Volume VI, No. 6 November-December 1999 Newsletter
Postal Service Posts Fifth Straight Year of Net Income
For fiscal year 1999 (ended Sept. 30) the Postal Service reported net income of $363 million. On-time local (overnight) delivery of First-Class Mail reached an all time high of 94 percent in FY 1999, while total mail volume exceeded 200 billion pieces for the first time.
The Postal Service's annual report goes to the printer on December 27, and will be available for distribution in January. (Copies will be sent along with an analysis to APMU Members.)
Included in the data released to the Board of Governors at their December meeting were some interesting facts which have not been given sufficient attention. Operating revenue, helped by the rate increase which took effect on January 1, increased by $2,654 million, to $62,726 million. Operating expense increased even more, however, by $2,853 million.
Net profit normally spikes upward in the year when a rate increase takes effect. Interestingly, that did not happen this time. Considering that the higher rates probably increased revenues by at least $1.0 billion, the Postal Service's profit situation eroded at an alarming rate between FY 98 and FY 99. Without higher rates, the Postal Service probably would have lost around $600 to $700 million, after earning a profit of $550 million in FY 1998.
Chief Financial Officer and Executive Vice President Richard Porras described the challenges facing the Postal Service in FY 2000. Delivery addresses will grow by one million, labor costs are increasing, and electronic diversion of messages and bill payments is accelerating. Nevertheless, the Postal Service plans to earn a net income of $100 million this fiscal year. To achieve this goal, the Postal Service plans an aggressive increase in total factor productivity (TFP) of 2.9 percent, a feat achieved only four times since postal reorganization was implemented. TFP has declined in 5 of the last 6 years, and is up only 9.1 percent over the last 27 years. Only through sustained productivity increases can the Postal Service hope to avert repeated future rate hikes.
Through A/P 2 of the current fiscal year, the Postal Service reported net income of $651 million (with higher rates in effect), versus $ 796.5 million last year (when the old rates were still in effect).
Rate Case Postponed Until Year 2000
The rate case was on the Governors' agenda in December, but they again deferred action. It will be high on their agenda at their January 10-11, 2000 Board meeting in Washington, D.C.
Some recent banter between Postal Service lawyers and the Commission during the pre-hearing conference in a classification could indicate that the the lawyers who litigate the rate case expect that it will be filed shortly after January 11, 2000.
Of course, if the case is not ready to file, they could defer action until February. Once the case is filed, the Postal Rate Commission has 10 months to hear it and issue an opinion and recommended decision.
Readers who want information on procedural steps in rate case litigation are invited to click on APMU's website, www.apmu.com. Within a few days of the Postal Service's filing, an analysis of the proposal from the standpoint of Priority Mail users will be prepared by APMU. This analysis will be sent to APMU members, and other Priority Mail users can call 703-356-6913 for a copy.
Commissioner Goldway says Priority Mail May Not Be a Bargain
Commissioner Ruth Goldway, an outspoken consumer advocate, has publicly excoriated the Postal Service for the way it promotes Priority Mail. The December 8, 1999 issue of USA Today carried an article by her in which she pointed out what all APMU members already know: ordinary First-Class Mail is as fast or faster than Priority Mail, and can be far cheaper for lighter weight items under 13 ounces.
Commissioner Goldway would have the Postal Service disseminate more accurate information to the public on its different product offerings, and be subject to protective laws such as the truth-in-advertising laws. According to Commissioner Goldway, the Postal Service's "protected status allows it to fudge its answers - and even tell you it's doing so. Its Web site has a lengthy disclaimer that begins: 'The Postal Service does not warrant or represent that the information is accurate or reliable.' What confidence would we have in a private-sector business ad containing the same language?" Interesting question.
TIC Enterprises to Market Expedited Delivery Services
The Postal Service has chosen TIC Enterprises, Inc., an affiliate of NUI Corporation (NYSE, NUI) to help market its expedited delivery services, including Priority Mail, nationally. Based on the initial rollout, which includes 10 major metropolitan areas (excluding New York), the Postal Service projects that the new contract with TIC enterprises could provide it with approximately $700 million in incremental revenue over three years.
NUI President and CEO, John Kean, Jr., stated, "During the past five years, the demand for overnight and other expedited delivery services has dramatically increased due, in part, to the rapid growth of mail order businesses and e-commerce. The demand for these services is expected to continue to grow rapidly as more and more consumers choose to make purchases over the Internet. The Postal Service has made significant investments to strengthen its position as a leader in this market. We believe that our face-to-face sales strategy will uniquely position the Postal Service to capture a significant share of the expedited delivery market."
The TIC sales force will focus on small and medium size businesses that spend up to $50,000 per year on expedited package services. The purpose is to augment, not replace, the Postal Service's sales force, which deals with national accounts. According to Business Mailer's Review, TIC will receive $28 million in start-up costs, after which all future earnings will be based solely on commission, paid only if TIC generates revenues for the Postal Service.
Requiem for H.R. 22?
Congress has adjourned until next January. The House Committee on Government Reform did not take any action on H.R. 22, The Postal Reform and Modernization Act, and no action is scheduled. With presidential politics heating up throughout next year, the odds of enacting H.R. 22 look increasingly slim.
Congressman McHugh (R, NY), chairman of the House Postal Service Subcommittee, is completing his third term in that capacity, and under current House rules he cannot succeed to a fourth term as chairman of the subcommittee even if the Republicans retain control of the House. Thus, the next Congress likely will bring a new chairman, regardless of how next year's elections turn out.
At the risk of jumping the gun, perhaps it is time to begin the post mortems. It is easy to fixate on those provisions in H.R. 22 that are known to have stirred opposition. For example, labor views price caps as wage caps, and opposes that provision, while UPS opposes freeing the Postal Service to compete so long as it remains a government protected monopoly.
Attention should focus on what H.R. 22 doesn't do - allowing the Postal Service to save hundreds of millions of dollars now spent solely because of Congressionally-mandated programs, restrictions, and operating limitations. For example, H.R. 22 doesn't remove or relax Congressionally-imposed prohibitions on closing uneconomic post offices and tendering for the lowest cost air transportation in Alaska, even though such provisions cost ratepayers untold hundreds of millions of dollars each year.
In other words, Congress did not view the Postal Service to be in such need of reform that it was willing to put politics aside. Similarly, the deep-rooted labor-management relations problems that have plagued the Service, its unions and management associations for years were not addressed, even though the GAO calls it a high priority issue. The list could go on. The point is, a real crisis situation must probably develop before Congress will allow all the pertinent issues to be put on the table and craft a truly comprehensive reform bill.
John Walsh Joins Board of Governors; LeGree Daniels re-appointed
John F. Walsh, of Branford, Connecticut, has joined the Board of Governors, and attended his first meeting in December. Governor Walsh is a Connecticut businessman who also has served as a public official of New Haven for over 35 years. He received a bachelor's degree in business administration from Quinnipiac University, Hamden, Connecticut.
Separately, LeGree S. Daniels of Harrisburg, Pennsylvania has been reappointed for a second 9-year term by President Clinton.
Year 2000 Calendar
| APMU Meetings (tentative) | January 31 -- Washington, DC March 21 -- Nashville, TN (NPF Breakfast and Briefing) April 24 -- Washington, DC July 10 -- Washington, DC September 12 -- Anaheim, CA (NPF Breakfast and Briefing) October 9 -- Washington, DC |
|
March 19-22 -- Nashville, TN September 10-13 -- Anaheim, CA |
|
February 1-3 -- Washington, D.C. April 25-27 -- Washington, D.C. July 11-13 -- Washington, D.C. October 10-12 -- Washington, D.C. |
|
April 30-May 5 -- Atlantic City, NJ Dates to be determined -- Las Vegas, NV |
| USPS Board of Governors
|
January 11 -- Washington, D.C. (Other meetings t.b.a.) |