The U.S. Postal Service is tens of billions of dollars in debt and continues to lose billions despite cost-cutting measures. And while many point to a significant decline in first class mail and other revenues as the main reason behind USPS’ financial woes, the government-backed mail carrier may also be suffering from an identity crisis that is hurting its ability innovate.
The question about whether USPS is a federal agency or a business and the negative impact that uncertainty is increasingly having on USPS’ ability to engage private sector businesses in innovative partnerships were at the heart of a hearing Thursday held by the House Committee on Oversight & Government Reform’s Subcommittee on Federal Workforce, U.S. Postal Service and the Census.
Billed as an examination into “innovative postal products for the 21st Century,” the hearing quickly became more about whether or not USPS is impeding its own progress.
Will Davis, CEO of Outbox, Inc., told the committee of his frustrations with the postal service and the difficult nature of what will need to happen for the agency to innovate. He did so by paying homage to the 1987 cult-classic film “The Princess Bride.”
“There’s a scene in there where Inigo Montoya is caught up with a band of criminals, and there’s a criminal mastermind, and he keeps using the word ‘inconceivable,’ ‘inconceivable,’ when all of his plans don’t go as planned,” Davis said. “Montoya looks at him and he says, ‘You keep using that word, I do not think it means what you think it means.’ That’s a little bit how I feel today about the word innovation. I don’t think that it means what [the government and USPS] think it means.”
Outbox, which shut down four months ago, was a mail operation that allowed customers to screen their mail digitally and decide which physical pieces they wanted delivered.
A lack of cooperation on the part of USPS, Davis said, was one of the main reasons behind the company’s demise.
Davis and his business partner, Evan Baehr, recently met with Postmaster General Patrick Donahoe to talk about the results of an early test with USPS. In the meeting, according to the farewell letter posted on Outbox’s website, Donahoe and the senior leadership of USPS said they would “never participate in any project that would limit junk mail.” After the meeting, the early test partnership between USPS and Outbox was terminated.
Technology like Outbox is used successfully internationally. The ranking member of the subcommittee, Rep. Stephen Lynch, D-Mass., said similar screening systems are used in Switzerland.
“I think [that technology like Switzerland’s] is going to be coming to the United States at some point,” Lynch said. “That is really disruptive. It’d be a great thing for the environment because of the huge drop in mail volume because people won’t be getting mail that they don’t want. That’ll be a terrible thing for the United States Postal Service national letter carriers, it’ll drop in volume, but that’s really disruptive change. That’s what we’re going to have to deal with at some point.”
Lynch used the hearing and discussion of innovation to criticize House Oversight & Government Reform Committee Chairman Rep. Darrell Issa, R-Calif., who spearheaded efforts to push a small-scale postal reform bill through the committee after a markup yesterday.
The bill would require the Postal Service to move approximately 1.5 million addresses a year during the next decade from home delivery service to a centralized delivery system. By doing so, USPS could save more than $2 million per year, according to a statement by the committee.
“[Issa’s proposal] is disruptive in a way,” Lynch said. “But that’s not innovation, that’s a Luddite idea. That is going backward in time. That’s not creative. That’s extremely costly and inefficient and it reduces our flexibility in terms of what we’re doing next.”
James Cochrane, USPS’ chief information officer, said that the concept of collecting and digitizing mail, like Outbox, has been around for almost a decade. But the concept is not the problem, he said.
“The challenge was that Outbox approached it a little differently,” Cochrane said. “They didn’t want to have a commercial mail receiving agency, so that required them to go to the mailbox and pick it up. But there are companies out there sustaining that business model.”
Rep. William Lacy Clay, D-Mo., said the hearing was not the place to criticize the postal service for not innovating, due to the business-minded concerns that arise with some innovations like Outbox.
“I think it’s unfair to use this hearing to criticize the postal service for not being innovative and at the same time insist that it operate with a business mindset,” Clay said.
In a moment of bipartisan surprise, Clay and Issa agreed.
“Although it’s a shame to see a for-profit entity close because they’re not making a profit, I do agree with you that this is an innovation that should be on the list of innovations for the postal service because it falls squarely within their basic requirement,” Issa said.
Issa said he sees advantages to public-private partnerships between USPS and private entities, but in the case of technology like Outbox, the postal service should own it outright, he said.
“When [Lynch] talks about digital delivery in Switzerland being inevitable, he talks about a version of Mr. Davis’ business plan that Switzerland has gotten ahead of us on,” Issa said. “He’s absolutely right. These innovations are either going to happen within the postal system, or the postal system is going to miss it all together and then be fighting for its core right not to participate with a business that may already have gone a long way.”
From resistance to denial
Davis’ company was not the only company that was slowed down by resistance from the postal service. Patrick Eidemiller, the director of engineering and technology for M-pack Systems, said resistance from the post office has slowed, and perhaps even stopped, a potential redesign in how pharmaceuticals are shipped through the post office.
M-pack is a flat pharmacy vial, compared to the classic brown vial that prescription drugs traditionally come in. The company also outfitted the vial with a tamper-evident seal.
“We have more security. We also have a lot more label space; it’s more space efficient, more compact,” Eidemiller said. “Flat has another advantage — the USPS provides a favorable rate for what’s called a machinable flat.”
To mail the classic brown vial currently in use, USPS requires that it be mailed as a parcel for $2.22. With M-pack’s redesign, the vial would theoretically be mailed as a machinable flat for $1.56 — a 29 percent savings.
The problem, Eidemiller said, is USPS will not accept the redesigned package as a machinable flat, even after approving it once already.
“This envelope meets all of the mechanical requirements of this machinable flat; we tested it on the Siemens test equipment in Fort Worth and verified that it worked. We received our approval on June 17, 2011,” Eidemiller said.
Even after a redesign reportedly made the package lighter, smaller and cheaper, USPS ultimately denied both the original and the updated package as a machinable flat, according to Eidemiller.
“Our packages were rejected,” Eidemiller said. “We were shocked — this had been approved once for a completely different reason. It was not the fact that it does not meet the mechanical requirements of a machinable flat. It was that a box in an envelope is not a machinable flat.”
M-pack attempted to work with the post office to make the packaging qualify, but the attempts were unsuccessful. So the company took the packaging to the private sector, to one of USPS’ largest competitors — the United Parcel Service.
“They said, ‘You know what, we’ll take it,’” Eidemiller said. “No questions asked.”
Despite both Davis and Eidemiller’s frustrations with USPS, Seth Weisberg, the chief legal officer for stamps.com, and Todd Everett of Newgistics, Inc., both testified that their companies have forged lasting and productive relationships with USPS.
In the case of stamps.com, the service allows customers to purchase and print U.S. postage from their own computers and printers. Newgistics, Inc. is the top provider for USPS’ Parcel Return Services.
USPS CIO Cochrane acknowledged the problems associated with the agency’s financial deficit, and said a comprehensive congressional reform of the postal service was necessary. But reform must include granting the postal service more authority to make business decisions without the approval of Congress, he said.
USPS reported a $2.2 billion year-to-date loss earlier this month. The independent government agency does not receive any taxpayer money and is sustained by revenues from shipping and stamps.
