Postmaster General Jack Potter: 2004 AMC

October 26, 2004

John E. Potter
Postmaster General and CEO
United States Postal Service

American Magazine Conference
Boca Raton, FL
October 26, 2004 

I am flattered to be here among so many magazine industry leaders. And  it’s good to see some of the folks I’ve worked with over the years:  Nina Link, thank you.  And Jim Creegan. Jim, good to see you.

And Cathy Black who heads Hearst Publications, and Ann Moore, chairman and CEO of Time, good to see you — and thank you for your active support over the years.

Magazines were part of my life growing up. It started with Boys Life.  Boys Life gave me something of my own to look forward to in the mailbox.  Later it was Sports Illustrated.  As I got older, my tastes changed and I began to read news and business publications: Time, Newsweek, US News, and Business Week.

The Postal Service values your business. Today, the magazine industry annually gives us 7 billion magazines to deliver. Almost 90% of your total circulation reaches your subscribers through the mail. 

Postal customers look forward to going to the mailbox and seeing your titles there. Your magazines are welcome friends in American homes.  Thank you for being in our mailboxes. 

We also appreciate the $2 billion in revenue that the magazine industry gives us annually.  In fact, I wish all of you well in 2005 as you reach out to build circulation.

Think about using direct mail as a means to reach out for new magazine subscribers.  Mail works.  It will tell your story, the story of how magazines communicate news, information, and entertainment.

Going forward, the magazine industry and the Postal Service face similar challenges—a changing marketplace . . . competition from the internet . . . and we are hard copy industries, securing our roles in the digital age.  

Today’s magazines are not the same magazines that we delivered 30 years ago. And today’s Post Office is not your grandmother’s Post Office.  And your grandchildren’s post office, I am certain, will not be anything like the post office we have today.  And that’s the way it should be.  You can’t stand still in your business; nor can we.

That’s why 10 years ago, we began discussions to modernize the 1971 legislation that established the United States Postal Service.

The 1971 law was called by some a “bold experiment,” because we were chartered to operate as a businesslike public service.  Congress decided to take politics out of the day-to-day running of the Postal Service by establishing a core of professional managers whose goal was to provide affordable, universal service to all of America. 

We were also told to break even over time and end three decades of taxpayers subsidies that averaged 18% of our operating budget.  Many thought we’d fail.  We surprised a lot of people.  Today there are no subsidies!  We’ve had 34 years of balanced revenues and expenses.

However, the future has many uncertainties.  Recognizing this, after I became Postmaster General, we unveiled a Transformation Plan to once again modernize the Postal Service.   The Plan focuses on changes we could accomplish within existing law. 

It refocused on our management and employees on our core business — on you, our customers.  We also committed to the period of rate stability we are in the midst of now.  And we refocused communications with our employees so they understand how the marketplace has changed and how the Postal Service has to change with it.

After three years, the Transformation Plan is still our roadmap.   It focuses on five areas:  service performance for our customers, strong cost controls, our people, growing the business, and with the future in mind, driving toward legislative reform.

And the plan is working and we’re delivering results for you.

Service performance has never been better. Performance on First Class mail is at record levels.  For the past two years, we’ve reached a 95%, and last spring we hit a record 96% local score nationwide.  These aren’t internal scores, either. They are independently measured and publicly reported.

Service in non-measured categories like Standard Mail, packages, and periodicals is also excellent.  How do we know that?  Because that’s what we’re hearing from you.

And high service performance has translated into historically high, independently measured residential customer satisfaction levels.

In our Transformation Plan, we committed to taking $5 billion in annual expenses out of our system within 5 years.

We’ve just completed the third year — and we’ve achieved more than $4 billion in savings. Over the past 3 years we have achieved a cumulative $8.3 billion in savings. 

From a complement viewpoint we have reversed the trend of rising postal employment numbers. In three years, we’ve right-sized our workforce by trimming 72,000 career employees. And we did it without layoffs — and working closely with our union and association leadership. 

Today our career workforce is about 707,000 – essentially the same level we had 20 years ago, in 1984.  And we’re delivering 65 billion more pieces of mail to more than 48 million new addresses.

Mail is a labor intensive business.  I’m happy to say there is a new environment in labor relations and employee relations in the Postal Service. Our employees and unions understand that to maintain universal service for the American public we in the Postal Service had to change our approach to the business. 

A critical change was that we had to work together on the concerns and needs of our customers.  We had to move from an internal focus to an external focus.  

We had put our differences behind us.  No where was this more visible than in our grievance process.  Today, grievances pending arbitration are down — by over 60%.  Workplace safety statistics also reflect that we’re paying closer attention to our employees. In three years, injuries and accidents have declined by 35%. 

Historically, our workers compensation costs have seen annual double digit increases.  Last fiscal year we brought those costs below the previous year—an unprecedented achievement.  

I credit improved communications between management and our unions as helping reverse what had been a bitter relationship.   This new understanding of the Postal Service environment is one reason why we have been able to negotiate extended labor contracts before the expiration of existing agreements.

Our employees have been supportive of productivity targets, too. They know we had to reverse the trend from 1971 into the late-1990s that showed little to no annual productivity growth. And we have.

Our productivity record has continued to climb to unprecedented levels every year for the past 5 years. And it will continue to climb through the next 3 years and beyond.

Financially, we’re in excellent shape. Last year we had an operating surplus, and we had another in Fiscal Year 2004. The books are closed and our accountants and auditing firm are validating the numbers. Our operating surplus in 2004 was substantial -- and it has enabled us to reduce our debt to less than $2 billion. Contrast that with the $11.3 billion debt we carried two years ago.

Despite these accomplishments, the issues we face remain daunting. Diversion to the internet and stiff competition in all product lines create a need for a new approach.  Let’s suppose for a moment our governing board has just named you Postmaster General.  Given your private sector experience, you’d ask a number of questions of your new staff.

For example, what is the pricing strategy to retain customers and grow the business? How does the Postal Service react to competition and changes in the marketplace? 

You’d hear, “Sorry, little flexibility under the existing law.”

So, you’d ask about your chain of retail outlets.  You’d learn that 2,500 retail outlets serve less than 100 customers and that there is a sizable number of offices in locations abandoned by residents and businesses for the suburbs. 

Well, can we close them, you’d ask.  “Nope can’t do that.”

Now, you’d look at your labor costs and ask about the escalation in benefits costs. Do we have flexibility there?

“Sorry, legislative restrictions, you really don’t.”  

And after learning that most Americans say they can live without six-day delivery, you might inquire about 5-day delivery.

“Ah, sorry sir, the law again. You just can’t do that!” By the way, you’d only explore 5-day delivery if you wanted to see your name and photo on the cover of every news magazine and newspaper across the country.

It’s issues like these that led the Postal Service to concentrate and work closely with the Congress, the Administration, and the mailing industry to call for legislative reform.  The road has been rocky and frustrating, but we have made a lot of progress.

Credit former House postal subcommittee chairman John McHugh of New York for drafting the first omnibus reform bill eight years ago. And credit the Administration for the appointment of a high level President’s Commission on the Postal Service in 2002. 

The Commission’s report was very useful in focusing attention on what truly needs to be done in the arena of postal reform. 

GAO chief David Walker also deserves a lot of credit for underscoring the long-term issues we faced.  It was out of the meetings with GAO in 2002 that the Office of Personnel Management and the Treasury Department discovered that the Postal Service formula to fund one of its employee retirement systems was on track to be grossly over-funded. 

The Administration supported legislation in 2003 that lifted that burden – and helped ratepayers avoid billions in outlays in 2003 through 2005. 

We all owe thanks to House committee Chairman Tom Davis, as well as Congressmen Henry Waxman, Danny Davis and John McHugh. In the Senate, committee Chairman Susan Collins, along with Senator Tom Carper, were instrumental as well in bringing the retirement legislation to passage.

And don’t discount the efforts of your leadership, and the others in the mailing industry, either.  I want to thank all of you for your participation in that effort.

This year — with bi-partisan support in the House and Senate — two bills cleared both chambers’ postal oversight committees. 

All these efforts — from the President’s Commission to the Congressional bills – clearly signal the Administration’s and the Congress’ commitment to a stronger Postal Service for America.

That’s not to say that we have a clear road ahead. We do not. As an industry, we still have to work through the public policy issues surrounding the future of the Civil Service Retirement System escrow fund.

And we still have to work through the impact on ratepayers if the Postal Service is required to fund military retirement liabilities and/or accrue funds for retiree health benefits. 

They are complex issues — and I am hopeful that they will be resolved in the weeks and months ahead.

So when I am asked about what the next series of rates will look like, I have to say it “all depends” on the outcome of these two issues. 

Remember, even though we have had legislative change in our retirement payments today, the legislation as signed into law still requires us annually to set aside approximately $3 billion beginning in 2006 and later.

That’s what’s complicating all discussions surrounding the size and timing of a rate filing next year. That’s why you have read much gloom and doom in the trade press speculating about rates. 

I also know that Tom Ryder yesterday listed Postal reform as the number one area of concern for MPA.

Given the stiff competition we face, the difficult road we’ve journeyed since September 2001, and continuing losses in First-Class volume, we are working hard to make the next rate increase as small as possible.  

As I said, the Congress and the Administration continue to focus on the reform issue. That remains an unknown. But reform is not going away . . . and it shouldn’t.

In my mind, though, if there were a litmus test for any legislative modernization, the final bill should meet the five principles for postal reform established by the Administration that arose from the President’s Commission last year.

They are: implement best practices, transparency, flexibility, accountability, and self financing.

Under implement best practices, the administration says that legislation should ensure that the Postal Service’s governing body be equipped to meet the responsibilities and objectives of an enterprise of our size and scope — $69 billion in annual revenues, 205 billion pieces of mail delivered annually to 141 million addresses, 707,000 career employees, a transportation fleet where every penny in fuel hikes costs us $8 million annually.

The second principle is Transparency.  The Administration believes that significant factual information on our product costs and performance should be continue to be measured accurately and made available to the public.

The principle of flexibility is equally important — and perhaps paramount. The Administration principle says that postal management and our governing board should have the authority to reduce costs, set rates, and adjust key aspects of the business to meet customer and marketplace obligations in a changing, dynamic world.

In the fourth principle, accountability, the Administration recognizes that a Postal Service operating with greater flexibility should have appropriate independent oversight to protect the consumer and universal mail service. None of us in postal management disagrees.

The fifth principle of reform, self-financing, is to ensure that we can operate with greater flexibility to remain financially self sufficient and cover all universal service obligations, including a growing delivery network. No one wants to see the Postal Service return to the day when taxpayers had to subsidize operations. Those days must remain behind us.

As constructed the current bills are an excellent first step, but I’d ask you to review them in the light of the Administration’s five principles and determine if the bills address each principle adequately.

Meanwhile, we continue to do a lot of things right. Our customers see innovation and progressive change in their post offices. They know we’re approaching them differently. No longer is it just the postal store — we want to bring the store to their door. And we want every small and mid-sized business to know it.

Look at us today from the standpoint of access and convenience:

We’ve added new products and services that allow customers to order stamps, pay for package services, print shipping labels, purchase insurance, put vacation holds on their mail, and now even arrange package pick up – all online. You don’t have to leave your homes or business today.

And in our post offices, we’re rolling out 2,500 self service kiosks so customers can complete most retail transactions without standing in line and most of them are available—24/7. 

Our goal is to build the business, to ensure that as the mail mix changes, we have the revenue to support an expanding infrastructure. And the mail mix is changing. 2005 will be first year that Standard Mail overtakes First-Class Mail.

We can no longer look to First-Class Mail to fund most of the costs of our universal service obligation. 

That’s a prime reason why we have embarked on measures to build the business in 2005. For example, carriers are working with small businesses to show how we can serve them better. And clerks are spending more time with retail customers explaining our products and services.

That’s another reason why the partnership between periodical-publishers needs to be strengthened. I want to see you succeed, because your success will translate to us, as well.

Our partnership goes back to Ben Franklin. Franklin was first and foremost a printer-publisher before becoming nation’s first Postmaster General.

He knew the secret to success in the publishing business.  He who controlled the post office controlled delivery.  So it’s no coincidence that shortly after his appointment as postmaster of Philadelphia in 1737, Ben’s newspaper and almanac became the most widely read publications in the colonies.

Today, over 260 years later, we still depend on each other.  You were with us when the fear of anthrax gripped the nation and the threatened the future of the mail. Thank you.

And today, you remain active partners. 

There’s a clear synergy of purpose between our two industries. You depend on us to get your publications to your subscribers, on time, and at affordable rates.  Our customers value your magazines when find them in the mailbox. 

At the end of the day, the American public depends on both of us to keep them connected with ideas, entertainment and information that directly relate to their lives.

Thank you for this invitation to address you today. Remember, my door is always open.