel capabilities for virtual addresses, particularly when a connection between a virtual address and a physical address is desired. The Postal Service seems well suited to take advantage of opportunities to provide address-related services and to play a part in attribute verification.

Binding to individuals: often there is a desire or requirement to take some measures to ensure that an attribute, a document, or a credential is connected to a particular individual. One way of doing this leverages an in-person visit. For instance a person appears at a physical location, perhaps presenting a document such as a birth certificate claiming it as his or her own, or a credential is delivered to the individual, for example the driver’s license issuance event. During these in-person appearances something may be done, such as the taking of a picture or fingerprint, as evidence that a particular person was there, that helps to connect the individual to the documents and transaction. The Postal Service has a substantial infrastructure distributed across the country, personnel conducting similar activities currently, a supporting organization, and other related capabilities.

Enforcement: the digital portion of our world is a difficult environment for many enforcement organizations. Often their scope and capabilities are inappropriate for pursuing and prosecuting digital crimes. The Postal Service has a long history both of developed law and enforcement capabilities that snare criminals. Recently, the Postal Service has performed with distinction in operations and collaborations to identify, pursue, capture and prosecute criminals using digital means in their criminal activities. This is a vital need for the future growth and operation of the “digital world.” The Postal Service is particularly, if not uniquely, qualified to fill this need.

These are a few of the opportunities available to the Postal Service, based upon existing operations and capabilities. Building upon these could well lead to further business opportunities consistent with the traditional role of the Postal Service as updated for our changing world.
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Steve Ressler

Fix My File Cabinet Please
As I write this in my home office, my file cabinet is staring right at me. The file cabinet is a mess – it’s bursting at the seams with financial statements, health records, stock certificates, property taxes, and gobs of receipts. If you are like me, you are always fighting a losing battle trying to keep it organized.

In 2012, I do not want to live like this – I want to live in a digital world and I want the USPS to help me solve my file cabinet problem. I no longer want to receive important information in paper but at the same time I’m never quite sure how to handle sensitive digital information. Do I just store my tax pdfs just on my hard drive? What if it fails or I’m not properly backed up? I do not want to just store my health record in my Dropbox or iCloud and I’d rather not be tied to just one provider. Should I email my property tax statement to my broker when putting my house on sale – how do I know if he received it? Do I feel comfortable knowing that my email provider may be reading the contents of the document? In the end, where’s my trusted solution – where’s the equivalent of my online savings box (trusted and secure) and registered mail?

The USPS should be in the business of providing the American public with trusted delivery solutions regardless of channel (digital or print). The future is moving online and USPS can play a great role as an official convener. There are lots of companies that are starting to address these problems but they lack the mission of USPS – which is creating trusted, official solutions at affordable prices. USPS does not need to even build all the tools themselves – they can model their efforts off of IRS e-filing where government created an ecosystem of trusted private sector providers to help transition individuals to electronically submitting their tax statements at affordable prices. Good for government, good for business.

So how do we make this happen? If you’ve read Clayton Christensen’s book The Innovator’s Dilemma, you know innovation is hard and often the biggest roadblocks are internal in your own office. The USPS’s future depends on becoming digital postal solution provider so they need to invest it – create a team of 20-30 folks, get them authority to make partnership decisions, locate them outside of DC, and give them a grand mission that is true – help make USPS relevant in the digital age.
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