August 28, 2006

There have been a lot of comments lately on postal worksharing discounts leveraged by “big mailers” and potential changes to the postal delivery network. Postal commentator Gene Del Polito and the American Postal Workers Union (APWU) president William Burrus recently exchanged their views on heated topics such as Evolutionary Network Design (END) as well as their positions on worksharing discounts for bulk mailers. And just the other day, Brian Sheehan, editor of PostalNews.com, posted his views and posed the question “Do postal employees hate their customers?”

Since not everyone is familiar with the details in such hotly debated topics as Postal Reform, END, and the pending Rate Case, I thought I’d take a moment to perhaps explain what one of these contentious issues is all about: worksharing discounts. And fortunately, I stumbled upon an example earlier this summer while shopping at a local retail store.

I am a father of four children, and like most young children, they grow rather quickly. As such, my oldest son needed a new bicycle. So, we went to the local store to select a new bike and once we selected the right one, we had to make an important decision. Do we purchase the bicycle fully assembled and ready to ride off the show floor, or do we accept a discount on the price of the bicycle and assemble it ourselves?

Now, the question isn’t necessarily as simple as it may seem. For example, if I do choose to assemble the bike on my own, do I have the right tools? How long will it take me to assemble the bicycle? And, is the discount between assembled versus non-assembled really equal to my time and effort as well as the delayed enjoyment of my son riding his new bike? Also, from the store’s perspective, is the price discount truly equal to their cost avoidance in assembling the bicycle for me? What are the risks with entrusting me to assemble the bicycle according to the manufacturer’s instructions?

These are very similar to the same questions a mailer faces when we talk postage discounts, or worksharing. Mailers can choose to either pay full postage rates, or accept a discount based on the amount of work they are willing to do prior to mailing and thus offset those costs to the USPS. The question, though as in the bicycle example, is whether it is financially worth the effort of the mailer to do some of the mail assembly (address correction, presorting, drop shipping, etc.) in order to reduce their postage. At the same time, the APWU is questioning if the discounts provided by the USPS are truly equal to the cost avoided by the USPS by having the mailer perform the work. Furthermore, is the mailer’s preparation of the mail really conducive to proper delivery?

This is why this whole postage discount issue is so contentious. Both sides are questioning the value of the worksharing discounts, but from different perspectives. The industry feels that the discounts are necessary if they are to continue to economically leverage direct mail. Furthermore, they are continually seeking new ways to offset costs to the USPS and thus receive additional discounts due to the continual investments necessary for proper mail preparation and delivery.

The APWU is questioning the validity of the some of the current discounts and is calling into question future discounts, stating that they must strictly adhere to the concept of cost avoidance. Of course, calculating the exact cost avoided can be extremely difficult and contentious.

Perhaps that’s the heart of all of these related issues. One side says the discounts are not enough; one side says they go too far. Since I’m not an economist, I’ll leave the final answer up to those better qualified. In the meantime, I’ll be at the park enjoying a ride with my son and his new bicycle.