November 11, 2013
The Postal Service has rather quietly announced a pilot program to put post offices inside of Staples. It’s part of what the USPS is calling the Retail Partner Expansion Program, and the first Staples to host a post office will be located in San Francisco and San Jose.
According to an article in the Burlingame-Hillsborough Patch, which was apparently based on a USPS press release of some sort (it’s not on the USPS website), the Postal Service and Staples are launching a pilot program to open postal retail counters inside select Staples locations, including 470 Noor Avenue in South San Francisco. (Update: Here are the press releases on San Jose and South San Francisco.)
Partnering with private retailers is nothing new for the Postal Service. Over the past few years, the Postal Service has developed a network of partners that encompasses over 70,000 businesses, ranging from small convenience stores and banks to national chains like Costco, CVS, and Office Depot. Nearly all of these locations, however, are authorized just to sell stamps and flat-rate boxes.
The new arrangement with Staples is different. The postal counter inside of Staples will sell stamps, First-Class Domestic and International Mail and package services, Priority Mail, Priority Mail Express, Domestic and International, Global Express Guaranteed and Standard Post. The employees behind the counter, however, will not be USPS employees. They will be specially trained Staples employees.
The arrangement with Staples sounds something like a contract postal unit, i.e., a postal site owned and operated by a private business under contract to the Postal Service. CPUs offer most of the products and services of a regular post office, but they are staffed by the private business, not USPS employees. There are about 3,500 CPUs, as well as about 400 Village Post Offices (VPOs), which are basically CPUs that just sell stamps and flat-rate boxes.
It’s not clear how the new arrangement with Staples differs from a regular CPU. The news item on the story is titled, “USPS Will Pay Rent to Local Staples Store.” But that’s probably not entirely accurate. It’s not likely the Postal Service would rent a space inside a Staples and then staff it with Staples employees. More likely, as with a CPU, the Postal Service will pay Staples a share of the revenues. For a typical CPU, the Postal Service gives the host business 6% to 10% of gross "walk-in" revenues.
But maybe the Retail Partner Expansion Program will involve some sort of new arrangement. Perhaps the Postal Service will pay some rent and share the revenues. Details are scant so far.
What’s clear, though, is that the Postal Service remains committed to shifting its retail operations from brick-and-mortar post offices to partnerships with private retailers. The Postal Service says it simply wants to make postal products and services more readily available, but it's not just about convenience for customers. The Postal Service is also looking to cut costs by getting away from running its own post offices. This strategy is encouraged by the big mailers — who don't use post offices and who see them as contributing to higher postal rates.
April 22, 2013
The third annual Postal Vision 2020 conference will take place this week in Washington, DC. The conference brings together speakers from a variety of backgrounds for what the Postal Vision website describes as a "provocative, candid conversation about what Americans should have in the way of ‘postal services’ in 2020 and beyond and who should provide them.”
More about postal privatization:
The title of this year's Postal Vision 2020 is "Positioning America for the New Millennium," and much of the conference will be about innovations in the mail industry, like digital solutions and eCommerce. But that reference to "postal services" and "who should provide them" indicates that the conference may be about something else as well. Judging by who's speaking at Postal Vision 2020, it's likely that one of the conference's main themes will be privatization of the Postal Service.
Three of the conference's big name speakers were recently involved with a study about a proposal to privatize half the Postal Service by creating a “hybrid public-private partnership.” The study was conducted by the National Academy of Public Administration (NAPA) with funding from Pitney Bowes, one of the two platinum sponsors for Postal Vision 2020.
The proposal calls for transferring the retail and processing operations of the Postal Service to the private sector, leaving the Postal Service with the delivery end. Over half the Postal Service — $35 billion in operating costs — would be handed over to private companies — companies like Pitney Bowes.
The Postal Vision 2020 website doesn't say a word about the NAPA-Pitney Bowes privatization study, but you can be sure it's on the agenda.
The NAPA-Pitney Bowes privatization study
The NAPA study was conducted with financial support from Pitney Bowes, amount unknown. The study purports to be objective and independent, but Pitney Bowes is anything but a disinterested observer of the country’s postal system.
The corporation received over $30 million from the USPS in 2012, and it's number 49 on the list of Top USPS Suppliers for 2012. Besides benefiting from direct payments for services rendered, Pitney Bowes profits off the Postal Service in other ways. PB is the country’s largest presort corporation. It consolidates, processes, and transports mail, which then qualifies for workshare discounts with the Postal Service. The system ends up giving private companies work that could be done (and used to be done) by postal workers, and many of the deals cost the Postal Service money because the discounts are larger than the costs avoided
If the hybrid public-private model were implemented, something on the order of $30 billion in mail processing costs would be transferred from the Postal Service to the private sector. Pitney Bowes stands to make billions off such a privatization scheme. No wonder it was happy to fund the NAPA study and to provide generous support to the Postal Vision conference, where the study can be discussed in a high-profile way.
April 1, 2013
About three weeks from now, postal insiders and innovative outsiders will convene in Washington DC for the PostalVision 2020/3.0 conference to discuss the future of the Postal Service. Called "Positioning America for the New Millennium,” the event will focus on "a constructive approach to re-inventing today’s broken Postal Service model for future generations."
Among the headliners speaking at the event will be David M. Walker, a former Comptroller General, the first President and CEO of the libertarian Peter G. Peterson Foundation, and currently Founder and CEO of the Comeback America Initiative, which promotes fiscal responsibility (by cutting social programs).
Mr. Walker will probably devote much of his talk to discussing the privatization of the Postal Service. That’s because he is the chair of a five-member panel that the National Academy of Public Administration (NAPA) asked to review a recent proposal on privatization.
The proposal is called “Restructuring the U.S. Postal Service: The Case for a Hybrid Public-Private Partnership.” It describes a postal system in which the private sector would take care of the “upstream” — the retail and mail processing work — while the public sector would remain responsible for the “downstream” — delivering the mail through its network of “trusted letter carriers," the “feet on the street,” as the proposal puts it.
NAPA has a long-standing interest in postal matters, and its President and CEO is Dan Blair, a former member of the Postal Regulatory Commission, so it’s not surprising that NAPA would focus on the Postal Service right now. With funding support from Pitney Bowes, NAPA assembled a panel to subject the proposal to what it describes as a “rigorous evaluation.”
Despite the apparent conflict of interest involved with taking money from a key player in the mail industry, a company that would profit significantly from privatization (as discussed in this earlier post), the NAPA report is officially titled “An Independent Review of a Thought-Leader Concept to Reform the U.S. Postal Service.”
When the panel was first announced, the NAPA website provided brief biographies for the participants, and in the bio for one member of the study team, the review was referred to as “the Pitney Bowes study.” That bio was subsequently revised and the reference to Pitney Bowes purged. In the discussion that follows, we’ll refer to the original proposal as the Thought-Leader Concept, and we’ll refer to Mr. Walker’s review of the proposal as the NAPA/Pitney Bowes study.
The retail end of the upstream
The NAPA/Pitney Bowes report runs to over 50 pages, but very little of it examines one of the key parts of the Thought-Leader Concept — the privatization of the retail end of the Postal Service’s operations. All told, there are maybe two pages’ worth of discussion on this topic.
The Thought-Leader Concept says that “the new postal system” being envisioned “will reinvent the concept of retail access for consumers.” Under the new system, “there will be an explosion of options for the public to conduct postal business.” You’ll be able to do postal business at retail stores, gas stations, schools, coffee shops, movie theaters, or any other location that is interested and meets USPS requirements.
The proposal also suggests that the Postal Service would continue to operate a small number of retail centers, for locations where no other postal options are available or where it is more beneficial to maintain the USPS offices.
In its review of the proposal, the NAPA/Pitney Bowes study has little more to say about this reinvention of the retail system. It explains that Contract Postal Units (CPUs) and Village Post Offices (VPOs) are postal operations housed in private businesses, and it provides a few numbers (drawn from a recent GAO report) about how many there are right now. There's also reference to the fact that some people have recommended creating a BRAC-like commission to help close facilities (it adds, in bold, “Congressional action would help”).
But that’s about it. There’s no discussion of how much money privatization of the retail network might save, nothing about how postal services might decline and push away revenues, nothing about how small businesses might suffer, and so on. We're just supposed to imagine an "explosion of options" that will make it much easier for people to do postal business.
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.