Part 5 of the Postal e-volution series

Part 1 ~ How can USPS thrive in the 21st century?

Part 2 ~ net change: How the challenges of electronic commerce stack up for USPS

Part 3 ~ market wars: Postal Service rivals clamber for position in the new e-commerce economy

Part 4 ~ Commercial Freedom: Is USPS being left behind as post offices abroad go global?

That is why in the past four issues The Postal Record has cast a critical eye on the evolution of USPS into the electronic age. In March and April, the focus was on understanding how the Internet is altering the communications and delivery industry, and how the expansion of e-commerce and the changing mail mix are placing new strains on the USPS. Despite recent economic success, the Service finds itself with its core business and essential revenues in jeopardy, and thus increasingly vulnerable to attacks by corporate competitors allied with ideological zealots.

Highlighting the state of siege, the May issue detailed the aggressive attempts by primary rivals in the expanding delivery business, United Parcel Service and Federal Express, to freeze the Service out of lucrative markets and pin it in a competitive corner with a well-financed campaign of legislative action and misinformation. As part of this market war, UPS and FedEx are building international alliances, exploiting new technologies, and expanding their services beyond delivery into the realms of inter-corporate communication and logistics.

The U.S. Postal Service, however, is not alone in its troubles. Postal authorities around the world are competing in a newly commercialized environment, a high-tech marketplace where government monopolies and traditional views of “the post office” are crumbling like sand castles before the rising tide. In June, the experiences of some of the most successful—Germany, Great Britain, the Netherlands, New Zealand and Sweden, as well as our neighbor Canada—were recounted as examples of the postal revolution. This wave of change is breaking on our shores today.

This concluding installment on “Postal e-volution” will first examine how the Postal Service is tapping technology to improve existing services and offer new ones. Next, it will consider how the Service might reinvent itself as a “post office of the future,” building on its historic mandate with services far beyond the traditional conception of letters and parcels.

And finally, what options or choices confront NALC members as we work to craft a prosperous future and to ensure the rights and jobs of letter carriers in the workplace of tomorrow? Resolving these questions and building political and social alliances around a plan of action will be top priorities for letter carriers and the NALC in the weeks, months and years ahead.

Getting more out of the mail

The impact of technology on the “mail business” isn’t limited to the need to deliver parcels for e-tailers or the threat of diversion of first-class mail volume—and revenue—to Internet-based communications. The Postal Service also faces internal high-tech challenges. Letter carriers are most familiar with the tribulations of DPS mail and the expanding use of handheld scanners. Business opportunities built from the same basic technology will be important to the Service’s future. This new technology, some on the doorstep and some on the horizon, can help keep the USPS viable while the long-term issues of postal “e-volution” are sorted out.

Since the 1950s, postal officials have pursued automation in mail processing like the Holy Grail, partly to improve service, but chiefly to cut labor costs. In addition to constant refinements in the processing of letter mail, USPS today has equipment at various stages of development to improve the sorting of flats and parcels and to physically move mail within processing centers. Robots, radio transmitters and laser beams are being harnessed toward one goal: Reduce to near zero the number of human beings needed to speed the mail from collection point to the letter carrier’s case.

These mechanical advances have indeed created efficiencies—that is, cut costs—but only around the margins and they have fallen notoriously short of predictions. Even if all the projected personnel savings were achieved, the bottom-line impact would be modest compared to the Service’s $60 billion-plus annual budget. Making the Postal Service more efficient at what it already does is important, but that alone will not open the door to the future.

One of the clearest signposts to boosting revenues in the 21st century points to capitalizing on the Service’s nationwide infrastructure to collect and deliver new forms of electronic information to customers in addition to traditional messages and materials. Although USPS hasn’t been known as a leader in the digital revolution, it is becoming increasingly aggressive about exploiting the potential of the Information Age. With the most extensive corporate communications network in the nation—including the tens of thousands of desktop computers supervisors are always pecking on—the Postal Service already has an electronic data collection and distribution system with huge commercial potential.

On the high-tech frontier

Postal officials are blazing two trails along the frontier of technology-based services where yesterday’s post office is being transformed into the Postal Service of the future. One is to expand and “enrich” traditional services by giving customers more options and new and useful information about their mail, the “product” that is delivered by NALC members. Another is to move the USPS “brand” into cyberspace.

Making the Postal Service more efficient at what it already does is important, but that alone will not open the door to the future.

As noted in the April Postal Record, the boom in parcels generated by e-commerce could go a long way toward covering revenues that might be lost to electronic communications. Marrying the traditional to new technology to capture more of that business, USPS has created PriorityMail.Com, an Internet location for businesses to order Priority Mail shipping supplies and schedule pick-ups, and has set up Returns@Ease, which allows customers to download and print pre-paid Priority Mail labels to return merchandise to participating retailers.

Delivery confirmation, as NALC members know, is an “enhanced” product where USPS is just beginning to catch up. UPS and FedEx got a real head start on label scanning to track parcels and express documents, especially with direct radio links from delivery drivers back to central computer systems accessible by customers. As the Postal Service moves to upgrade scanners and match its rivals’ “real time” tracking, it also is moving to the next level of customized data collection—the so-called two-dimensional bar code.

Letter carriers are already familiar with the core technology of bar codes—a laser beam “reads” a pattern of tall and short lines, or blocks, as a mathematical code. A standard DPS bar code can pinpoint any street address in the nation. The “2D” codes offer possibilities far beyond simple delivery confirmation.

One example of these two-dimensional codes is the irregular checkerboard printed by personal computers under the PC Postage program that began in August 1999. This “digital postage” is used primarily by small and medium-size businesses. Sold over the Internet through private vendors including Stamps.com and NeoPost the postage is calculated with software and a scale and then printed by the patron’s personal computer.

The resulting postage labels, called “Information Based Indicia” or IBI’s, look like a jumble, but to a laser reader they are portable data files with an extraordinary amount of information.

One part of each IBI is an encrypted certification, unique to that mail piece, that says this mark is legitimate postage. But because of the added “dimension,” the blocks can also identify the sender and include other data that might go on a shipping label or invoice. Inventory controls like model, style or part number, number of pieces included, the number of packages in a shipment—anything, in fact, that you might want to know about a parcel—could be encoded into one of these small squares or rectangles. That means that when a letter carrier hands over a package, the recipient could simply scan the data block to update internal records. (Moments earlier, of course, the carrier’s scan had confirmed delivery for the sender.)

A company called the Escher Group is developing “image indicia,” in which PC-printed postage incorporates the user’s own full-color images—basically allowing the mailer to create unique “stamps” featuring a corporate logo or other design. The image indicia has another style of readable 2D code—wavy lines.

Adding a second bar code

The Service is currently testing another bar code-related “value added” product for traditional mailers called “USPS Confirm.” The mailer places a second standard-style bar code—called the PLANET code—above the address on reply-mail envelopes in addition to the so-called POSTNET code, which is based on the nine-digit Zip code and identifies the destination. The added code identifies the initial sender (not the return address) and the nature of the mailing. Both codes are read with the same equipment.

The PLANET code—PostaL Alpha Numeric Encoding Technology—is an excellent example of how technology can enhance traditional postal services. For instance, for a fee, USPS can scan PLANET codes to report return-mail responses to a solicitation as they enter the mail stream. The mailer then can “see” incoming orders before they arrive. “They’ll know exactly when customer orders are about to be delivered and can staff accordingly,” said Paul Bashki, USPS Confirm program manager. In addition, he noted another potential plus—a creditor can avoid the expense of an unnecessary dunning notice because the return envelope can report that the check really is in the mail from a tardy customer.

Further, marketing firms can use the stream of reply data to prepare a targeted follow-up mailing before the results of the first one are in hand. This is the kind of information companies are willing to pay for. A test of Confirm for flats was being expanded across the country this spring.

Both PLANET and 2D codes are examples of how the Postal Service can piggyback profitable new services onto existing systems. With the proper computer programming, USPS can collect and provide this sort of “enriched” data to commercial mailers without substantial additional expense for equipment or personnel.

Hybrid mail growing

Technology also is accelerating the growth of hybrid mail —“mail” that is transmitted electronically in bulk, then printed and entered into the mail stream at or near its destination. The basic idea has been around for more than 100 years, but the Internet revolution has kicked it into gear. One notable private venture is Mail2000, founded in 1995 by a group led by former Postmaster General Paul Carlin. (As a reminder of how interconnected the postal industry has become, TNT Post Group, the privatized Dutch post office discussed in the June Postal Record, became a partner in Mail2000 in 1998.)

Mail2000 produces first-class mailings for large businesses. It takes the mailer’s computerized information—say credit card bills—and instead of printing the bills at one site, sorts and sends the data via the Internet to its production facility closest to the recipient. The bill is then printed and taken to the nearest USPS hub.

A hybrid mail network ? Promotional drawing of hybrid mail network illustrates how mail production firm "moves" virtual mail around the country before printing and entering into conventional mail stream. Mail2000 claims its process saves mailers money and helps USPS by reducing mail handling costs while generating mor mail volume.

The company, currently producing only about 2 million pieces per month, says the system can cut combined production and delivery time for mailings by as much as six days. Within two years it hopes to expand from five production centers to 85 and be able to provide next-day delivery to nearly all of the nation.

USPS has its own experimental “Mail Online” system aimed at nurturing business from smaller and mid-size firms by helping them qualify for automation discounts. For a fee, the Service accepts electronic mailing lists and documents from a business over the Internet and relays them to a contract printer, who produces the mailing and enters it at a designated facility. However, a Postal Rate Commission decision on the service has been stalled while the panel considers charges by a mail advertising service group that the USPS program would violate antitrust law.

What’s the good news in hybrid mail? Simple: USPS can encourage greater volume of automation-friendly mail both from big businesses and from smaller firms that haven’t been able to qualify for “cost-sharing” discounts. And, although much of the ground is covered electronically, it’s important to note that letter carriers still provide the “last mile” of service to the patron’s door.

The contest for that last mile—the actual delivery—is the crucial issue for letter carriers when discussing the survival of the Postal Service in the 21st century. But to assure the USPS continues to thrive also demands a fresh assessment—and perhaps a broader vision—of its role in American society and how to fulfill it.

On the electronic horizon

Forward-thinking planners—dreamers, some say—envision the Postal Service as more than the mail. They see it as the great American gateway to the Internet, a cyberspace hangout where everyone has an e-mail address that is linked to their physical address, with access to the web through a low-cost or no-cost, full-service USPS portal. Farfetched? Perhaps a bit—and certainly subject to legal and legislative struggles—but already being explored in Europe.

Nonetheless, some strides into the e-world—baby steps, if you will—are being taken. For instance, at the end of April, the Service officially launched the Electronic Postmark, a USPS-developed security guarantee for Internet messages. The “postmark,” or EPM, can detect whether an electronic document or data file has been intercepted or tampered with in transit. In addition to that layer of security, the USPS postmark is a trusted third-party validation of the time and date of the electronic message, a guarantee that is increasingly important in the world of 24-7 high finance. And illegal tampering or interception of messages ensured by an EPM would be subject to criminal investigation and possible prosecution.

Although the financial rewards of the deal are unclear, the EPM ~ electronic postmark ~ is a good example of how the Postal Service can convert one of its "old fashioned" assets, the sanctity of the mail, into a cyber product.

Currently USPS does not actually “handle” the electronic transmission or offer EPMs to individual customers. PostX Corp. purchased the first two million EPMs from the Service (other companies are ready to do the same). It will resell them on Internet messages it exchanges through its own secure e-mail software for its customers, which include Ameritrade, the on-line stock brokerage, and FleetBoston Financial.

Although the financial rewards of the deal are unclear—neither USPS nor PostX announced the terms—the EPM is a good example of how the Postal Service can convert one of its “old fashioned” assets, the sanctity of the mail, into a cyber product. In fact, in announcing the deal with PostX, the Service said EPM is just the first of a group of products it plans under the umbrella of “Postal Secure Services.”

Although modest in scope so far, other cyberspace-based variations on traditional products and services from USPS include:

Stamps Online, an enhancement of the telephone stamp-ordering service that allows patrons to purchase stamps—ultimately delivered by letter carriers—via the Internet and pay with a credit card. This serves as a foot in the door toward making patrons comfortable with doing business with USPS on the Internet.

PosteCS (Post Electronic Courier Service), a worldwide, secure electronic message delivery service operated in conjunction with other postal authorities and third parties that includes electronic postmark, tracking, proof of delivery and other services.

USPSeBillPay, an electronic bill-paying service that is an effort to cash in on the very technology that is threatening to divert billions of dollars annually in first-class revenues. The Service hopes its “brand” will attract people now reluctant to conduct financial transactions in cyberspace. Predictably, a trade group has lodged a complaint that eBillPay violates an Eisenhower-era prohibition on USPS competition with the private sector.

So, the Service has a fistful of irons in the futuristic fire—capturing data from enhanced parcels and direct mail, using the Internet to speed mail across the country, cyber sales and services. It sounds like a business on track to success. But the Postal Service, cornered by competitors and strapped by legal chains, is caught in a struggle that has overtones of desperation.

The shape of things to come

In confronting the exponential explosion of information technology, the principal stumbling block for a flourishing U.S. Postal Service, many business and political leaders believe, is the 30-year-old law that transformed the old tax-supported Post Office Department into a self-supporting independent federal agency.

Six years ago this month, in the pages of this magazine, NALC President Vince Sombrotto wrote that, in the face of the burgeoning electronic revolution, “it’s time...to reconsider, to strengthen the U.S. Postal Service. It’s time to talk about reshaping, revising and amending the Service’s entire legal and regulatory environment....” The Postal Reorganization Act of 1970, he said, had served its purpose well, but was falling behind the times.

That reshaping process has proceeded fitfully since 1994. The effort spearheaded by Rep. John McHugh (R-NY) and supported by the NALC to craft fair and substantial reform legislation has lurched and sputtered along. Barring a legislative miracle, it will not bear fruit in this Congress.

Why accept limits when a new vision of the Postal Service as a supplier of both electronic services and traditional deliveries would provide financial support at a time of predicted declines in first-class revenues?

While post offices overseas are rushing to embrace commercial freedom, as reported in the June Postal Record, the U.S. Postal Service is snarled in regulatory red tape. It takes almost a year to change prices (postage rates), yet private competitors can raise or lower prices daily or hourly. USPS cannot offer “volume” discounts to key customers—the very reason it couldn’t compete for the federal government’s overnight delivery services. But even McHugh’s modest attempt to give the Service some flexibility in product pricing has foundered.

Reflecting the contentious legislative atmosphere, fierce opposition greeted a proposal during the current reform debate to allow USPS to create a separate corporation for e-commerce that would be subject to the same commercial law as private companies—a way to answer charges the Service is exploiting its special legal status and letter mail monopoly to subsidize other products.

As a result, USPS is still under the thumb of the Postal Rate Commission, where proceedings staggered on for months and competitors—posing as “interveners”—can throw procedural sand in the gears of any new business proposal.

In short, the Service’s efforts to stretch its commercial wings are being blocked politically by private competitors who enjoy exploiting short- comings in the Postal Reorganization Act and who intend to keep USPS tied down within the narrowest possible interpretation of its mandate until it withers away.

That mandate, spelled out in the 1970 law, is to “provide postal services to bind the Nation together,” and includes the obligation to furnish universal service at uniform rates. In a new age of communications, however, there is no reason to meekly accept the argument that language means only conventional mail.

Indeed, why accept limits when a new vision of the Postal Service as a supplier of both electronic services and traditional deliveries would provide financial support at a time of predicted declines in first-class revenues?

Most certainly, the soundest foundation for the Postal Service is continuing to deliver letters, flyers, periodicals and parcels six days a week to 134 million addresses, and securing that business through regulatory reforms must be the first priority. But there can be little doubt that there are many other possibilities “outside the box.” Given some commercial leeway, for instance, the Postal Service could use its transportation infrastructure to compete in areas like corporate logistics support, as UPS and FedEx are doing. Global shipping and secure messaging also beckon as fields for growth.

In Europe, post offices have jumped—or been thrust—into these commercial realms, often in joint ventures with private corporations, and are looking for ways to expand further. The British subsidiary of Andersen Consulting has studied commercial options for postal services and recently issued a report for an international postal conference set this fall in Geneva, Switzerland, which focuses on e-commerce opportunities in a new world where people will use both paper and electrons to communicate.

The paper points to three broad areas that can generate increased revenue for post offices with new or value-added services for consumers:

Supply chain services built on existing networks for distribution of physical goods—the sort of logistics support mentioned above as well as meeting the delivery and return needs of e-commerce.

Unified messaging services, providing customers convenient, affordable access to both electronic and physical delivery.

Secure e-services based on the trusted “brand” that most postal enterprises possess.

“For the customer, a complex dual-mode world with significant volumes of e-mail and physical letter mail is emerging,” the paper says. “This presents an opportunity for postal enterprises.”

To capitalize on that opportunity “will require postal services to develop and deploy new electronic messaging infrastructure and capabilities to accept and deliver e-mail and hybrid mail messages.” Each citizen would have an electronic mailbox and e-mail address, as well as access to basic e-mail, secure electronic document services, and verifying e-postmarks.

Delivery services would include allowing the receiving customer to select specific senders of messages and mail, and specify the method of delivery—electronic or physical—and location of delivery (which physical or cyber address to use).

Ultimately, there would be a customized place in cyberspace for every patron—personal home pages on the web site called MyPostalService.com, perhaps, that gives them access to electronic messaging, physical mail and package delivery services, retail postal products, government services and information, secure financial services (bill-paying, stock trading, etc.), and shopping.

Many of these ideas already are on the drawing board, or being implemented, but for the USPS to turn its current web site into such an elaborate service would demand considerable effort and expense—and an extended battle on Capitol Hill. In fact, any serious discussion of postal reorganization almost always returns to the political arena, where harsh reality, hard choices and horse trading are the order of the day.

Options for a bright tomorrow

In the best of all possible worlds the digital revolution would bring nothing but riches to the Postal Service—more mail of all kinds and especially more high-yielding mail that together with increasing productivity promotes the “virtuous cycle” of more mail leading to better prices, leading to more mail and so on, indefinitely into the future.

All signs, however, portend a different future for traditional mail—one of sluggish if not declining volume and significant erosion in those segments of the mail stream that pay the institutional or “overhead” costs of the Postal Service.

What can be done, and what should the NALC do, if the “vicious cycle” described in the March Postal Record of declining volume forcing up prices, which in turn drives down volume, becomes a reality?

There are three possible paths the NALC—and the Postal Service—can take:

Ask Congress for a return to the pre-Reorganization Act days when substantial taxpayer subsidies kept the Post Office Department afloat.

Accept the fact that with stagnant or possibly decreasing volume, the “vicious cycle” has set in and the Service must reduce its universal service obligations to the public—whether by cutting back on delivery, closing retail outlets, providing less door-to-door delivery or some combination of the three.

Aggressively expand the services and products of the Postal Service, both traditional and non-traditional—in short, “commercialize” the Postal Service along the path a number of foreign postal services have already trod.

The first option—taxpayer subsidies—looks inviting, but it is doubtful that even the most aggressive lobbying by the NALC and other postal organizations will convince U.S. House and Senate members to turn the clock back 30 or more years and put the Postal Service on the public payroll. This is especially true should anti-labor, anti-Postal Service forces control the White House and the Congress.

The second option clearly isn’t attractive—and may not even be feasible. Cutbacks in services simply would accelerate the “vicious cycle” by driving more mail out of the system to burgeoning electronic alternatives. With volume declining even further, especially the high-yielding mail that would likely be first to jump ship, USPS would be forced to raise rates to cover its institutional or fixed costs, thus leading to another decline, ad infinitum—or at least until the system collapses. Perhaps a congressional safety net could stop the hemorrhaging, but betting on relief from Capitol Hill is risky at best and probably reckless.

Only the third alternative—aggressive commercialization by the expansion of traditional products and new electronic services, creating joint ventures with private sector firms, marketing infrastructure expertise—holds any future for the Postal Service should it face financial calamity due to a decline in mail volume, an uneconomical change in the mail mix or both.

But given the opposition of such giants as UPS and Federal Express, and a myriad of other new competitors in a variety of fields the Postal Service might wish to enter, is commercialization politically feasible? Will Congress allow—or can Congress be moved to allow—the Postal Service to expand into new services and products when UPS and others with deep PAC pockets and slick lobbyists will be vigorously opposing any reform that would strengthen the Service?

But should commercialism emerge as the only realistic lifeline for the Postal Service, it will not come without significant costs. Putting it bluntly, the Postal Service will have to give up something—whether it be the Private Express Statutes, its status as a public entity, its sole control of the mail box or some of its other unique attributes. The nation, too, would have to consider what it is willing to give up in terms of the institution created by the Founders to knit together all the towns and neighborhoods of the land.

The task for NALC leaders and members will be to fashion a strategy in the years ahead that identifies the “right” trade-offs—the ones that will allow a different kind of Postal Service, operating under different kinds of constraints but blessed with new and exciting opportunities, to continue to provide the best possible service to the American public. More so than ever, the political power of letter carriers and the NALC would be vital to making this vision a reality.

Article from the July 2000 issue of The Postal Record.

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