A Conversation with Postmaster General Patrick R. Donahoe

Donahoe discusses his vision for a new Postal Service in a digital age.
by | December 27, 2011 AT 10:00 AM

It has been a turbulent year for the U.S. Postal Service, which is dealing with a steep decline in mail volume and more than $5 billion in unfunded retirement mandates. Earlier this month, Postmaster General Patrick R. Donahoe announced that his agency will slash the number of mail processing centers in half, angering postal service employees and residents in communities across the United States.

USPS is projected to lose more than $14 billion next year, and members of Congress are now working on legislation that would help clear the way for the beleaguered agency to cut costs even more, including proposals that would allow the Postal Service to end Saturday delivery and eliminate price caps.

Patrick R. Donahoe was named the 73rd Postmaster General of the United States of America on October 25, 2010. A 35-year postal veteran, he reports to the Postal Service Board of Governors. Donahoe entered the Postal Service as a clerk in Pittsburgh, Pa. His previous officer positions include chief operating officer and executive vice president, senior vice president of Operations, senior vice president of Human Resources and vice president of Allegheny Area Operations.

Donahoe sat down to talk with Governing about the financial crisis facing his organization, reform measures before Congress, and the future of the Postal Service in an increasingly digital world.

Governing: What will the Postal Service look like after you’ve made all of the changes you want to make – in 10 years or so? How will it be different from the Postal Service we know now?

Donahoe: I think the first thing is, is that it’s key for the Postal Service – now and in the future – to be in good fiscal shape. Over the course of time, we know that hard copy, letter mail, magazines, will continue slowly but surely to drop off with the internet and other digital substitutes coming in.

So you have to know that going in, and the way you’ve got to think through that is: a) what’s the value of the Postal Service going forward, and b) what should it look like in order to meet the value requirements customers are looking for, and do it affordably?

If you look forward, we think the Postal Service 10 years from now will still be delivering a nice portion of the communication value in this country. We think probably somewhere in the vicinity of 120 billion pieces of mail – first-class business mail – so we will still be in a world of statements and some bills and invoices, to a lesser extent.

We’ll continue to be in the advertising business, as far as using direct mail for advertising. People will tell you today as they have told us for the last five, six years, ‘The Internet’s interesting, (but) we don’t make any money off of it.’ We don’t think it’s going to grow in leaps and bounds, but it won’t go away either.

But what will grow will be the package business. We’re experimenting with our residential package business that we worked with UPS and FedEx on called Parcel Select. We’re seeing 15 percent year-over-year gains there.

The other thing you’ll see is a Postal Service that is much more convenient. We’re introducing a new concept. We’ve installed the first two of 25 of what are called ‘Go Posts.’ A Go Post is a very different way to receive package mail.* You’ll have a lot more flexibility in where you’ll receive your mail and where you can conduct postal business. We’ve got 70,000 locations between our own brick and mortar and retail outlets that we’ve team up with, like Wal-Mart, Sam’s Club, Costco selling stamps and taking packages.

Finally, I think you’ll see the Postal Service playing a larger role in the digital environment because there is a need for someone to provide secure digital transmission. It’s not out there right now, and we’re working on some plans to introduce those products, too.

Is that going to be sort of a digital dropbox service where people can store their files?

Donahoe: We’re talking with customers – that’s where we’re at right now. But we know, as in digital advertising, that there’s not a lot of money that’s been made in the digital messaging world. I mean, people pay bills online, so that saves them money, and it saves banks and credit card companies money.

But the question is, what does the customer really want out of secure digital messaging, and how do you put that together? Do you do that with a partner or a set of partners, or do you just build a platform for people to use?

They key thing to remember about the Postal Service is, we’re a delivery platform, and a retail platform. What we’re examining is, should we put something together (for the internet) that’s similar to what we offer now, and what would that look like? What are the customers looking for?

We’re doing work now with people who are experts in that area, and we’ll be moving ahead full speed on it in 2012.

Would it be accurate to call this (project) a secure e-mail service?

Donahoe: Maybe, or maybe a secure e-mail box that you control…It’s hard for me to say, ‘here’s exactly what we’d be doing.’ At this point, we’re kind of in an exploratory mode and a listening mode to see what customers want.

You don’t want to build things people won’t be interested in. We’re trying to figure out whether it makes sense for us to be in this world. We think there’s some demand for it, we just have to make sure.

There’ve been a lot of strong reactions at post offices across the country to your announcement that you’re closing down and consolidating a lot of mail processing centers – by postal workers and local residents – and they’re almost always negative.

I know you guys are holding public hearings across the country, and I’m wondering if you’ve…decided to make any changes to your plans based on what you’ve heard there.

Donahoe: First of all, here are the problems we face. Mail volume is dropping for two reasons. Number one, the economy is poor, and we lost a lot of advertising volume during the recession. That has been slow to come back, but we think it’ll stabilize and be OK.

What we know won’t be OK is first-class mail. More than 50 percent of our revenue comes out of first-class mail. And as people pay bills online and small businesses go out of business or consolidate, volume continues to drop.

Given that, you have to make some choices. Processing network, post offices – all of these things are going away. We don’t take any tax money. Unlike the Federal government, there’s no deficit money to get yourself through a short-term financial problem.

Looking at post offices, here’s what we’ve proposed and here’s what we’ve learned. First of all, we’ve never proposed closure -- what we’ve proposed has been consolidation, contracting, and other options.

As we’ve done these town meetings, and we’ve down over 3,000 so far – other options have come up. One is to extend rural delivery. A lot of people pick up their mail in these very small towns, in offices that serve 100 people or less. So a lot of people have just said, ‘Hey, if you just extend the delivery route - that will be great for me. I won’t have to drive and I’ll save money.’ The rural carrier can sell stamps and accept packages too – they’re like a post office on wheels.

One of the proposals we’ve come back to the customers with is, what if we had a different cost model, and we were able to provide two, or four, or six hours of service, and we do that with a less costly employee, would you be OK with that? And people have said, ‘Yeah, we’d be OK with it.’

In some cases, you should consolidate. If one office is one or two miles from another, you should consolidate it. No store would have two offices when you can easily serve out of one. But we do have other options, like contracts – a full-service contract with a general store.

Bottom line is, we will not cut off access. We will honor the full-service commitments we have, we just have to figure out how to do it in an affordable manner.

But if people pay their bills online, and there’s less need to cancel mail at 480 facilities (ed. note: This is the total number of mail processing facilities), any self-supporting organization would have to figure out how to do more with less.

What we’ve proposed is to shrink down the total number of centers from about 487 to about 180*. Doing that would require some changes in service standards. Blue mailbox mail would go from a 1-2 day service standard nationally to a 2-3 day service standard. Commercial mail – bank statements, bills, that kind of stuff – we’d work with customers to get them to drop them at origin sites at the consolidation centers and as long as they’re in by noon, they’ll still get next-day service.

The bottom line is, 70 percent of the mail dropped in the Blue mailbox will still be delivered overnight, the problem is the more far-out areas where we’re consolidating. And people are asking, ‘Why are you doing that?’ Well, the volume of mail in the blue mailbox is going down by 7-8 percent every year. We’ve already lost about 60 percent of it. You can’t wait ‘til there’s nothing in there to act, especially when you’re self-funding.

There are a few proposals in Congress right now to reform the Postal Service and make it financially viable again. I remember hearing you say, in your speech at the National Press Club, that none of them go far enough. They all have the right idea, but none of them do enough. So my question is, if you could write up your own reform measures, what would it look like? What kinds of changes would you like to make?

Donahoe: The first action is resolve the retiree pre-payment requirement by allowing us to a) have our own health care plan, b) get out of the federal government plan, c) use Medicare to the full extent, and d) be able to take the savings we get from those plans and improve our finances somewhere $6 and $7 billion a year.

Second, we’ve overpaid into the federal retirement system – there’s no argument about that. Give us our money back.

Third would be to move from six-day to five-day delivery. The problem we have is that as we lose first-class mail, the revenue per box, per delivery, per day goes down. It’s not going to get any better, so keep post offices open, keep networks open, deliver post office box mail, end Saturday delivery… saves $3 billion.

Another point is, reform our workers’ compensation system. We have a workers’ comp system that’s antiquated, that makes no sense, and we’d love to have the same workers’ comp process that private industries have. That would save us 100s of millions of dollars on a yearly basis, and also mitigate a $17 billion long-term liability we’ve got.

Next point is to give us the opportunity, through the EEOC process, to appeal any decisions to a federal court. We have decisions now, and I can’t appeal them. Everyone else has the ability to appeal.

We would like to have a streamlined process around products and pricing so we can bring products more quickly to the market and offer a lot more flexibility.

One of the bills, Sen. Carper’s bill – and people laugh about it – allows shipments of beer and wine through the mail. But a lot of postal services around the world that make a lot of money off of this, and we would like to be in the mix.

Finally, we’d like to have the direction of an arbitrator. We have arbitration in our postal service if we can’t get to a contract, the direction of an arbitrator to take the long-term into effect when a decision gets made.

And we’d like to get all these things done right now. We don’t want to wait two or three years for implementation. We’d like to get everything in place by 2012 – get all of the hard stuff out of the way so we’re on good financial footing so we can get back to growing the mail.

I’d like to get back to something you said earlier, about the potential for shipments of beer and wine. Would you then have to lobby states to allow those shipments?

Donahoe: I think there are only three states in the country you can’t ship wine to. And we’ve got the Priority Mail program – if it fits, it ships – with the special, designed box, and we’d be right in that business. Go right to the post office, mail what you bought, get it when you get home. I mean, it’s not a big product, but that’s the kind of flexibility we’re looking for.

I wanted to ask you this – how could some of these changes affect state and local governments? I know a lot of them rely on the Postal Service to deliver all kinds of documents – bills, tickets, summons. How do you think these changes will affect them?

Donahoe: People will say to us, ‘You should work more with state and local governments to generate revenue.’ And I don’t disagree with that. But what happens with state and local governments is, they move online. Filing state taxes used to be big business for us, but that’s all online now.

So we’ll continue to work with states, especially with small post offices, if we want to co-locate in a city or state business. We’re more than happy to – we’ve reached out for years, but there’s not been a lot of interest. A lot of state and local governments have moved on to electronic documentation to save money and probably won’t come back.

Is there anything you’d like to add?

Donahoe: We think the Postal Service is important today – to the U.S. economy and to society, and we think we’ll be important in the future. We’re trying to do the things, whether it’s from the revenue standpoint or cost-saving standpoint, to get our finances in good order.

A lot of things we can do ourselves, but we do need Congress’s help. What’s been presented by the administration and in both houses – I think there are some very good things in there. Between the mixture of the three and speed of delivery (changes), I think, will go a long way in helping us.

*The Postal Service initially announced earlier this month that it plans to cut the number of service centers in half, to about 250. When asked, Donahoe said the number was 180 service centers. USPS spokeswoman Susan McGowan later explained that  that the Postal Service plans to cut the number of processing centers to between 180 and 190. The Postal Service is continuing to study its options, she said, and the number is not final.

Derek Quizon | Contributor