Pitney Bowes funds a study to privatize the Postal Service, could make billions off the plan
March 15, 2013
The National Academy of Public Administration (NAPA) has just published a report about a proposal to create a "public-private hybrid" postal system. The full title is worth noting: “An Independent Review of a Thought-Leader Concept to Reform the U.S. Postal Service.”
Under the proposal, two-thirds of the Postal Service — the retail and processing components (the “upstream activities”) — would be privatized, while the third leg, the“downstream” delivery network, would remain a government entity.
The NAPA study does not fully endorse the proposal, but it says the concept “merits serious consideration as part of a more comprehensive policy reform effort,” and it encourages the Postal Service to analyze how implementation might be accomplished and to work with stakeholders on expanding the role of the private sector.
No way in hell
Privatization as described in the proposal is not going to happen anytime soon. Or, to put in the more colorful terms used by Gene Del Polito, president of the Association for Postal Commerce: “There’s no way in hell that Congress would allow this to happen. And there’s no one in the Postal Service that’s going to make it happen.”
If Mr. Del Polito is right — and there aren’t many people who know more about the inside world of the mailing industry and what’s going on in Congress — then what was the purpose of the NAPA study, and why did Pitney Bowes help pay for it?
Bloomberg News has a very good article by Angela Keane, which goes a long way toward providing an explanation. It begins this way: “The U.S. Postal Service should consider keeping door-to-door delivery while privatizing the rest of its operations, a panel led by former Government Accountability Office head David Walker found.”
The lede thus gives credence to the idea of privatizing the Postal Service — a goal that has generally been viewed as an extremist position associated primarily with conservative think tanks like the Cato Institute and American Enterprise Institute.
The NAPA report thereby shifts the discussion of privatization from the right-wing fringe to a mainstream center and gives advocates of Draconian downsizing — like Congressman Darrell Issa — more leverage in the debate over postal reform.
As it happens, Mr. Walker will also be one of the VIP speakers at the Postal Vision 20/20 event in April, so the report is likely to get plenty of attention there. Members of the NAPA panel, as well as the authors of the original proposal, will probably also be making the media circuit, talking up the idea.
The NAPA report lends an air of respectability to discussions of privatization, and it will fuel speculation in the media about the possibility that it might actually happen. That, in turn, will aid those who want to downsize the Postal Service by slashing the workforce, closing facilities, and cutting services. Thus, even if the proposal never gets implemented, the NAPA report will have done its work.
A “rigorous” and “independent” review
The Foreword to the report provides the background on the "Thought-Leader Concept." The whole thing got started when “four nationally recognized and experienced mailing industry leaders authored a White Paper in 2012” describing a public-private hybrid model for the postal system. Then NAPA decided to assemble its own panel to review the white paper.
“In order to subject this idea to rigorous evaluation,” the report proceeds to say, “Pitney Bowes Inc. made a contribution to the Academy to support the conduct of an independent review of this White Paper.” A few pages later we're told again, “This independent review was supported in part by a contribution from Pitney Bowes Inc.”
One has to wonder how an “independent” review and “rigorous evaluation” could be conducted using funds provided by one of the biggest stakeholders in the mailing industry.
News reports about the initial proposal and the NAPA review have raised the same question. CBS News noted, for example, “The study is being underwritten by Connecticut-based firm Pitney Bowes, which already contracts with the Postal Service for portions of its operations and could stand to benefit from the agency's further privatization.”
Yesterday’s Bloomberg report quotes Sally Davidow, a spokeswoman for the American Postal Workers Union, saying the same thing: Pitney Bowes “stands to benefit enormously from privatizing mail processing operations.”
The Bloomberg article also points out that Pitney Bowes did $30 million worth of work for the Postal Service in 2012. But that’s just the tip of the iceberg.
With 36 major mail-processing centers across the country, Pitney Bowes possesses the “largest national pre-sort network.” In 2011, the company had total revenues of $4.7 billion. (It may have topped $5 billion in 2012.) Over $567 million of its revenues came from what its 10-K financial statement describes as “mailing services,” i.e., the pre-sort business.
The $30 million USPS outsources directly to Pitney Bowes thus represents less than one percent of the company's annual revenues, while its pre-sort business accounts for over 12 percent. That’s where the real money is, and that’s where the potential for growth is.
Here’s how that pre-sort revenue works out. The Postal Service gives a hefty “workshare” discount to mailers who deliver their mail to a postal facility already sorted into three or five-digit ZIP codes. A mailer who doesn’t have enough volume or resources to do the pre-sorting can contract with Pitney Bowes to do the work. They then split the savings from the discount. Also, since Pitney Bowes consolidates mail from many sources, its discount is much bigger than an individual mailer would have been able to get.
For example, the Postal Service might offer a discount of 10 cents per piece for pre-sorted First Class mail (the rate chart is here). Pitney Bowes passes, say, 2.6 cents of the savings on to the mailer and keeps the rest.
Those pennies add up, especially when you consider that Pitney Bowes handled 14 billion pieces of mail in 2011. If the company averages, say, four cents per piece, that comes to $560 million a year in revenue — approximately the number cited in its 10-K for “mailing services.”
The potential windfall
Let's consider what would happen if the entire USPS mail processing network were privatized as discussed in the NAPA report.
Total USPS mail volume for 2012 was about 160 billion pieces. The labor cost for processing that mail was about $12 billion. If Pitney Bowes were to process, say, a third of the total mail volume, it could charge $4 billion a year for the service — seven times what it’s taking in now with its pre-sort business.
Pitney Bowes is not being coy about the fact that privatizing the processing network would mean more profits. In response to a query from Bloomberg News, Pitney Bowes said this in an email: “By concentrating on its strength in delivery, and charging only for that service, the Postal Service will encourage increased use of commercial providers to collect, transport and sort the mail.”
The NAPA report doesn’t say how much Pitney Bowes gave NAPA to do the study. Whatever it cost, the report was a good investment. Pitney Bowes stands to make millions if not billions off of the privatization of the mail processing system.
Even if the proposal is not implemented in its entirety, the NAPA report is likely to encourage the Postal Service to do more outsourcing and give more workshare discounts for pre-sorting, which will send even more profits Pitney Bowes’ way.
Lobbying through the years
The NAPA report, far from being an “independent” review of a “thought-leader proposal,” is really just a form of lobbying for a certain kind of “postal reform” — one that will benefit Pitney Bowes’ bottom line. As Chris Shaw discusses in his book Preserving the People’s Post Office, Pitney Bowes has a long history of doing just that.
In the years preceding the Postal Reorganization Act of 1971 (PRA), Pitney Bowes was one of several corporations, including McGraw-Hill, Bank of America, General Foods, Time, Montgomery Ward, and Standard Oil of New Jersey, that were behind a lobbying entity called the “Citizens Committee for Postal Reform” (CCPR). Its goal was “total reform” of the Post Office, and it led directly to the Kappel Commission, which led to the PRA, which led to all the talk we hear these days about how the Postal Service needs to act “like a business."
Despite its name, the CCPR had nothing to do with average citizens, as J. Gregory Sidak explains in Governing the Postal Service. In fact, when the Post Office Department tried to marshal support for the PRA by placing ads, soliciting donations, and asking people to join the CCPR, the response rate was poor. As the head of the marketing department of the Post Office put it, “there was no getting around the fact that we weren’t a true citizens’ movement.”
Skip ahead three decades and find Pitney Bowes still at it. As Shaw tells the story, in 2001, John Nolan, the Deputy Postmaster General, joined up with Pitney-Bowes’ CEO Michael Critelli to form something called the “Mailing Industry Task Force.” They shared knowledge, resources, and effort, in order to keep postal rates as low as possible and to give the Postal Service the authority it needed to price its products and services “more flexibly.” According to William Burrus, then President of the APWU, the Task Force’s Pricing Plan was “a polite way of excusing business mail from contributing to the institutional costs of maintaining the Postal Service.”
The Task Force also recommended the creation of something called the Mailing Industry CEO Council. It was composed of executives at corporations like Pitney-Bowes, FedEx, R.R. Donnelly, Lockheed Martin, Time Inc., Readers’ Digest, Hearst Magazines, and Capital One. Its goal was “postal reform” that would do one thing — constrain postal rates.
Follow the money
Not only has Pitney Bowes been shaping postal legislation through entities like the Citizens Committee for Postal Reform and the Mailing Industry Task Force, it’s also been spending millions of dollars on campaign contributions and direct lobbying of elected officials.
Pitney Bowes is home-based in Connecticut, and for many years, former Connecticut Senator Joe Lieberman chaired the Committee on Homeland Security, which handles postal reform. Needless to say, Pitney Bowes made substantial contributions to his campaigns.
But Pitney Bowes has been helping out many others as well. According to Open Secrets, the company has spent $2 million on campaign contributions since 1998, and over $18 million on lobbying efforts. The company now has 22 lobbyists working for it, 16 of whom are “revolvers,” i.e., insiders who took advantage of the revolving door system and left their position in government to work as lobbyists.
In 2012, Pitney Bowes contributed $400,000 to candidates, PACs, parties and outside spending groups. Both Republicans and Democrats were beneficiaries, and several of the major players in Congress on postal reform have received Pitney Bowes campaign contributions.
Many members of the House committee that deals with the Postal Service are on the contribution list. Darrell Issa (R), chair of the committee, received PB’s third largest contribution in 2011-2012 (after President Obama and Connecticut’s Chris Murphy). Dennis Ross (R) is not on the committee, but he’s the co-sponsor of Issa’s legislation, and he received PB’s fourth largest contribution in 2012, right after Issa.
Others on the House committee receiving PB contributions include ranking member Elijah E. Cummings (D), Stephen Lynch (D), Jason Chaffetz (R), Danny Davis (D), and Jim Jordan (R). There seem to be fewer contributions to the Senate’s Committee on Homeland Security, which handles postal matters, but besides Lieberman, Susan Collins (R) has received PB campaign contributions.
There’s obviously nothing unusual about corporations lobbying for legislation that will benefit their bottom line, but what’s good for Pitney Bowes is not necessarily good for average citizens or for the country as a whole.
The "further privatization" of the Postal Service
While the country may not be ready to see the Postal Service privatized in the manner described in the NAPA Report, privatization has been taking place in a piecemeal way ever since the agency was created in 1971.
One of the main ways this happens is by outsourcing work to the private sector. The Postal Service now gives about $12 billion of its $67 billion in operating expenses to private corporations to do work that, in many cases, postal workers could do. It hires companies to transport the mail, to design and build sorting machines, to deliver the mail to your door, and so on.
The Postal Service has also created partnerships with retailers like CVS, Office Depot, Costco, and supermarkets to sell stamps and other postal products, so that now there are almost twice as many "authorized postal providers" and other shipping locations as there are post offices.
The Postal Service has also been privatizing its real estate assets by selling off post offices, some of them iconic historic buildings in the heart of town, to private businesses.
The Postal Service has also helped create the large pre-sort industry by providing hefty workshare discounts, and that too is a form of privatization. In many cases, the discounts are so big, the Postal Service loses money on the deal, but that hasn't slowed things down.
The fact that the Postal Service has been privatizing itself like this is no secret. George Gould, one of the people who helped write the PRA and a co-author of the white paper that the NAPA study examines, told Bloomberg News that the proposal should be seen in the context of the private sector’s increasing role in postal operations.
“The Postal Service has been an essential part of contributing to private industry in its whole existence,” said Gould. “There’s always been a marriage between the Postal Service and private industry.” The privatization proposal is thus more of an "evolution" than a "wholesale change."
In other words, the Postal Service has spent the past few decades implementing a hybrid model similar to the one outlined in the proposal. It has been shifting retail to private businesses, and it is using private sector suppliers and pre-sort companies to help do the mail processing and transporting, just as discussed in the report.
As Ruth Goldway, Chairman of the Postal Regulatory Commission, said recently, ““The postal service essentially has privatized everything but the last mile of delivery.”
Even CBS News saw what's been happening when it described the "Thought Leader" proposal as leading to “the agency’s further privatization.”
The NAPA report will thus help justify “further privatization” along these same lines. It will give more weight to arguments for closing post offices and for consolidating mail processing plants as well. Indeed, just like Issa’s postal reform legislation, the proposal calls for a BRAC-like Commission to “right-size” the retail and processing networks.
A smaller processing network will open up new opportunities for even more outsourcing through workshare discounts for pre-sorting. And it will mean even more business and bigger profits for companies like Pitney Bowes.
Stay tuned for more on the NAPA study — like who wrote it and what they had to say (and what they forgot to mention).