Postmaster General Patrick R. Donahoe was the featured speaker at the
January 6, 2015 National Press Club Newsmakers news conference in Washington DC. Speaking to reporters collectively for the last time prior to his
retirement, Donahoe praised postal employees for their hard work and
accomplishments and also offered postal stakeholders some unsolicited advice
for a profitable future.
Good morning.
It’s nice to be back at the National Press Club.
About 40 years ago I was rousted out of my bed by my Uncle Bob….because he
wanted make sure I got down to the Pittsburgh General Post Office on time to
take a postal job exam. If he hadn’t done that, I wouldn’t be here now.
I ended up working afternoons while I was going to the University of
Pittsburgh during the day – it wasn’t so easy managing those two demands on my
time. Today, I consider getting that job a very lucky start to my career.
Now….if you could talk to that younger version of myself at that time of my
life, there’s no way I would ever have guessed that I would stay with the
Postal Service for 40 years – much less that I would be able to lead a 630,000
person organization and serve as Postmaster General.
I was fortunate at every stage of my career: I found interesting challenges
and opportunities and great mentors. That’s a testament to a special
organization, and really great people who are dedicated to serve the American
public every day. owever, when you have 40 years of perspective and you’re still working out
of a tough financial crisis, you wonder about the young person who might be
joining the Postal Service today.
What is the organization going to look like in ten or 20 years? How
will we serve our customers in the future? Will that person have the same
opportunities? Those questions need to be addressed. And, the best approach is to
take a broad, long-term view of the organization and develop strategies that
best serve our customers and employees into the future.
- Can the Postal Service operate profitably far into the future?
Absolutely.
- Can it continue to adapt quickly to changes in the marketplace? We’ve
proved that.
- Can it continue to meet its full potential as an engine of growth for the
mailing industry and America’s businesses? Yes.
- Can it do these things within its current business model? Not likely.
If you’ve followed my tenure as Postmaster General over the past four
years, you’ll know that I spent a decent amount of time trying to push for
legislation that would give the Postal Service greater operational flexibility.
- This means having greater control over the way we
manage our workforce, including healthcare benefits;
- This means fully managing our infrastructure;
- This means having greater pricing and product
development flexibility; and
- It means being able to solve problems and pursue
opportunities without irrational mandates and legislative requirements.
Retiree health benefits are my favorite example of an absurd mandate. Unlike practically any other organization, the Postal Service is required to
prefund the retiree health benefits that we have promised to our employees.
Unfortunately, Congress decided to make the Postal Service prepay a 40-year
obligation in a ten-year period – which we could have been able to pay,
if the Internet had never been invented.
To compound the issue, we massively overpay for retiree health
insurance. That’s because our employees are in plans that don’t leverage
the Medicare benefits that the Postal Service and our employees have already
paid for.
Under our current mandates, we’re supposed to pay a total of $96 billion into a Treasury department account. We paid roughly $48 billion
prior to 2011, and defaulted on roughly $22 billion over the past three years.
The sad part of all of this is that it could be fixed immediately with
legislation. If we integrate Medicare into our retiree healthcare plans
we would be fully funded after just one final $3 billion payment. Done.
Rather than overspend on healthcare, we could be spending those funds on a
new vehicle fleet, package sortation equipment, pay down debt, and
significantly slow postage price increases.
What’s holding us up? Myopia….shortsightedness.
That may sound a little harsh, but it would be too easy to say that it’s
just Congressional gridlock. To no avail, we’ve been trying to get postal
reform legislation passed for the past four years.
As much as we try to have an elevated conversation about the future of the
organization, we never get beyond the narrow set of interests that are
determined to preserve the status quo.
The Postal Service put together a smart, comprehensive business plan and
made recommendations about legislative changes to get us back on a sound
financial footing.
We didn’t get much support from our unions or the mailing industry –
because it threatened the status quo.
The mailing industry views the future of the Postal Service mostly through
the lens of pricing – so they don’t want the Postal Service to have greater
product and pricing flexibility. I’ve always found this very odd, because the
ongoing lack of reform creates more pressure to raise prices – which is what
happened this past year.
Our labor unions view the future of the organization mostly through the
lens of preserving jobs and benefits as they currently exist. Technology
is driving dramatic changes in delivery services – just look at how Amazon is
offering one-hour delivery in New York City. The Postal Service needs the
flexibility to be a part of those changes – and more importantly, to shape
those changes.
The Postal Service is delivering packages seven days a week in most parts
of the country. We don’t need to be delivering mail on Saturdays. It just doesn’t make financial sense given the drop in mail volumes, and the
public supports making the change to five-days of mail delivery.
My hope is that the new Congress will find ways to build consensus. It has to start with a real willingness on the part all stakeholders to take a longer-term
view of the organization. The narrow interests can’t continue to get
in the way of the broader national interest.
Just last year the American Postal Workers Union mounted a protest campaign
and disrupted our partnership with Staples, which was a great business partner
for the Postal Service. The Postal Service partnered with Staples to provide
our customers with more convenient access to a wide range of our products and
services in roughly 82 Staples stores. It was successful in terms of
driving greater revenue for both partners.
Unfortunately, the APWU approach is to try to keep all of our transactions
in Post Offices. That’s not convenient for our customers, and it’s not a smart
retail strategy for our business. We’d much prefer to be able to sell our
products and services with a multitude of retail partners and be in popular
locations to make it easier and more convenient for people to do business with
us.
It’s an example of the arrow, near-sighted view winning over the broader,
long-term strategy. Unfortunately, it’s now tougher for us to find retail
partners.
Attitudes have to change…and I hope they will.
I’ve been accused of being optimistic to a fault. Perhaps I am….but I
believe this new Congress will take a fresh look at the long-term future of the
Postal Service and pass the legislation we need.
As someone who’s leaving his job in a few weeks, I’ll offer some
unsolicited advice on the way out.
First of all, acknowledge the reality that the mailing
and shipping marketplace is changing… rapidly.
- First-Class Mail volumes have declined by 35 percent
in the past ten years. That would be worth $17 billion in annual revenue
today – and it’s not coming back;
- E-commerce is driving big demand for delivery
services. That’s what’s driving our package business growth;
- Location-based technology is enabling tremendous new
ways of adding value to delivery; and
- Integrating mail with digital technologies is
creating powerful strong business opportunities for the senders of mail.
These facts about our business need to be part of the business model
discussion.
Will the Postal Service always continue to fulfill its core service
mission? Yes – but Congress needs to look at the Postal Service as a
business that is going to be a lot different in the coming years – and it
should view this as a positive, desirable outcome.
Second, Congress needs to take a broader,
long-term view of the organization.
America needs a strong Postal Service. It needs a Postal Service with
a business model that is profitable over the long-term so that it can
continually invest in the future.
We owe our customers and the nation a Postal Service that will continue to
drive the economy, help businesses grow, and provide continually improving
products and services.
The discussion about the future of the organization would benefit greatly
by working toward a 10 or 15-year time horizon. If you truly embrace the
longer-term view, many of the narrow, special interest issues have a completely
different context and become much less important.
Third, the Postal Service needs the authority and
the flexibility to manage the organization more like a business. That
means streamlined governance, fewer constraints on pricing and products,
workforce flexibility, and freedom from irrational mandates.
We will always have strong oversight, and checks and balances.
We also need to have the attitude across the industry that encourages
flexibility in the way we manage the organization and adapt to the marketplace.
Fourth, I would encourage Congress to view the
Postal Service as a test bed or laboratory of change that might be applied to
the rest of the federal government.
When we look at the workforce we’ll need in 20 or 30 years, what we are
doing today will have to evolve.
Most young people aren’t looking for a single employer over the course of
their careers. In today’s world, does it really make sense to offer the
promise of a government pension to a 22 year-old who is just entering the
workforce? And how reliable is that promise?
Postal Service’s financial issues are similar to those facing the federal
government. At some point the costs have to come down and those promises
of benefits have to be paid. Just look at the unfunded liabilities with
military vets and federal, state and local retirement systems.
We’ve proposed transitioning from a defined benefit program to a defined
contribution program for postal employees. A thrift savings plan or IRA
would give our employees much more mobility and flexibility. It may also
be a much more responsible and honest arrangement when all is said and done.
I’d like to see the Congress encourage much more experimentation at the
federal level. The Postal Service has the kind of management that would
appreciate being at the front edge of change and would make good use of
opportunities.
Healthcare reform is another important area for experimentation. I
don’t think anyone would argue that the federal government isn’t massively
overpaying for employee and retiree healthcare benefits. Let the Postal
Service develop a more cost-effective approach. We’ve developed some
promising proposals – we should have the flexibility to pursue them.
Over the past four years, I have had the privilege to lead a great
management team and a tremendous organization through some challenging times.
I’m very pleased to say that our last fiscal year was our best of the past
six years.
We earned a controllable income profit of $1.4 billion. Considering
that we recorded a $2.4 billion controllable income loss in 2012, that profit
represents a very big success for the organization. We’ve also
accumulated $6 billion in cash, which gives us some flexibility to make long
overdue investments.
It was pretty gloomy coming out of the 2008/2009 recession. We were
facing declines in every part of our business.
We had to revamp and improve our core offerings. We significantly
upgraded our product development and marketing strategies – which helped spur
strong growth in our package business in particular.
If you look at the fact that we offer date-specified delivery, free
insurance and free tracking for our Priority Mail offerings. That’s a
great value to the sender and it continues to attract more customers to the
Postal Service.
However, we couldn’t have offered those features if hadn’t taken a
long-term approach to upgrading our technology and tracking systems. We’ve worked hard to put a strong data and technology platform in place to
drive future innovation.
One of the reasons we’ve solidified our mail revenue over the past two
years – especially standard mail – is because of the rich reporting data we now
provide to our commercial customers.
We’ve also worked hard to develop a culture of risk-taking and
experimentation.
We’re delivering groceries in San Francisco; we’re doing same-day deliveries in
New York; we’re delivering on Sundays in many markets; we’re doing some small
scale warehousing services. It’s been yielding results.
Every Door Direct Mail is a digital tool designed to bring small businesses
into the mail – it was an experiment that’s now driving almost a billion
dollars in annual revenue for us.
We’ve also invested in our product development and marketing
strategies. We’ve revitalized our sales operations. Nagisa Manabe
and her team have done a wonderful job of getting closer to our customer and
competing for their business. We’ve now got a lot of momentum as an organization
as a result.
We’ve been just as aggressive on the cost side of the equation. Since
2006, we reduced our cost base by almost $16 billion.
- We did that by consolidating 305 mail processing
facilities.
- Our Post Plan optimized the window hours at 13,000
Post Offices.
- We eliminated 23,000 delivery routes, even as the
number of delivery points rises every year.
- We’ve reduced the size of our workforce by 212,000
positions, relying on an orderly process of attrition and without
resorting to layoffs.
I think from any perspective, you have to say that it was the result of
developing a strong, long-term strategy, ignoring the naysayers and following
through.
If we hadn’t pressed so hard and moved as quickly as we did, especially on
the cost side of the equation, I have no doubt we would have run off the
financial cliff by now. Had we done nothing, Congress would likely be
bailing us out to the tune of billions of dollars annually.
If there’s one message I have today, it’s this:
We made a lot of tough decisions that were based on a long-term view of
what was right for the organization. We used every bit of flexibility we
had – as we should have.
That should be seen as a strong argument for allowing the
organization to have the additional flexibility it needs to deal with some of
our bigger structural issues.
If given that flexibility, I have no doubt the Postal Service will continue
to aggressively adapt to a changing world and a changing marketplace, and do so
profitably. That would be the best way to meet the expectations of the
American public.
Let me conclude by recognizing the performance of our employees over the
holiday season.
We saw package deliveries increase by over 18 percent and our on-time
performance was the best ever. Our employees were delivering in some tough
weather conditions – as they always do – and….on Sundays for the past eight
weeks in all the major markets. That’s a testament to an incredible organizational effort and employees who
are highly dedicated to their public service mission.
With all of the technology changes and disruptions…the Postal Service still
remains a critical part of the American economy and American society.
It has been a pleasure to serve the organization and the American people
for almost 40 years.
As I leave, I do so with a lot of optimism and confidence. My
successor, Megan Brennan, is going to be a tremendous leader of the Postal
Service. She’s been vital to our recent successes and will do a great job
of leading the organization in the coming years. It makes it a lot easier to pass the baton knowing that the organization
will be in such good hands.
Thanks for the invitation and the opportunity to speak with you
today. I’ve enjoyed getting to know many of you over the past few years.
