Relevant and even prescient commentary on news, politics and the economy.

Processing Center Percentages are “Not” On Time Delivery Percentages

Steve Hutkins of Save the Post Office has been live blogging and providing updates to the 12 federal district court cases filed. In the November 6, 2020 Update Steve discusses the delivery updates being filed in court and which are being used by some news outlets to show the USPS has been delivering ballots late and not on Election Day. Steve cautions against the use of this data as actual delivery dates are different than processing dates.

November 6, 2020 Update

The Postal Service’s daily reports on service performance, election mail, and late/extra trips (submitted as part of the Joint Order from the courts in RichardsonVote Forward, and NAACP) can be found here.

Steve Hutkins: One note about these daily reports on election mail. Some news reports are looking at these reports and misinterpreting the data and saying things like this:

“The data based on scans of ballot envelopes that were filed in Sullivan’s court Wednesday suggested that in South Florida, just 85.12% of the mail-in-ballots were delivered on Election Day and in central Pennsylvania, just 61.3% of the mail-ballots in the postal system were delivered on time both of which were based on the scan data in the court filing shown. In Philadelphia, slightly more than 66% of the mail-in ballots had been delivered on Election Day. In Atlanta 82.2% percent of the mail-in ballots were delivered on Election Day, the court filing shows.”

The daily numbers being reported do not indicate how much of the mail was delivered on time, i.e., within the service standard of two or three days. These numbers are  processing  scores, i.e., the percent of the ballots that went through the processing network on time. They do not encompass;

the “first mile” (the step between a voter dropping a ballot in the mail and its arrival at a processing center) or the “last mile” (from post office to letter carrier to destination).

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USPS Court Case Updates – Election Ballot Delays

Steve Hutkins on-line live blogging at Save the Post Office has been updating the progress of the “Lawsuits against DeJoy, USPS & Trump with relation to mail delays and election mail. This is the sweep ordered by the court for the USPS to perform to discover and report via the  “sweep of facilities”  how many ballots (were) are being delayed due to the USPS. The twitter link in the Afternoon Update has numerous comments on the delay by the USPS delaying the Sweep. In the Morning Update (below) there are multiple various commentary by news outlets.

More to come.

November 5, 2020

Afternoon Update: Judge Sullivan presided over another hearing today. One of the questions on the table was how many ballots may have been delivered late or are still in the system and not delivered yet. The Postal Service shared some specific numbers, as reported in a great “live” twitter thread on the hearing by @USPostOffice911.

Looking a ballots without a destination scan, the Postal Service says that in the Central PA district, there are 1524 total, and of these USPS has confidence that 979 were expedited, while 545 require further investigation.  In Greensboro, 3087 total, 1752 expedited, 1335 to investigate. In the Carolina district, 2404 total without destination scans, 1204 confidence they were expedited, 1200 to investigate. In Philadelphia, 2496 total, 1682 expedited, 814 to investigate. The Postal Service said that there is no evidence yet that the ballots in the “investigated” category were not delivered.

In a separate filing, the Postal Service provided a list of the number of ballots that were delivered Express in each district over the three days Nov. 1- Nov. 3. The total appears to be about 10,655.

The plaintiffs have presented two proposed orders, which Judge Sullivan appears to have ordered.

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Voting by Mail and the Next Election Meltdown – A Prophecy

Steve Hutkins at Save The Post Office, October 31, 2020

This post was written in 2016 and slightly updated on Oct. 31, 2018, exactly two years ago today. The update started like this:

According to this AP report today, alarms are already being raised about the rejection of many mail-in ballots in next week’s elections. Several of these elections are likely to be very close, and in some cases, votes cast by mail may make the difference. As the AP article notes, “nearly one of every four ballots cast in 2016 came through the mail or was handed in at a drop-off location, according to the U.S. Election Assistance Commission.” With more and more people choosing to vote by mail, controversies involving mail ballots are likely. Back in 2016, just before the November election, we ran this article about the potential for an election “meltdown” arising from voting-by-mail issues.

Following is the 2018 update, with no further revisions for 2020. Some of the details are out-of-date and incorrect, but much of the post is more relevant now than it was then.

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Stop Girdling the Post Office

Mark Jamison, Retired NC Postmaster at Save the Post Office, October 29, 2020

In forestry the practice of tree girdling is well known. Although there are some circumstances where this can be a useful practice, in most cases the technique is used for nefarious ends. Girdling involves removing the bark and layers below the bark, usually around the trunk of the tree. The cut, when it includes the entire circumference of the tree, makes it impossible for the tree to heal itself and everything above the cut will eventually die. In forests where logging is limited to dying or diseased trees, loggers will girdle healthy trees to kill them and make them available for harvest.

For at least the last fifty years, the right wing has been girdling the post office and the postal network in the hope of undermining its health and thereby reaping a financial harvest. The very people who have been charged with caring for and sustaining the Postal Service have instead repeatedly cut services, saddled the institution with requirements that undermine its ability to function, and denigrated the value of the network.

Louis DeJoy and Robert Duncan are the latest in the long line of postal girdlers. But they have taken their game to a higher level and for what are clearly political reasons. Both are products of the president that appointed them and both evidence their benefactor’s outright mendacity. They have made it clear that regardless of the law, public necessity, or public opinion, their goal is to cut postal operations. The recent OIG report reviewed here at STPO  demonstrates that clearly.

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DeJoy’s 57 Varieties of Cost Cutting: What’s in the new OIG report—and what’s not?

Steve Hutkins at Save The Post Office, October 26, 2020

In response to several inquiries from members of Congress, the Office of Inspector General has issued a report on “Operational Changes to Mail Delivery.” The report discusses the Postal Service’s plan to eliminate 64 million work hours — the equivalent of 33,000 jobs — by implementing 57 cost-cutting initiatives. As discussed in this previous post, the plan represents one of the largest downsizing efforts in the 50-year history of the Postal Service.

These 57 “Do It Now FY Strategies” include restrictions on overtime, late and extra trips from processing centers, and all the other cost-cutting measures that have caused the delivery delays we’ve seen since July. They also include numerous other changes to postal operations that have not received much, if any, attention.

The report criticizes postal leadership on several counts. First, the Postal Service “did not complete a study or analysis of the impact the changes would make on mail service prior to implementation.” Second, “documentation and guidance to the field for these strategies was very limited and almost exclusively oral.” That caused “confusion and inconsistency” and “compounded the significant negative service impacts across the country.”

The IG also criticizes management for a third major failing: The Postal Service did not “fully respond” to questions and document requests from Congress and did not share information about the plan beyond what the Postmaster General was specifically asked in his testimony before the House and Senate.

As a result, Congress was not informed of the existence of the Work Hour Reduction Plan and the “Do It Now FY Strategies” before or during the Postmaster General’s testimony to Congress. The plan is not mentioned at all in Senator Gary Peters “Failure to Deliver” report or his update report. It’s very likely that Congress has yet to receive a full accounting of the plan.

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USPS Update on Court Cases

Steve Hutkins at Save the Post Office

Another federal court has ruled against the Postal Service. The United States Postal Service is now 0 for 6.

In the case of Richardson v Trump, Judge Emmet Sullivan has ordered a preliminary injunction putting limits on postal operations in the run-up to the election. (Sullivan had also issued a preliminary injunction in Vote Forward v DeJoy.) 

In his Opinion Sullivan writes,

“The Court shall grant Plaintiffs’ request to ‘restore overtime pay’ and to ‘make all late mail deliveries instead of letting mail be delayed or go undelivered.’”

Sullivan stopped short of ordering the Postal Service to returning operations to the status quo as of January 1, which would have meant restoring the 700 sorting machines that have been removed. Sullivan also rejected the plaintiffs’ request that the Court appoint a “special master” to supervise implementation of the Court’s Order.

Late yesterday Judge Victor Marrero issued an order in Jones concerning the Guidance Memorandum the parties have been trying to agree on. The order says,

“The Court is persuaded that the appropriate course is to adopt, in substantial part, the Government’s latest proposal.”

This proposed version of the Memorandum is here.  There are still two areas that need to get worked out. Both involve the wording on extra delivery and collection trips.

Update: The parties in Jones have finally worked out the wording for the Supplemental Guidance Document. You can see it here.

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How to Privatize the Post Office: Piece by piece, step by step

Steve Hutkins, a literature professor who teaches “place studies” at the Gallatin School of New York University. A few days ago, the Trump administration announced that one of its goals is to privatize the Postal Service. A private postal system, says the White House proposal, would deliver mail fewer days per week, shift to cluster boxes instead of door and curb delivery, adjust prices and negotiate wages and benefits without government interference, and “shrink its physical and personnel footprints,” i.e., close post offices, consolidate processing facilities, sell buildings, and shed jobs. According to Trump’s proposal, before privatization can happen, the Postal Service must show that it can be profitable, so it needs to cut costs on delivery, wages, benefits, and footprint sooner rather than later. That process is actually well underway, and it has been for decades. The following post was originally published in July 2011, but it seems as relevant as ever, so it’s reprinted here with a few minor edits to update some numbers.

Marketization is “the process that enables state-owned enterprises to act like market-oriented firms.” It is achieved by reducing government subsidies, deregulation, organizational restructuring, The post office thus came to be viewed in terms of a business model. Like a private corporation, it was expected to adopt the methods and values of the marketplace — cut costs, streamline operations, fight unions, don’t run in the red — rather than operating as a public service “to bind the nation together”and decentralization. It often paves the way for complete privatization.

It was the Postal Reorganization Act of 1970 that began the marketization of the postal system. It transformed the U.S. Post Office Department – a government agency and part of the Cabinet — into the independent U.S. Postal Service – a government-owned corporation that is self-supporting and receives no tax dollars.

The post office thus came to be viewed in terms of a business model. Like a private corporation, it was expected to adopt the methods and values of the marketplace — cut costs, streamline operations, fight unions, don’t run in the red — rather than operating as a public service “to bind the nation together.”

That’s why you keep hearing politicians and USPS leaders say “the Postal Service is a business,” and it needs to “optimize its infrastructure facilities” and “shed under-utilized assets.” And that’s why a few weeks ago Dennis Ross’s committee on postal infrastructure brought in a couple of corporate execs to explain how they run their businesses.

The Reorganization Act, it’s worth noting, was the product of a presidential commission in 1967-68, chaired by retired AT&T Chairman Frederick R. Kappel, who, in testimony before Congress, said, “If I could, I’d make it a private enterprise and I would create a private corporation to run the postal service and the country would be better off financially. But I can’t get from here to there.” It would be left to others to “get from here to there.”

 

Steps two, three and four after the leap

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Asking the Wrong Questions: Reflections on Amazon, the Post Office, and the Greater Good

The author of this post which was published in April 2018 on Save The Post Office is Mark Jamison, a retired North Carolina Post Master. From time to time, I have featured both Marks and Steve’s post office advocacy on Angry Bear. Steve is a literature professor who teaches “place studies” at the Gallatin School of New York University. One of these days I will visit Mark in the mountains of North Carolina.

“If they can get you asking the wrong questions, they don’t have to worry about answers.” — Thomas Pynchon, Gravity’s Rainbow

I have not written or said much about postal issues for the last couple of years. After seven years of writing articles for Save the Post Office and other websites, as well as contributing numerous comments to the Postal Regulatory Commission, what more was there to say?

I spent thirty years of my working life at the Postal Service. I’ve put in countless hours reading USPS reports, OIG reports, GAO reports, and who knows how many pleadings before the PRC. I have written numerous articles about the general idea of the postal network as an essential public infrastructure, the arcane minutiae of postal costing and the actions of the PRC, and the machinations of a Congress that seemed more inclined to bloviate and posture than attempt to solve a serious problem affecting millions of Americans and thousands of communities, large and small, rural and urban.

I never stopped thinking about these issues, but what more was there to say? And why bother, really, when the politicians and managers that could actually make changes seemed inclined to let inertia and the status quo slowly erode the capabilities of the postal network while degrading hundreds of thousands of good middle-class jobs?

And then President Trump had one of those brain farts he periodically shovels out over Twitter.

Motivated by his dislike for Jeff Bezos — who has far more money than Mr. Trump will ever have or imagine having and who also owns the Washington Post, which tends to say things that are not particularly complimentary of Mr. Trump and his Alphonse-and-Gaston act as president — the president let forth a blast about how Amazon was ripping off the Postal Service.

It was obvious from his Tweets and subsequent comments Mr. Trump did not have a clue about postal policy, let alone any sort of command of the details. Then again, when the president speaks, people tend to listen. And, as the English poet William Cowper once observed, “A fool must now and then be right, by chance.” (Here in the mountains of North Carolina we might say that even a blind hog finds an acorn once in a while).

But was Mr. Trump right about Amazon? A good many folks in the media wanted to know, since if the president says it, it may not be true but it is certainly news.

As it happens, I had written a number of pieces here on STPO specifically about Amazon’s Negotiated Service Agreement with the Postal Service and about package costing and pricing methods in general. In 2013, I also filed a motion with the Postal Regulatory Commission seeking access to the non-public materials in the PRC docket approving Amazon’s NSA. Both the Postal Service and Amazon immediately filed comments opposing my request.

Not content with making an argument for why the NSA should remain secret, Amazon went on to disparage me personally by quoting my articles on Save the Post Office. Amazon observed that I had written that the “postal rate system has become a morass of embedded privilege,” business mailers “are doing fine,” and the Postal Service is a “wholly owned subsidiary of Mailers Inc.” I had also opined, noted Amazon, that PMG Donahoe lied in recent testimony to the Senate, and “Donahoe and the [Board of Governors] have demonstrated an unrestrained contempt for Congress, the rule of law, and most importantly, the American people.”

For what it’s worth, the PMG did give “misleading testimony, and later said he “misspoke.” Everything else I wrote about the rate system, the mailers, and the BOG was true, too. Not that this should have had anything to do with the PRC’s decision not to allow me to see the Amazon NSA it had approved

Anyway, Google being what it is, my pieces about Amazon and the post office showed up in searches, and a few intrepid or at least curious reporters contacted me with questions.

I should give those reporters credit for caring enough about their work to attempt a thorough job. While some of them just wanted a simple answer to, “Is Trump right or wrong?” a couple of these reporters really did want to understand the issues that were involved. Rather than go with a Citibank report that was seriously flawed both methodologically and factually (which just goes to show that highly paid financial analysts writing for elite firms are just as prone to self-delusion and tipping the scales towards their preferred narrative as the rest of us), there were at least a couple of outlets that made the effort to dig beyond the headlines.

The problem is that even the more thorough journalists were asking the wrong questions. Their questions were based on an ingrained narrative about the post office. And, as has become the case in much of our political dialogue, the narratives that prevail and the agendas that drive them originate not from a broad civic space balancing the interests of the American people but from relatively narrow interests. As discussed in a recent post here on STPO about postal retirement and benefit liabilities, it is these agendas that tend to drive the policy prescriptions.

In 2015 I wrote a piece titled “When Titans Collide: UPS petitions the PRC to change USPS costing methodologies.” The piece examined a year long attempt to gerrymander postal costing and pricing systems in ways that best served those in the mailing and package delivery industries. Some of the players have changed over the years as the mail mix has changed, but the goal remains the same – find a way to defenestrate the Postal Service.

The piece looked at the issues that were at the crux of Mr. Trump’s complaint – the Postal Service wasn’t charging enough and it was making “bad deals.” I looked in detail at some of the costing and pricing methods and tried to engage those specific arguments. But the heart of the matter was that the Postal Accountability and Enhancement Act, the 2006 law that in many ways governs the operation of the Postal Service, had set up an impossible and counterproductive environment that failed to recognize the value of the postal network as an essential national infrastructure.

PAEA had many aims but good policy wasn’t really the focus. After decades of trying to fit the Postal Service into a box it was ill-suited to occupy — that of simply another mailing business rather than an infrastructure — PAEA took a big step in the direction of privatization. By separating postal products into market-dominant and competitive categories and by creating a rate mechanism designed more to satisfy mailing interests than create and sustain a reliable and ongoing postal network, PAEA set up a system that would engage a lobbyist’s feeding frenzy. Other provisions of PAEA were designed to lead to the elimination of postal jobs by saddling the Postal Service with unwarranted and punitive liabilities for its retirees. Though the legislation was filled with all manner of technical provisions, it was largely ideological.

After examining all the arguments in the PRC docket on costs and prices, all the briefs and studies presented by the Postal Service, UPS, the PRC’s Public Representative, and various stakeholders, I came to the conclusion that we had lost the forest for the trees. We had lost sight of the big picture in the sense that the ideas of universal service and access became wholly secondary considerations. We were no longer discussing the broadly-based concerns of national infrastructure. Instead, we had waded into a swamp of special interests where every group of mailers sought the best and highest advantage.

I sent a link of the Titans piece to the journalists who called wanting to understand the current kerfuffle created by Mr. Trump’s comments. I suppose it’s immodest of me to include the response I got from one of the journalists, but I will because it makes a greater point. After reading the piece he e-mailed: “I think this is probably the most insightful and brilliant blog post that synthesizes a generation of (misguided) political thinking and explains how that altered the trajectory of the USPS.”

He said some other nice things, went on to thank me for spending an hour and a half on the phone with him, and then continued to call and email with more questions. But despite my efforts to get him to look at the big picture, he kept coming back to the issue of whether or not the Postal Service could and should be charging more for Amazon packages and if other mailers were also getting sweetheart deals.

So there we were, back to talking about the wrong questions.

What we should have been talking about is how to preserve an essential national infrastructure that connects every American while providing good solid middle-class jobs with salaries and benefits that sustain families and get spent in local communities, an infrastructure that provides affordable rates that benefit American consumers and businesses.

Instead we were arguing about whether charging more for packages would make the Postal Service more profitable and whether big companies like Amazon ought to be paying more, while neglecting to factor in that most increases in package prices would simply be passed on to consumers while allowing UPS and FedEx more freedom to raise prices.

At this point I thought that maybe I was missing something, so I went back and looked at a couple of PRC dockets and recent Annual Compliance Determinations, which review how well the Postal Service is fulfilling its general legal obligations. I also looked at a recent docket on costing methodologies, a subject UPS has repeatedly sought to litigate even though they have never made a credible case the methodologies currently in use aren’t reasonable. Most particularly I looked at RM2017-1, the PRC docket that reviewed the level of institutional contribution that competitive products had to make. This was the one area where I thought UPS had at least a reasonable point in its 2015 filings.

After reading a few hundred pages of legalese and lobbyist pleadings and maneuverings, I came to the conclusion maybe Macbeth had a point, this was all sound and fury signifying nothing. (Macbeth’s greater point is that it still ends in death.)

But Mr. Trump Tweeted.

Recalling Mr. Cowper’s admonishment that a fool could be right and still be a fool, I thought maybe we should look for some validity in his Tweet. Mr. Trump seemed to be making two points. First, the Postal Service was making bad deals, and second that Amazon was destroying retail across America. Let’s take the second one first: Is Amazon destroying local retail?

Maybe, perhaps probably, but that’s not a new phenomenon. Before there was Amazon there was Wal-Mart. In 2006 Tom Slee wrote a wonderful little book titled “No One Makes You Shop at Wal-Mart: The Surprising Deception of Individual Choice.” Slee uses game theory to demonstrate that the cumulative total of what appears to be a series of rational choices by individuals turns out to have a vastly negative aspect for local communities.

Actually, it’s not a new idea. Back in the 1930’s, Keynes made the same observation in describing what he called “The Paradox of Thrift.” Keynes noticed that in an economic downturn, individuals make the rational choice of spending less and saving more. If the economy is sour, it’s better to be conservative than a spendthrift. That makes a lot of sense for the individual, but when lots of individuals make that same perfectly rational decision, the end result is that consumer spending dries up, which makes the downturn even worse.

Slee’s updated version of Keynes’s insight is that people rationally value low prices. They also have preferences for nice communities, for vibrant downtowns, and a healthy local business sector. But in most cases those other preferences are somewhat indistinct or at least not entirely obvious.

What is obvious is that saving a few cents on a loaf of bread is a good thing. And while many of us valued wandering around the local grocery market and hardware store, talking to the local owner who probably knew a little bit about a lot of things, we also value the convenience of one-stop shopping. It’s just convenient to be able to look at that new drill in the same store where I’m doing my grocery shopping, and the fact the new drill costs a few dollars less doesn’t hurt.

So lots of folks make the perfectly rational decision to shop at the big box everything store because it’s convenient and cheaper. Oh maybe a few diehards make a conscious effort to give at least some business to local retailers, but margins are slim for local businesses, so the loss of a few customers makes a big difference. So one day we wake up and that vibrant local downtown suddenly has several vacant stores. And because Wal-Mart is big, it can exercise economies of scale like squeezing suppliers for lower prices. And as local retail businesses die so do jobs, which gives Wal-Mart more power in dictating wages.

One day we wake up and those cheap prices we rationally valued have cost us a lot of elements that we valued in our community. Things seem to tilt towards the lowest common denominator. The end result filters through all parts of the community. There’s been no end of reporting on how Wal-Mart instructed employees how to apply for food stamps or Medicaid or other benefits since they didn’t make enough to afford the basics. On balance local tax revenues may suffer. Perhaps the hardest things to measure are the damages to the quality of life and community cohesion.

Amazon is Wal-Mart writ large for the internet age. Amazon started out selling books, but now it calls itself “The Everything Store.” More importantly Amazon is much more than a retailer. It’s a logistics company. Jeff Bezos has simply used retail to generate the revenues to build a vast network of warehouses and backroom data support services. Amazon has a presence in nearly every sector of the economy.

It appears that we love it too, or at least the stock market which, unfortunately, seems to be the gauge by which we measure the success not only of the economy but of our communities and lives. The last I looked Amazon’s P/E ratio was nearly ten times higher than that of the average of the market generally. That means that investors value the company so much that the price of its stock is at historically high multiples of earnings.

Is Amazon killing American retail? Probably, but as Tom Slee might point out, no one makes you shop there.

That brings us to Mr. Trump’s other complaint, that the Postal Service is making terrible deals. Maybe but maybe not. If he’s basing that argument on the fact that the Postal Service is losing money, it’s important to remember that the Postal Service was designed to lose money. It is intentionally built to shovel funds back into the Federal budget, not through profits but from accounting trickery that saddles it with excess liabilities.

By all measures the package business that Mr. Trump focused on is adding to the bottom line with regularity. It’s also important to remember that the Postal Service has only about a 16% share of the package delivery market. It really isn’t in a position to dictate prices.

Much of the noise that followed Mr. Trump’s Tweets seemed to ignore the fact that forcing the Postal Service to charge more for packages would give its competitors, UPS and FedEx, an excuse to raise their prices. In the end, consumers would end up paying higher prices. Plus, forcing the Postal Service to charge more for packages would not only violate the basic market principles it has supposedly been designed to serve but also the structure of the free market itself.

We’re asking the wrong questions and it’s not because we’re stupid. We’re asking the wrong questions because those are the questions a large part of corporate America and the financial elites want us to ask. Mr. Trump got elected by sleight of hand – promising this and doing that – and that’s exactly what is happening with respect to the Postal Service.

So what are the right questions?

First of all, if competition is so important, why is 85% of the package delivery market controlled by two companies? Why aren’t the FTC and the Anti-Trust division of the Justice Department paying attention to this?

Do we value good jobs, local communities, and quality of life? Or do we value low prices more than anything else? If Amazon is too big and powerful, if it’s doing the same thing to local retail that Wal-Mart did a generation ago, then perhaps we should be asking ourselves what it is we really value.

Are we being given an honest accounting of the consequences of government policies? Why, given that 94% of the American public favored some form of protections for Net neutrality, did the FCC ruled in favor of monopoly providers? After a tax cut that was supposed to encourage more investment in the economy and higher wages for workers, why are we just seeing more stock buybacks? And are we going to have to pay for those tax cuts and avoid crippling deficits by cutting the wages and benefits of workers and further eviscerating the safety net?

Do we value the institutions that leveled the playing field and brought to millions of people the benefits of an economy that worked for the many and not merely the few? Do we value essential infrastructures like the postal network?

And finally, this. Are we content to play the duped mark in an oligarch’s confidence game? Are we going to watch valuable public assets and healthy public spaces and public participation in the economy get shuffled around in a game of three-card monte when the winner can only be the entitled elite?

(Mark Jamison is a retired postmaster. His articles on Save the Post Office can be found here, and the comments he’s filed with the Postal Regulatory Commission are listed here.)

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Fake News, Flawed Analysis, and Bogus Tweets

From time to time, Angry Bear has featured Steve Hutkins, (Save The Post Office Blog) and Mark Jamison’s (retired NC Postmaster) commentary on the efforts of various political and commercial interests to close down the United States Postal Service and give it over to the likes of UPS, FedX, and other commercial enterprises. Most recently, President Trump’s inane Twitter comments have again gained undeserving national coverage about Amazon having a hypothetical cost advantage over the USPS by using the USPS to deliver Amazon orders 7 days a week. Steve takes issue with the President Twitter comments and a CitiGroup analysis of the Amazon – USPS relationship. Read on . . .

“Steve Hutkins; Talk about Fake News. How a flawed Citigroup analysis led to Trump’s bogus tweets about Amazon and the Postal Service.” President Trump is continuing his Twitter attack on Amazon over its deal with the Postal Service. Yesterday Trump tweeted,

“Only fools, or worse, are saying that our money losing Post Office makes money with Amazon. THEY LOSE A FORTUNE, and this will be changed. Also, our fully tax paying retailers are closing stores all over the country… not a level playing field!”

A couple of days ago, his tweets were more specific:

“While we are on the subject, it is reported that the U.S. Post Office will lose $1.50 on average for each package it delivers for Amazon. That amounts to Billions of Dollars…. If the P.O. ‘increased its parcel rates, Amazon’s shipping costs would rise by $2.6 Billion.’ This Post Office scam must stop.”

The attacks were in the same vein as his earlier tweets back in December. They are apparently based on an op-ed in the Wall Street Journal by Josh Sandbulte and published last July. Sandbulte claimed each Amazon parcel was getting a $1.46 subsidy;

“It’s like a gift card from Uncle Sam.”

As Jen Kirby at Vox noted, Sandbulte is a money manager who works for a firm owning FedEx stock, but it may or not be relevant, as anyone invested in mutual funds probably owns some FedEx. In any case, he didn’t invent the subsidy idea. It came from an analysis done by Citigroup in April 2017.

The thesis of the Citigroup report is that taxpayers are essentially paying for the free shipping offered by Amazon. As the Citi analysts write, “In this note, we examine the true profitability of the Post Office and show that by charging below market rates on parcel volume (mainly eCommerce) the Post Office has essentially turned free shipping into a future tax payers’ burden.”

It should be noted, the Citigroup report is intended to give advice to investors in the stock market. It claims, “a day of reckoning” is coming when the Postal Service will have to implement a significant increase in shipping rates, and this will provide a large “revenue opportunity” for the Postal Service’s competitors, FedEx and UPS — something on the order of $15 to $19 billion a year in additional revenue. This, they say, “supports upside for both stocks.”

The Citigroup report is somewhat less bullish on Amazon because it will have to bear the brunt of rate increases by the Postal Service and also FedEx and UPS, who will be in a better position to raise rates themselves. According to the analysts’ “worst case scenario,” Amazon will have to pay $2.6 billion a year in additional shipping costs.

As a closer look at the Citigroup report reveals, the case for a huge Postal Service rate hike on parcels is seriously flawed, and the report provides no evidence for Trump’s tweets that the Post Office is losing a fortune on the Amazon deal.

Before we get to the Citigroup report, it will be helpful to lay out a few basic facts about the types of U.S. mail, the way postal accounting works, and the particular service Amazon is using. If you’re familiar with all this, you can cut to the chase and go to the section (Part 2) on the Citigroup analysis.

A Postal Primer

In 2006, the Postal Accountability and Enhancement Act (PAEA) divided postal products and services into two categories, Market Dominant and Competitive.

Market Dominant products and services are those in which the Postal Service “dominates the marketplace” as a result of its two monopolies — the letter monopoly, which gives the Postal Service a monopoly on non-urgent First Class mail, and the mailbox monopoly, which gives the Postal Service exclusive right to put mail in mailboxes. Market Dominant includes First Class, Standard (mostly ad mail), and Periodicals, as well as certain types of international mail. According to the USPS 2017 10-K report, Market Dominant accounts for about 70 percent ($50 billion) of total revenues ($70 billion) and about 95 percent of total volumes (150 billion pieces)

Competitive mail includes shipping services like Priority Mail, parcels, and some other types of international mail. Its name derives from the fact that there are competitors in the private sector for these types of products. Competitive products account for 29 percent ($20 billion) of total USPS revenues and about 5 percent of volumes.

The rates for Market Dominant mail are constrained by “price cap” regulation, which limits rate increases in a class of mail to the Consumer Price Index. The rates on Competitive products are essentially constrained by the marketplace, but the Postal Service is free to set prices as it sees fit, subject to approval by the Postal Regulatory Commission, so long as the products cover their costs, aren’t cross-subsidized by Market Dominant products, and make an appropriate contribution to institutional costs. In other words, the rates can’t be too low.

The phrases “covering their costs” and “contribution to institutional costs” refer to the way the Postal Service analyzes the costs of each product and service. As in every business, for every product there are two types of costs, variable and fixed.

The variable costs are those associated directly and indirectly with a specific product or service, and they change relative to volume. The Postal Service calls these attributable costs.

The fixed costs include wages, rent on leased post offices, and all the other overhead expenses that stay the same regardless of how much volume the Postal Service is handling. The Postal Service calls these institutional costs.

For each product and service, the Postal Service figures out the variable costs that can be attributed to that product; whatever revenue is brought in beyond that is considered contribution to the institutional costs.

The cost coverage for a product or service is determined by dividing the unit’s revenue by the attributable cost. A cost coverage of 100 percent means that the product has covered of all its attributable costs but contributed nothing to institutional costs. Ideally, a product will therefore have a cost coverage greater than 100 percent, so it can contribute something to the Postal Service’s fixed overhead costs.

Finally, there are the Negotiated Service Agreements, i.e., contracts between the Postal Service and individual mailers that provide customized pricing and other arrangements. For business reasons, the details of these deals are withheld from the public, but each NSA must be approved by the PRC before it goes into effect, and then again annually as part of a review to ensure that the deal is still in compliance with the law.

There are several hundred NSAs in effect right now, including 846 Competitive domestic agreements, ranging widely in size and scope. At least one, perhaps several of them, cover the deals between Amazon and the Postal Service.

The PRC’s Annual Compliance Review

The PRC conducts an Annual Compliance Determination Review (ACDR) to ensure sure all the products and services provided by the Postal Service are in compliance with the laws governing postal matters. Generally speaking, the review determines if the costs incurred by each product and service are covered by the revenue generated by that product or service.

The compliance review thus looks at how each type of mail — including each NSA — is doing with respect to cost coverage, i.e., the extent to which it is covering attributable costs and how much it is contributing (or failing to contribute) to institutional costs.

The Commission also examines how much Competitive mail as a whole is contributing to institutional costs to ensure that the Postal Service isn’t using the products which it has a monopoly to unfairly subsidize products for which there’s competition from the private sector.

As it happens, last week the PRC issued the 2017 Annual Compliance Determination Report. The law requires “each Competitive domestic NSA product to cover its attributable cost. The Commission noted “all but four Competitive domestic NSAs covered their attributable costs and complied with this statutory requirement” (p. 84). Three of these NSAs expired or were terminated, and the fourth (a Priority Mail Contract that is almost definitely not the Amazon NSA) is being monitored pending reevaluation.

The PRC’s compliance report means that the PRC has reviewed the Amazon contract or contracts and determined that they are indeed covering their attributable costs. They are not losing money for the Postal Service.

The Amazon NSAs and Parcel Select

While we know very little about the details of Amazon’s contract or contracts with the Postal Service, we do know that most of the parcels delivered by the Postal Service for Amazon fall under the category called Parcel Select.

Back in 2013, when the Postal Service announced that it was doing Sunday delivery for Amazon Prime, we were able to locate the NSA in PRC docket CP2014-1 and confirm that it was a Parcel Select product. You can see the agreement here, but it’s almost entirely redacted.

According to the USPS description, “Parcel Select ser¬vice provides very competitive pricing. It is often used by other private parcel companies to complete delivery of the ‘last mile’ for their shipments — particularly for deliveries in non-metropolitan or rural areas because the Postal Service is the only carrier that offers delivery to every door 6 days a week.”

The biggest users of Parcel Select are Amazon, FedEx, and UPS. They’ve determined that using the Postal Service for the “last mile” (from the post office to the home or business) is much more cost-effective than trying to deliver to millions of addresses themselves.

In fiscal year 2016, according to an article in DC Velocity, about 2.5 billion packages moved under Parcel Select. Amazon was responsible for about 1 billion packages; FedEx (through its “SmartPost” product) used USPS for 600 million pieces, and UPS (through “SurePost”) had USPS deliver about 275 million pieces of Parcel Select. The balance came from several parcel consolidators that aggregate packages from multiple smaller shippers.

Parcel Select generally takes two to nine days, but the big mailers, consolidators, and private shippers prepare and presort the parcels and deliver them to the Destination Delivery Unit (DDU) — usually your local post office — or a regional processing facility, thus saving a lot of time and expense.

If the shippers get the parcels to the DDU by a certain time — Early Bird DDU — the Postal Service can often provide same-day delivery. Regular DDU — dropping off the parcels after the carriers have left the facility — usually means next working day delivery.

The Postal Service’s ability to deliver packages in two days or less has been an important factor in growing its parcel business, and it points to the synergy between the Postal Service and its larger customers who help shuffle packages to the right place in the network, labeled and sorted in the right way.

Because the users of Parcel Select do some of the work themselves, they’re entitled to “workshare” discounts based on the costs the Postal Service is avoiding. These discounts are arranged through the nonpublic NSAs, so we don’t know how much Amazon is paying, but the public pricing for Parcel Select is shown here. As you can see, the prices start at $2.85 for a parcel weighing a pound or less, dropped off at a DDU. Prices go up from there, depending on the weight and how close to the destination it’s dropped off.

Due to its volume discount, Amazon is paying much less than that, however. According to a Bloomberg article, David Vernon, an analyst at Bernstein Research who tracks the shipping industry, estimates that Amazon is probably paying, on average, about $2 per parcel. That estimate can also be derived from this USPS financial report. It shows that in 2017 Parcel Select brought in $5.66 billion on 2.8 billion pieces, an average of $2 per piece. Amazon’s deal is probably comparable to the agreement the Postal Service has with UPS and FedEx to deliver the last mile for them.

As the chart for Parcel Select prices shows, there’s a big range in pricing, and the pricing on Amazon packages probably varies significantly, depending on geography, time of year (holidays), and who’s doing the delivery (e.g., union workers or lesser-paid non-union workers like City Carrier Assistants).

If Amazon is now sending about a billion parcels through the Postal Service, and if the average is about $2 per piece, the relationship is bringing the Postal Service about $2 billion a year. That strictly a ballpark guess — the Citigroup report puts the estimate at $3 billion a year — but it shows that Amazon has become a big part of the Postal Service’s business.

By the way, to put the numbers in context, Amazon reportedly shipped about 5 billion parcels via Prime worldwide in 2017, and it spends about $20 billion a year on shipping.

Talk about Fake News: How a flawed Citigroup analysis led to Trump’s bogus tweets about Amazon and the Postal Service, Save The Post Offic blog, Steve Hutkins, April 7, 2018

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Civil Disobedience and the Mailman

Reposted from Save The Post Office edited and administered by Steve Hutkins, a literature professor who teaches “place studies” at the Gallatin School of New York University.

Ruskins Gyrocopter

run75441: Tampa Bay News notes “96 percent of people think that Something Should Be Done about reducing the influence of money in politics. Only 9 percent think that something can be done.” In turn Ruskin mail carrier Doug Hughes decided to do something about it. “He announced his intentions to the local paper, wrote an email to info@barackobama.com, talked to the Secret Service to assure them that, although he was going to fly through the no-fly zone illegally, he did not intend for anyone to be hurt and that his intention was simply to protest.” Hughes objective was to deliver 535 letters to Congress.

From the Tampa Bay News, “Ruskin gyrocopter pilot says postal officials are telling him not to talk to media,” April 20, 2015

The Ruskin mail carrier who last week flew a gyrocopter into restricted airspace over Washington D.C., to make a political statement says he has been put on paid leave with the U.S. Postal Service with orders not to discuss his story with the media.

“I was informed by the acting postmaster—and he sounded like he was reading from a script—that I was on administrative leave pending an investigation,” Hughes wrote in an email to the Tampa Bay Times.

“I am NOT allowed on postal property without advance permission and I can only enter the building through the front if I do visit with permission. (This injunction always precedes a termination.) I asked about the nature of the administrative leave—it’s with pay BUT I’m not allowed to talk to the media AT ALL.”

It is another restriction that Hughes said he intends to violate. He said the move amounted to a “gag order” that he did not respect.

A spokeswoman for the U.S. Postal Service said she could not discuss Hughes’ employment status.

“I can confirm that he is a rural mail carrier,” said Enola Rice, the USPS regional communications director for Central Florida. “We don’t discuss the status of employees. All I can do is confirm that he is an employee.”

* * * * *

From NBC News,“Gyrocopter Pilot, Doug Hughes, Frustrated His Message Isn’t Getting Through,” April 19, 2015

Hughes spent a night in jail after Capitol Police arrested him. The ultralight aircraft and its cargo—a U.S. Postal Service bin carrying the letters—were seized.

Hughes’ Russian-born wife, Alena, told the AP that her husband acted out of patriotism for the United States.

Asked Sunday if he too thinks he’s a patriot or simply crazy, Hughes said. “Everyone gets to make up their own mind about me, that’s what I’d say.”

“But do you consider yourself a patriot?” a reporter asked.

“No, I’m a mailman,” he said.

* * * * *

From his Letter to Congress, Doug Hughes, April 15, 2015

“The unending chase for money I believe threatens to steal our democracy itself. They know it. They know we know it. And yet, Nothing Happens!” —John Kerry, 2-13

In a July 2012 Gallup poll, 87% tagged corruption in the federal government as extremely important or very important, placing this issue just barely behind job creation. According to Gallup, public faith in Congress is at a 41-year record low, 7%. (June 2014)

Kerry is correct. The popular perception outside the DC beltway is that the federal government is corrupt and the US Congress is the major problem. As a voter, I’m a member of the only political body with authority over Congress. I’m demanding reform and declaring a voter’s rebellion in a manner consistent with Jefferson’s description of rights in the Declaration of Independence.

* * * * *

FromHugh Hewitt’s radio show, Interview with Senator Lindsey Graham, April 15, 2015

Hewitt: Look, today gives a whole new definition of the term going postal, and I want to start there. 61-year-old Florida mailman, Doug Hughes, landed a gyrocopter on your Capitol, your office front lawn this morning. Do you think he should have been shot out of the sky before he got that close to the Capitol?

Graham: Yes. He should have been subject to being shot out of the sky. I don’t know why he wasn’t, but our nation is under siege.

Radical Islam is a threat to our homeland. There are probably radical Islamic cells in our backyard already. And if somebody is willing to, you know, approach vital government infrastructure, they should do so at their own peril.

I don’t know if he’s mentally ill. I’m glad he’s alive in that regard, if he’s mentally ill, but we’ve got to be more serious about our national security.

* * * * *

From “Hardball,” Chris Matthews, April 16, 2015

I have an idea for Congress and the Capitol Police. Instead of charging this guy on the helicopter, gyrocopter, why don`t you give him community service? And his community service can be one hour. And his one hour should be spent addressing a joint session, a joint meeting of the Congress. He should walk in there and tell them why he did that. And that must all be there to watch it`s. That can be his community service and we can all watch. If they put this guy in jail, what a bunch of clowns that would be to do that.

* * * * *

From Civil Disobedience, Henry David Thoreau (who went to jail for refusing to pay his taxes to protest slavery and the war with Mexico), 1849

Must the citizen ever for a moment, or in the least degree, resign his conscience to the legislator? Why has every man a conscience, then? I think that we should be men first, and subjects afterward. It is not desirable to cultivate a respect for the law, so much as for the right. The only obligation which I have a right to assume is to do at any time what I think right…

Unjust laws exist; shall we be content to obey them, or shall we endeavor to amend them, and obey them until we have succeeded, or shall we transgress them at once?

Men generally, under such a government as this, think that they ought to wait until they have persuaded the majority to alter them. They think that, if they should resist, the remedy would be worse than the evil.

But it is the fault of the government itself that the remedy is worse than the evil. It makes it worse. Why is it not more apt to anticipate and provide for reform? Why does it not cherish its wise minority? Why does it cry and resist before it is hurt? Why does it not encourage its citizens to be on the alert to point out its faults, and do better than it would have them? Why does it always crucify Christ, and excommunicate Copernicus and Luther, and pronounce Washington and Franklin rebels?

* * * * *

From Court Statement, Doris “Granny D” Haddock (who walked across the country at age 90 to advocate for campaign finance reform), May 24, 2000

Your Honor, the old woman who stands before you was arrested for reading the Declaration of Independence in America’s Capitol Building. I did not raise my voice to do so and I blocked no hall….

In my 90 years, this is the first time I have been arrested. I risk my good name—for I do indeed care what my neighbors think about me. But, Your Honor, some of us do not have much power, except to put our bodies in the way of an injustice—to picket, to walk, or to just stand in the way. It will not change the world overnight, but it is all we can do.

So I am here today while others block the halls with their corruption. Twenty-five million dollars are changing hands this very evening at a fund raiser down the street. It is the corrupt sale of public policy, and everyone knows it.

I would refer those officials and those lobbyists, Your Honor, to Mr. Bob Dylan’s advice when he wrote: “Come senators, congressmen, Please heed the call. Don’t stand in the doorway, don’t block up the hall.”

* * * * *

From OpenSecrets.org

Contributions and Lobbying

* * * * *

From Christopher Shaw, Preserving the People’s Post Office, 2006

UPS and FedEx are heavy hitters in Washington, D.C. The Center for Responsive Politics reports that FedEx has been the largest single corporate political donor over the last fifteen years. It has handed out a total of $21,409,229 in political contributions since 1989, and in the 2004 election cycle it shelled out $1,819,669.

“For years,” says Charles Lewis, founder of the Center for Public Integrity, “Federal Express has had a reputation for being one of the most aggressive special interests in Washington.”

The Center for Public Integrity reports that FedEx has spent $20,740,000 on lobbying the federal government from 1998-2004, and is second only to UPS when it comes to postal issue lobbying.

When it was time to pay for President George W. Bush’s 2005 inaugural, “FedEx was good for $250,000. But so was UPS.”

“This inauguration is bought and paid for by corporate America,” said Joan Claybrook, president of Public Citizen. “These businesses consider such gifts to be investments, with payback expected.”

The Wall Street Journal has called FedEx “a major lobbying force in Washington.”

“I was stunned by the breadth and depth of their clout up here,” said campaign finance reformer Senator Russell Feingold (D-Wisconsin).

* * * * *

From Title 39, CFR 447.21, “Prohibited conduct”

(d) No employee shall engage in criminal, dishonest, notoriously disgraceful or immoral conduct, or other conduct prejudicial to the Postal Service. Conviction of a violation of any criminal statute may be grounds for disciplinary action by the Postal Service in addition to any other penalty imposed by or pursuant to statute.

* * * * *

From 5 U.S. Code § 7324, “Political activities on duty; prohibition”

(a) An employee may not engage in political activity—

(1) while the employee is on duty;

(2) in any room or building occupied in the discharge of official duties by an individual employed or holding office in the Government of the United States or any agency or instrumentality thereof;

(3) while wearing a uniform or official insignia identifying the office or position of the employee; or

(4) using any vehicle owned or leased by the Government of the United States or any agency or instrumentality thereof.

* * * * *

From Postal Service Standards of Conduct, 665.16

Employees are expected to conduct themselves during and outside of working hours in a manner that reflects favorably upon the Postal Service. Although it is not the policy of the Postal Service to interfere with the private lives of employees, it does require that postal employees be honest, reliable, trustworthy, courteous, and of good character and reputation. The Federal Standards of Ethical Conduct referenced in 662.1 also contain regulations governing the off–duty behavior of postal employees. Employees must not engage in criminal, dishonest, notoriously disgraceful, immoral, or other conduct prejudicial to the Postal Service.

Conviction for a violation of any criminal statute may be grounds for disciplinary action against an employee, including removal of the employee, in addition to any other penalty imposed pursuant to statute. Employees are expected to maintain harmonious working relationships and not to do anything that would contribute to an unpleasant working environment.

* * * * *

From Theodore Roosevelt, “Address at the Pilgrim Memorial Monument, Provincetown, Mass.,” August 20, 1907

It may well be that the determination of the government (in which, gentlemen, it will not waver) to punish certain malefactors of great wealth, has been responsible for something of the trouble; at least to the extent of having caused these men to combine to bring about as much financial stress as possible, in order to discredit the policy of the government and thereby secure a reversal of that policy, so that they may enjoy unmolested the fruits of their own evil-doing. . . .

I regard this contest as one to determine who shall rule this free country—the people through their governmental agents, or a few ruthless and domineering men whose wealth makes them peculiarly formidable because they hide behind the breastworks of corporate organization.”

* * * * *

From Franklin D. Roosevelt, “Address Announcing the Second New Deal,” October 31, 1936

For nearly four years you have had an Administration which instead of twirling its thumbs has rolled up its sleeves. We will keep our sleeves rolled up.

We had to struggle with the old enemies of peace—business and financial monopoly, speculation, reckless banking, class antagonism, sectionalism, war profiteering.

They had begun to consider the Government of the United States as a mere appendage to their own affairs. We know now that Government by organized money is just as dangerous as Government by organized mob.

Never before in all our history have these forces been so united against one candidate as they stand today. They are unanimous in their hate for me—and I welcome their hatred.

I should like to have it said of my first Administration that in it the forces of selfishness and of lust for power met their match. I should like to have it said of my second Administration that in it these forces met their master.

* * * * *

From Paul Blumenthal, “The Chamber Of Commerce Is Fighting Fiercely To Stop The Scourge Of Corporate Transparency,” Huffington Post, April 22, 2015

This spring, shareholders in more than 100 companies will introduce resolutions calling for greater disclosure of corporations’ political and lobbying activity. Six major companies—Dean Foods, Eastman Chemical, H&R Block, Marathon Oil, U.S. Steel and Valero Energy—have already reached agreement with New York state Comptroller Thomas DiNapoli, who oversees the third largest pension fund in the nation, to adopt political spending disclosure policies in exchange for the comptroller’s office withdrawing its resolutions.

But don’t consider that a sign that corporate America is learning to live with transparency. Over the past two years, three of the usual suspects—the U.S. Chamber of Commerce, the Business Roundtable and the National Association of Manufacturers—have joined together to try to discredit the purpose of disclosure policies and the advocates calling for them.

Aided by the editorial page of The Wall Street Journal, the three big business groups have sought to undercut activist investors and pro-disclosure groups through public campaigns and private meetings with corporate executives.

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