tv Discussion on U.S. Postal Service E- Commerce CSPAN March 22, 2019 12:30pm-1:56pm EDT
>> are you concerned at all what the market impact would be, should the fed resume monetary tightening somewhere down the line? as you know, the market listens to you very, very closely. i will just say that i think we are in a good place right now, which is we are being patient, we are watching. we don't see any data pushing us to move rates in either direction, and we are going to watch carefully and patiently as evolve. events to when they do clarify, we will act appropriately. thank you very much. [captions copyright national cable satellite corp. 2019] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy.
visit ncicap.org] >> and we take you live now to the rayburn house office building on capitol hill for a conversation about the future of the u.s. postal service and the rise of e-commerce. a discussion being hosted by the information technology and innovation foundation. we will be hearing from representatives from a postal union and ebay, among others. this is live coverage on c-span. >> good afternoon, everyone. and i'm rob atkinson, president of the information technology and innovation foundation, and i am pleased to welcome you to our event on better understanding e-commerce and postal reform. how many people here have gotten something in the mail that you ordered through e-commerce in the last week? [laughter]
how about this morning? [laughter] several of us. i looked at my deliveries in the last few days, lightbulbs, guitar strings, a book on japanese technologies, and some household supplies. that is the world we are moving into. e-commerce packages are a much more important issue. this ties into the question of postal reform. the united states postal service has been losing money because of the decline of first-class mail. that has led to a lot of calls for reform. it is important to understand that even though we are all getting packages and we are being able to enjoy the delivery convenience of usps, mail accounts for 70% of usps revenues today and packages, 30%. the u.s. mail service is still a mail service, but packages are
an increasing share of that. because of issues around usps losing money, there is a wide array of reforms that have been proposed, everything from what is called worksharing, reducing the number of days a week perhaps that mail is delivered, ,losing rural post offices curbside delivery, and a whole host of other ideas, which in number of people in congress are looking at. that one issue that has been in the news recently, that is the issue of how should the postal service be pricing package delivery? we have a really great panel today to talk about that. i will make some opening remarks and and we will hear from our panel of experts. let me start by introducing on my immediate left, ed hutchins, research director at a think tank called the heartland institute. i followed his work for at least 20 years.
doing postalbeen reform for 20 years, and i encourage you to buy ed's book and get it delivered online. was at heartland, he was director at the atlas and the editor of regulation magazine at the cato institute, and earlier in his career he was at the joint economic committee here in congress. he has a phd in political economy from catholic university. next to him is jim stopper, tauber,f -- jim saube president of the chief association of national letter carriers. the mosthey are one of popular occupations are groups in anyone, most positive feeling of anybody in america. he came in second to the pope once. depends on what year it was.
's. atkinson: he directs nalc research, bargaining, public policy, they have been doing since 1985, when he joined as an economist. he has a masters degree from johns hopkins university. finally, we are being joined by enz, and unfortunately ashley, who is with ebay, came down ill today with the flu everyone seems to be getting, but we are glad kate could join us. mails the director of a service's provider. she also has a long career on the hill. she was with congressman bruce angusnd senator king, both from maine, and has a degree from the university of maine law school. where are we here? why are we talking about this issue? talking aboutare
this issue, and the reason we talk about most issues in the country, president trump. in december 2017, the president theted, and i quote, why is united states post office, which is losing many billions of dollars a year while charging amazon and others so little to deliver their packages, making amazon richer and the post office dumber and poor? we should be charging much more in cap's -- much more -- in cap's. the president is you do an executive order calling for attacks force on usps reform to, among other things, examine the expansion and pricing of the package delivery market and usps' role in competitive markets. the task force issued their report in december, and among the many, many recommendations, it dealt with a whole set of issues around usps, but they had a particular focus on package delivery and e-commerce.
ability toe usps' price last mile delivery and the delivery of a small package below the private sector distorts package markets." so this has led to a whole new debate about how should usps pricing packages? why thed in an itif why the- itif report postal service is not subsidizing packaging, that we believe the critique is wrong. i will go over a few highlights of that and turn it over to the panel. first of all, there should be no doubt that usps, because it operates the monopoly -- excuse as first-class mail, as well a competitive business like packages, that it under no circumstances should unfairly subsidized package shipments to gain competitive advantage over private shippers. we have said that for 20 years and you have said that, ed.
uspshe evidence shows that is not getting taken to the cleaners. they are making a significant profit, if you will, on packages. $1.6 billion last year. -- $7.6 billion last year, well it's beyond what it costs for , andto deliver packages they use that to help offset the financial losses from the declining first-class mail business. usps also is raising prices faster than its competitors. the idea that somehow they are underpricing in order to gain market share really doesn't appear to be the case. the postal regulatory commission, which is the body set up by congress to regulate and oversee the postal service so they can't do whatever they want with regard to pricing and services, it found that from 2014 to 2019 that the cumulative increase in package pricing for thanwas slightly higher
.ps at 34.18%, versus 33.4% so they are raising prices. this gets down to really two central questions. when you look at the task force report, the first question is, usps abiding- is by the law? congress understood there needed to be reforms in the postal service and passed the postal accountability and enhancement act, and that said among other things -- set, among other things, new rules regarding package pricing. the second question, did congress get the long right? -- the law right? let's look at the first issue, are they complying with congressional law? it is 100% clear that they are. the prc has looked at that extensively and concluded after a thorough study "there is no
evidence that the postal service has engaged in predatory pricing." in other words, pricing below cost in order to gain market share. 2018, the u.s.y court of appeals for the district of columbia ruled in favor for the prc in a complaint brought by ups that asserted that usps was unfairly competing in packages. , the commission's exercise of authority was reasonable and reasonably claimed. -- reasonably explained. the prc established what was called an institutional baseline contribution, in other words, costs that are not directly allocated to something have to forgettable, if usps has a truck that is only doing packages, it is pretty clear you allocate all the costs of that truck to packages. marketing, maybe
executive time, how do you allocate that? p.r.c. said usps had to have a 5.5% institutional baseline contribution. usps has exceeded that every year since. in 2017, they were able to not just do 5.5% of institutional baseline, but 23.2%. so they are way ahead of where prc -- because prc had proposed raising it to 10.8% -- again, they are way, way ahead of that. ,arcels, e-commerce packages according to the prc, covered 53% more than their costs. this leaves the question of, did congress get it right? especially in terms of how do they define what are institutional costs? complicatedgets very quickly, but you get all these other costs -- are they
all going to be borne by first-class, third class, or packages? how do you allocate that? congress mandated that package delivery could include actual, direct -- like the truck -- and indirect. institutional costs should be allocated based on some estimate of overall cost. what the task force has recommended is something quite, quite different, and really quite, in many ways, radical. , thethe task force says prc and the usps should develop a new cost allocation approach, what they term "fully distributed costs." if packages account for this much revenue directly, all the indirect costs should be institutional costs, should be allocated their. -- allocated there. so you allocate costs on some
arbitrary number to get that number up and to raise package costs. in fact, this is what is called fully distributed costs. this methodology has been rejected by the prc, by the courts, and by virtually every mainstream economist for over 50 years. ,t is also contrary to paea which says costs should be attributed to those products that cause the costs. moreover, in 2012, there was a report from the u.s. postal service office of inspector general that -- i would encourage you to read this. it is riveting reading and a primer on postal cost issues. fascinating, especially page 19. it is interesting. that report states "the problem with fully distributed costs is that institutional costs, by definition, are not caused by any product. fully distributed costs do not reflect activities nor the
demand characteristics of the product when used to develop rices. -- of the product. when used to develop prices, the prices might not reflect the correct economic signals." so we believe that usps under is prc's guidance and rules allocating costs correctly. they are not subsidizing packages. and that the 2006 postal reform act got it absolutely right, to not use fully distributed cost models, and the need to reform real,stal service is but as they say, we should not be looking there, we should be looking at a set of other things that need to be looked at in liberty and worksharing and a whole bunch of other ideas, because we will not -- but we will not debate because i am sure there are a lot of differences, but the model is fair and it is frankly a lifeline for the usps to
continue to move forward. with that, i will turn it over to --. do two things in my talk. first, i will put a context in the whole discussion of the u.s. postal service, and second, i will go down and look at this task force report in a little more detail. i think you can best understand the e-commerce issue by understanding the puppy that i got for my little eight-year-olds, twin girls, late last year. here is the thing. our puppy, lulu, was only two pounds. she was very, very small and the girls loved her. but we went to petsmart and petco and all the places that here in maryland, where we live, and we could not find a harness that was small enough for her. we could not take her for walks, so we got cap harnesses and tried everything. it didn't work. well, the savvy shopper that i
am, i wind online and found a place, 3000 miles away, out on the west coast that specializes in customized leashes for little tiny dogs, that you can put your dog in, two pounds, 2.5 pounds, so forth. you could pick your colors and pick which little thing -- we chose the monkey -- you could put a chipmunk or other things on there. i found this nice place in california and we got this little thing for little lulu so we could take her for walks. they even sent me a little card. the business is called chilly pups, they put a note on the back, thank you, edward, with the name of the owner, and they sent it through the mail. there is the envelope. the point i want to make is this. here is a business that is pretty specialized, right? little teeny puppies.
i doubt that they could survive, simply in their local market. but fortunately, because of the e-commerce explosion, they can market to people like me, 3000 miles away who is looking for this very specific thing for the little puppy. so thank you to those guys, and thank you for e-commerce. e-commerce is simply part of -- when we talk about the free market, e-commerce is the market part of it. i want to put this in some context here. this is one of the things that is great about america. 1800s, since the the early 1900s, america was still pretty much rural. and sears and roebuck came up with this idea -- we are going to send out catalogs to people all over the country. even though they are in role or semi rural areas and small towns, they can -- in rural or areas and small
towns, they can see these products and order them and have them shipped -- amazing. in cities, as they grew, a new called ae up department store. instead of the shop for furniture or shopper" he put it all in one place. --sewares, kitchenware grocery stores, a lot of people like to romanticize the mom and pop grocery stores. i have seen a few in my time when i was a little kid, but in the 1920's, most grocery stores had a few hundred products. the 1950's, most grocery stores had a couple thousand products. grocery980's, most stores had about 17,000 products, and today, most grocery stores have about 40,000 products. are you regretting the fact that there are no mom and pop grocery stores out there? customersare, but the who are getting 40,000 choices probably disagree with you. after world war ii, the economy changed because we saw the
building of roads. we saw america becoming more mobile. everyone could afford a car. we saw folks coming home from the war, world war ii, moving it to track housing in the suburbs with all the roads out there right now, right? getting credit so they could buy houses on credit. what happened with this new economic reality? american invention -- the mall, a shopping mall. it was a great way of marketing things back then. what about small and medium-sized markets that could not afford them all? -- afford a mall? when you look at the top 10 richest folks in the country come you see walton, who created walmart. in thecluded groceries stores as well as the normal things you find in a department store. today, with the communications and information revolution, we have e-commerce. it is simply part of this
evolution of the american economy and how we market goods and services. e-commerce took up 8% of the retail market in 2011. about -- oh what was it -- 13%. by 2020, it will be about 20%, which is about 700 billion dollars, $750 billion. by the way, there are still retail stores out there, but e-commerce is the wave of the future. where does the postal service fit into this picture? has three service unique characteristics. first, a universal service mandate. the postal service has to deliver to all addresses and usually at a certain price. you take a stamp, we put it on, and whether it is washington, d.c. to maryland, california, same price. it has a universal service mandate.
number two, it is a government monopoly of first and third class mail. i cannot start my own postal service and deliver christmas cards around my neighborhood. it is a monopoly. number three, the postal service cannot compete unfairly where there is a competitive product involved. we're talking mainly about package shipping and certain .ther things yes, the postal service has seen a decline in revenues from things like first-class mail. how many people pay their bills through the mail anymore? pretty much nobody. you do it online. the revenue from letters has also gone down because of email and things like that. you have seen a decrease in those kind of revenues. but the good news is you have seen an increase in packages. , aheard the numbers here couple years ago, the revenues coming in from packages that are
competing with competitive, $23r competitive products, billion. the costs were only about $14 billion, $15 billion. so in the last couple of years, the postal service has netted $7 billion to $8 billion off of competitive package delivery. you think, this is great news, isn't it? but you have seen, of course, that the administration has been concerned about unfair ,ompetition, mainly from amazon is the postal service subsidizing amazon? the, thisme up with 'sudy on this postal service sustainable path forward. before i go into my analysis, i have some bullet points here. i am coming at this from several decades of being a strong
libertarian advocate who is not an apologist for the postal service. i hate consider the postal service -- i consider the postal service has problems. so i am not coming as an apologist for the postal someone but i come as who recognizes the importance of e-commerce and recognizes the importance of having a responsible approach to how you change public policy. so that is the approach that i'm taking here. , the law requires chargee postal service for package deliveries from has toor any other party cover its direct costs and its indirect costs, it's overhead. -- its overhead. it more or less does that. year was a court case last to see whether in fact they had been abiding by the rules. there is the decision right there.
the court said, yes they are. the postal regulatory commission has to certify that the postal service is pricing the right way. according to these criteria, and in fact they are. ne postal service actually ets from their pricing of services, package delivery services right now. what are the problems? this is unfortunate, that the task force study came up with quite a few recommendations that are simply that ideas. perhaps one of -- bad ideas. perhaps one of the worst ideas is that the postal service should distinguish between essential mail and commercial mail and price them differently. ok? if someone is getting medicine in the mail, that is essential. we have to price that at a certain rate. but there is other stuff, the for my dog, weg are not going to price it.
>> essential to your dog. essential to my dog, but that is the point. who will decide what is the essential? it will be a government bureaucrat, a government agency, it will be congress. and government is involved, i am very scared about that. inis it -- is it essential minnesota in the winter, winter clothing? is that essential? -- is that essential? the cold snap? it seems pretty essential. let me tell you something that many people don't realize. we had an experience like this back in the early 1990's. what you had was postal inspectors going around to businesses and snooping around and saying, are you guys violating the private express statutes? see, fedex and some of the
private companies, you are only supposed to use these companies if it is an extremely urgent letter, ok? postal inspectors decided hey, here are some targets. they would going to mailrooms and flash the badges and say, we have to inspect your books. we have to see if you are abusing this privilege. the poor mailroom people were terrorized and thought oh my gosh, it is a guy or a woman with a badge doing this and they want to inspect -- how many can tell me for certain that whether in this envelope there is an extremely urgent letter, or something you want to send through fedex, because you trust them? of course you don't know. that is the point. howdy you determine whether that is that -- how do you determine whether this is that or not? you have to have inspectors going around. if you make this distinction between a competitive product and an essential product, what you are doing is inviting the postal service to just the kind
of abuses you had in the early 1990's. they will have to have inspectors around and have to have not only to figure out whether this thing is essential or not or whether the winter clothes are essential or not in january in minnesota, you have to have a whole army of inspectors trying to figure this stuff out. if i am sending something, of course i am going to say it is essential, of course i'm going to live. i'm a libertarian. [laughter] dr. hudgins: if you have a government regulation, how many people are going to just check it? it is really kind of a wacky idea. market pricing is another thing that the study says -- well, we have to give the postal service and change the law and do market pricing -- they already are doing market pricing. in other words, when they sit down and negotiate with amazon or some of the others, they are essentially trying to figure out the best bargain. they want to maximize -- the postal service wants to maximize its revenue.
they have to cover the cost of well -- as well. they want to maximize the revenue and also get the volume. they know that if they price too high, been more amazon trucks will be pulling up to ed's place on sundays, rather than the postal service on saturdays to deliver the product. they already have that. and we have heard that they have been raising rates. this is the way a market works. they are covering their costs and trying to negotiate the best deals possible. when you talk about price allocating and transparency, they use the word -- to prevent market distortions. what is eight market distortion? iat is a weasel word for, don't like the way this business is running. but for the postal service, it is a win-win situation. they get their volume, they are netting a profit on their package delivery services, right? it is good for amazon, good for little placer the out in california that gets to
for hisff to ed daughters, good for everybody. so market distortion is a weasel word. the idea of separating package delivery from other deliveries? what is that going to be? are you going to have a separate fleet of trucks and the mail carrier coming around twice? different mail carriers? it is just more ideas that are going to make a big bureaucracy that will more than offset any of the revenue that they are going to get if they think they are going to get it. a couple more bullet points here -- what about getting more usinge by using amazon, ebay, some of these guys as cash cows? what happens when you punish someone for doing something? well, they tend to do less of it, right? tend to do list of it. what happens if they push rates for the package shippers above the market rates, what will happen to revenue from -- for
the postal service? it revenue will not go up, will stagnate or go down. and jeff bezos might like it because he will get marchex on the road delivering with their own system, but the postal service will probably not gain revenue they are projecting if that happens. also, very important. who pays for all of this? it is the customer. it is the folks who have to ship my dog -- the folks from california who have to pay more, they will pass it on to ed. edit will say, i do not know if we can afford another one of these. will said, do not know if we can afford another one of these. i have been looking for ways to reduce price in the postal service. i'm a reformer. when they without is the postal service is good on basically picking it up, and the last mile
carrying it to your door. it is in the middle where there is a lot of opportunities to rationalize the system. that is what has happened over the last four to five to six years. you have seen worksharing, contracting out for things like transportation. the postal service went from basically terrorizing folks who are using fedex to using fedex now.s to deliver the mail the number of postal workers has gone from 800,000 to i think about 500,000 today, from 2001. the point is they have been going on a certain direction. there are other issues. i know, they are forced to pay up front for their pensions. they are forced to be responsible, as opposed to every other government agency, that has been a burden. and there are issues with wages and other benefits.
fine, we can have that conversation, but e-commerce is the wave of the future. it is here now just as sears roebuck was a century ago animals and so forth. it would be irresponsible to try to kill that whole e-commerce, to put a burden on e-commerce, especially at this time when it is growing. thank you for your attention. and i think e-commerce for giving my daughters their puppy. rob: thank you. they think -- thank e-commerce, too. girls, when i ask my where does this come from? they say ebay. rob: but who delivers it? this is a segue into jim. jim: good afternoon. thank you, robert. thank you to the foundation providing me. if you are in washington for a long time like me, you
eventually see some remarkable things. arefact that ed and i sitting at the same panel and we totally agree on this issue that e-commerce and package delivery owe a thank you to president trump for bringing us together. [laughter] jim: a little bit about my organization, the national association of letter carriers represents 211,000 active letter carriers, delivering in just about every community in the country. thanks to e-commerce, our part of the business is a growth sector. at one point we were at 180,000 workers. so this has been good for our members and good for the economy. i think it is really important, i want to say some things, i will not go over -- i think that they cover the pricing issues really well, but the things i think the commission, or that the task force that the white house put together got wrong is that they have misinterpreted or
misdiagnosed of the driving problem with the services in the financial crisis. it is not a crisis of the business model. if you look at the evidence presented in the report, it shows it is an issue of policy error that congress made in 2006, when it decided to make the postal service, uniquely only the postal service, as the only enterprise in the country that is required to pre-fund retiree health services. we fund our pensions like everybody else. and those pensions in the private sector are protected. so it makes sense that the promises be kept, and these funds be funded. we are the only enterprise in the country that has to fund retiree health insurance for people, and the calculations and that they do, the deals that we get is done over the next 92 years. they lookout 92 years in the future and congress decides,
they will make us pay $60 billion in the next 10 years, and then at a cost of $6 billion a year on top of that, starting in 2017. so, if you look at the finances of the postal service, if not for the retiree health pre-funding, the postal service is one of the great success stories in the country right now. over the last six years, in the absence of these expenses, they have shown profit. it goes counter to what most people think. people think the internet is killing the post office, the internet and e-commerce has only strengthened the postal service. so, we have a pre-funding crisis, not a financial crisis. there are ways, i think there are appropriate ways to deal with that. that has been the center of all the reform efforts. folks, talking about how to bring down the cost of the retiree health burden. but at a minimum we feel, this is the one thing the white house task force got right, that if the public policy goals to protect taxpayers should never
have to cover costs related to the postal service, and we have not had taxpayer subsidies since 1983, if that is the policy goal then the amount that we should be pre-funding should be much smaller. it should be the amount of postal service could hope for if we went out of business tomorrow. the under the rules, private companies report on a liability for retiree health insurance, as a disclosure to shareholders. that is the level of pre-funding we should be doing. secondly, we should not be forced, if we are going to look at pre-funding, which not be forced to invest funds into treasury bonds. we are in this situation where massively pre-funding and we are required to buy treasury bonds, they are paying 2% or 3% long-term health care costs -- or 3%, and that is a discussion for disaster. so it makes no sense. we should lower the level of pre-funding and we should invest
our retiree health funds much more sensibly. we have $50 billion set aside.our pensions are fully funded . the postal service is the most financially strong failing company in america. its underlying strengths are there. that is the important thing for congress to remember. this network that we have goes to 159 million houses and businesses a day, seven days a week. we used to do six days a week, now we go seven days a week. it is incredibly valuable to the country into lots of different industries, printing paper, e-commerce, all kinds of industries rely the full services. and 7 million private sector jobs were line the postal service. it is important to get this right. and the one thing i will say about -- on the issue of e-commerce, particularly the criticisms we offer here, is that somehow it is unfair that the postal service uses shared networks to deliver multiple products. they call those a scope, the
fact that i am going to every house every day and delivery magazines, invoices, prescription drugs, advertisements, it makes it cheaper for us to deliver packages. and that is not an unfairness, that is a feature, not a bug. some of the biggest beneficiaries are the private delivery companies, fedex and ups have been a beer second and third largest customer behind amazon. they do a lot of drop shipping to take advantage, and we have a low-cost provider of last mile delivery. those are good things. i laugh when people say that it is unfair that we have access to the mailbox, or that we get to use a shared network to deliver, it is like complaining about lebron james, it is unfair he is so fast and. so skilled. this is the inherent value of a last mile network that we have. the economy is a scope, and it
is the scale, and it benefits everybody. that is something we should strive to preserve. i will stop there. rob: you make an excellent point, which is the fact that competitive -- use your network. they do not use it to deliver to my house, i live in a low-cost delivery area, they use it to deliver to the high cost places. moving down the path to what the administration reporter task force wants to do would essentially open up what is called even more cream skimming, you only serve there, it would end up raising prices for the rural businesses, like those people who sell on ebay, but also rural consumers of packages, they would have to pay more. the dog collar in the middle of nebraska in a small town, they would pay more to get that than -- uh, great. >> good afternoon.
just by way of background, i am sure there are many congressional staffers in the room. i was in your shoes six months ago, so i know there are issues on your plate and i appreciate you giving the time to come to the postal briefing. we are a 99-year-old iconic american company. next year we will celebrate 100 years. byare known for a long time our postage meters. we are the first inventor of the postage meter. that is not what it once was. we now call them sending devices. and we allow small businesses and other clients to both use these devices to send mail, but also to send packages. i will tell you a little bit device 2018.ding 2019, excuse me. it is a desktop sending device
for small businesses to use. we have about 750,000 small business clients. what many of them use it for is to help send in their e-commerce. so it is, or it has an ipad sort of touchscreen, it looks very modern. and it gives clients options when it comes to how they send packages. if you go through the touchscreen, they can choose between said in the package through the postal service or through other express carriers. we offer this feature to our clients, because they told us they wanted these functions, they want to be able to compare prices, see how long it will take depending on the service they use, and so this allows them to do that. and we have small business -- clients,u know you know, in metro areas and rural areas. i'm glad he talked about the dog collar, because i think that is
a good example -- i do not know if they are clients of ours -- but we want small businesses to have access to not only a domestic market, but a global market, so they can exist in small-town nebraska, just as well as they could exist in downtown manhattan. so that is one of the sort of, sort of history products that we have. we have also recently entered the e-commerce space as the logistics provider. and what we do in that space for both our 750,000 small business clients, but also large iconic american companies such as l.l. bean and crate & barrel, and ebay, that is a large client of again notllow them to only have access to the domestic market, but a global market. we do that conservative are ways. do that in several
different ways. we provide support to help the product get from rural maine, to both new york city, california and japan. and we do that by offering our clients services such as tracking, tracking information, customs and trade advice and value, so that small businesses in the business of running a small business and getting their product out, we do all of the back end stuff for them said they do not have to worry about it. we also are very much in the business of returns. and i was going to give you a little bit of a personal story about returns. my coat hanging on the back coathanger, i purchased that on macy's and i got two of them, because i was not sure what size i needed. i tried them on and i returned to the one that did not fit. so many americans do that these days, and so many global
customers do that, so what we do is we allow our clients to make that part of their business plan, so that they can attract e-commerce customers. when you get that coat, and then you return it and you think it is just an easy process and goes back to the store, that is not the case. there are steps involved in returning something and it has to be reopened, re-examined to make sure that the product is actually returned. you have to do that quickly and efficiently, so that the credit can go back to the customer. i do not want to that money taken out of my account in a longer than needed. and if it is taken out to long, and may not use that retailer next time. we, do that for our clients because we are really focused on how the client experience ends for the customer experience. our clientele as they want the customer to have a strong experience with their brand, so we help them do that. when it comes to what our clients want, when it comes to
domestic package delivery, they want options, but they also want their packages delivered to every address six days a week. and that is what the postal service helps us provide. we work with everyone, we work with dozens of express carriers domestically and around the globe, but we were closely with the postal service. we have a long history with them because we're the first inventors of the postage meter. we have worked with them for a very long time. and we want to help our small businesses, and our retailers, take advantage of the network that exists within the postal service. want to say as a former staffer, i know what you are focused on. i was very focused on how legislation and regulatory changes would impact of my situation. and how it would impact
consumers, small businesses, those folks in rural areas. we think the postal service plays an important role in making sure that were real americans and small businesses that operate in rural parts of the country and underserved areas of the country have access to an e-commerce marketplace. rob: thank you. you mentioned international. one of the many advantages of being 6'6", there are many disadvantages as i learned yesterday, but one disadvantage is that cannot buy ties. they look like a tie. this is the first time i have worn this, i got it online from germany. beautiful. i'm not saying the tie is beautiful, i am saying the -- [laughter] rob: this is sort of like your dog collar, a real of experience.
i want to open it up for questions. anythingn c-span, so you say can and will be used against you. also, wait for the mic. panel,to ask any of the into the that anybody wants to add? >> one additional comment. one of the issues in the white house task force report was the notion of, do we still need universal services? and i would argue that in the age of e-commerce, universal services are even more important because there are many parts of this country that with the revolution a retail their options for people in small towns for shopping are really diminished. the number of shopping malls, brick and mortar stores, particularly in small towns, but it is also true for urban areas, the economically challenged areas in big cities, they also lack options, so the ability to
do basic commercial activities is really important. and the postal service can be a vital part of that. i am coming at it from a perspective of someone who is very free-market oriented. i do not want a postal service competing unfairly with other businesses, but i wanted to be an open system. a friend of mine is in the audience, who i remember 20 years ago we were sitting around and i was saying, in the future instead of having me carry around all these physical books, there will be a device where you can basically download all your books. actually, i thought it was going to be flexible kind of thing like a mouse pad, but of course because i have been following technology and so forth, it turned out to be the kindle and the tablet, which finally came into its own. i do not know whether in future decades, for example 3-d
printing will make it possible that instead of having to send a way for your two coats and returning one, maybe you'll get your exact measurements and go to a local place with one of these things, maybe the local laundry mat and he will send them the measurements and i want this color, but i want this to be blue instead of red, and then you go pick up your laundry and you will get exactly that. i do not know if that will be the future with 3-d printing, but i want to have a system open enough that different technologies can emerge, different models can emerge, the ebay model can emerge, and so forth. so i am putting this into a broader context of i do not want to simply go in and destroy this, that for the other, but i want an open system where all these innovations can come about. rob: questions? edward: they are stunned.
[laughter] any ofnt to maybe ask the panelists -- one of the, this really goes to jim, your point, which i thought was one of the kind of core intellectual flaws of this task force report, is they looked at the postal service as a kind of -- the scope and scale of network as somehow a flaw. and then almost to say, to then say -- they were actually talking about it -- at some point they wanted to move to twwo -- to two completely separate networks. that is what is allocation efficiency over what economists call productive efficiency. if we want to kind of have the lowest possible cost, maybe not prices, but the lowest possible cost for package delivery in this country, we do it how we
are doing it now. if we want to raise those costs, we say to the usps, you cannot use any of those benefits. you cannot use the fact you are already going up to a house, you have to send a separate committees this would be good for the union because you would have more delivery members, more union members, but it would be bad for the economy gets it would mean more work and a less efficient way to deliver packages. so i do not know if you want to comment on that. that, if you to me -- if you had to build the network we have now from scratch it would almost be impossible. we should be very careful about making policy decisions to diss aggregate product lines without -- one of the problems of the task force is they made recommendations and gave no analysis of what the impact would be, so it would be this shot in the dark. it would be assertions without evidence. and i think that we should just
be very careful and think this through. edward: it is interesting, when i was reading through the report, the copy of it, and a lot of the things we talked about here, the fact that the postal service is netting, you know, profit on the competitive packages and so forth, most of that is in here. i am reading through this and it is like, yeah, yeah, then suddenly out of the blue it is bending over backwards to say, but we can squeeze more out of the package delivery folks this way and that way, without giving it a thorough thought. and the thing that i mentioned about, you know, a sensual versus commercial -- essential versus commercial, i'm surprised into but do that with a straight face who remembers what happened with a postal inspectors going around and terrorizing the workers in the mail room with her -- with their, you are going
to get arrested for misusing fedex. are you serious with this stuff or what? rob: on that point, you know, we encourage you to read the report. it is interesting in the sense of how little -- it is heavy on assertion and a light on footnotes. or scholarly citations. there is a quote or statement i will not get exactly right, but it says, more or less, we do not really know what the margin -- what the u.s. the city of demand is for these products. wehave no clue whether if raise the price 2% we are going to see if i percent reduction in revenue -- see a 5% reduction in revenue. they admitted they do not know. one could say that there may be, in economist speak, two equilibrium. you could argue they are in the right equilibrium, prices set
exactly at the spot that maximizes revenue, but they also maximizes throughput and get the most volume. you can imagine there is another price, we will call it 20% higher price, that would also get you this in the amount of revenue, now you are getting more, but you have fewer packages. to me, if you are a private company,. you get to decide that that is your choice. but if you are a governmental institution, you do not get to decide that, you have to be on the side of lower prices, again assuming it does not affect the overall revenue, because if you are on the second choice the postal service could make the same amount of money, but it means that person in nebraska using the mail system will pay more money. or that shipper in maine using sa will pay more money. the usps is in the same financial service -- situation as they were before, but we are all worse off.
that is why we have congress setting the direction of what the mission and goals you'd really have to do that, how to operate like that, that is why live covers doing that, because they have made a clear statement, we do not want to usps to be maximizing revenue if it will hurt universal service. kate: on that point, the public service raises package prices based on market rates. that is predictable for businesses and creditable for our clients and the businesses that they run, so to raise rates arbitrarily would put, it would turn of a thing on its head and really negatively impact the business. edward: and the point about, then you will probably not get the revenues that you want, because if it costs more to deliver a package from california to washington dc, or whatever, they will pass the cost along to the customer, then the customer might think twice about whether they want. to
order this thing or whatever. edward: comments -- rob: comments or questions? yes, ma'am. if you could identify yourself. >> i'm from the epic times -- epoch times. i want to ask about the decision to withdraw from the universal postal union, are you on the same page with the administration? i want to know about your views about the self-declared rates. >> the first is about the administration withdrew from the universal postal -- or threatened to, they gave notice. and what that is is, this goes back to the 1880's or i forget when it was, there is an international body that essentially facilitates sending mail from the u.s. to germany, and around the world, because postal services have to somehow have a way of going across borders. well, some decades ago they set
up a mechanism meant to help less-developed countries, so giving them a certain kind of break in terms of pricing. and so, and it did not make a lot of difference because the volumes were so small that giving them a break, well, it doesn't really matter. one country, china, that 30 years ago didn't have a lot of international commerce. and today, of course, they are one of the market giants. but you still have this antiquated pricing system in place, so that a chinese company basically -- if i order something and it is coming from china, they can number one charge a very low price, the labor prices are cheaper in china. now, there is a whole separate issue about violating intellectual property rights, which is a very big concern, so they might produce exactly the same product that that company
in nebraska is doing, and how do you make sure we are not getting a counterfeit product, but here's the thing -- it get sent to me from china. maybe the postage is, i do not know, they only pay one dollar. there is this exchange thing going on. and, oh, it does not fit me. i have to send it back to china. and because it is international, instead of one dollar to go back to china, it is $30. and that is a function of the way the pricing system right now works. giving china certain privileges that were meant for the poverty-stricken african country. so that is a serious problem. and the administration, here i agree with the administration, they want to renegotiate and say, wait a minute you are a big country now. you just landed a spaceship on the moon. so surely you can play by the big boi rules -- boy rules, so
to speak. it is good for the ms urgent to say change the rules, because it is unfair to american companies. a company in boston, there is a case where the company in boston is trying to send the same product that comes from china to an address in the u.s., basically paying more, and that does not make sense. rob: as you are saying, we're subsidizing them to send us pirate profits. edward: that does not make -- i am a free-market guy and that does not make a lot of sense. so i hope that they work something out, but i make it is right for us to say, if you are going to do this and screw american businesses, then -- not going to do it. i do not i would add, really favor pulling out of organizations unless you get your way, but it is a legitimate problem. but people should know that the
upu is more than just a system of rates. it is a whole network of -- that provides if a structure for the exchange of maiil. l. aspects thather are worth preserving. and by all means camillus get the rates system correct -- means, let's get the rates correct but do not destroy the whole organization in the process. rob: you agree with the goal, but maybe not the means? jim: that is right. kate: we have been following the issue closely, but we do not have a position. rob: ok. other questions or comments? um, i'm sorry. >> by no means an expert on this, but when the minimalist
rule was rates from $200 to $800 a package several years ago, what affect, if any, did that have on the small package delivery market? do not havet -- i an opinion on that. >> i think you are referring to the international -- the minimalist rules around what can come into the country without a tariff, is that what you are referring to? so my colleague and i have looked at that. i think that having that higher-level is really useful, because this was a $50, i should not say the price -- it was a $550 tie. [laughter] rob: and it made it under the $800 level. you know, a lot of sellers now in this world or individuals. and they are burdening -- well,
it is one thing if i am selling 100,000 of these things, but lots of sellers are selling them like this. i think the real challenge -- and i apologize i do not know the rule -- but the canadians were unwilling to come to our level and the mexican government wsa not willing to come to our level. understanding -- my understanding is they raise that above where they were. anybody want to correct me? i think that is what the new u.s. -- the new trade agreement does. anyway, our view is higher numbers like $800 are a good thing, because they enable more e-commerce. my colleague shane, which you have worked with when he did postal reform, i remember when shane got married. he is from arizona and was getting married in arizona and they were try to figure out something for the wedding, things and all that, he went online and he found some mexican
crafts woman who made these really cool things that look to mexican that you could put on all the tables for the wedding. they ordered it, they came, and it was $100 or something like that. there is a lot of opportunity there. in our view, we should -- teh good -- the $800 is a number and the administration should try to get other countries to raise their levels. having a small levels means you are not going to order something for $50, because it is too much hassle. yes, sir? over there. >> george with the federal news network. given the state of the postal service's financial outlook right now, how much wiggle room or room for opportunity, whatever you want to call it, does the postal service have to modernize and structure? i know that -- if a structure -- modernize infrastructure?
>> we have been toddling on trying to correct policy errors that were made way back when. it does real damage. jim: companies need to invest in the mailing industry and they need to know that the postal service is going to be around, which it will be, of course. getit is just essential to these balance sheet issues right and create certainty so that all the companies, the 7 million american workers that work for companies relied on the pulse or service, the other companies can make plans and know what, whether institutional arrangements will be. i think that outlook is really solid for the postal service. i think what of the interesting things about ed's review of the history of retail is just how important having this basic infrastructure is to spurring innovation.
it started with sears, 100 years ago but companies like ebay and amazon, they can roll because we have a valuable network. so i think it is really long past time for congress to get reform through. edward: i will add, when i was being critical of the postal service and some of the work, one problem is they were putting money into technology, but the percentage of the cost attributed to labor was not changing. so they were keeping up with technology, but the labor costs were still very high. what has happened in the last two decades, approximately, is that the workforce has gone from 800,000 to 500,000, those certain -- though certain -- parts of the workforce have
i saidike the carriers, that we did studies a few years ago and we found that the last mile is the one thing the postal service does pretty well. and with increase in volume for packages, then these guys have done ok, because you need more of your guys. whereas the folks doing the sorting, a lot of that has been work shared or contracted out. or automated. and so, you save costs there and you are putting more into where you actually need it with these guys. jim: the primary policy concern for congress seems to be, how do we pre-fund for retiree health benefits, not payable for decades. and we have $50 billion set aside, that is enough for 15 years into the future. it is time to focus on investing in our networks. and replacing our outdated vehicle fleet. and making investments that will
allow the postal service to provide a great service. that to me is the important thing. rob: right here. kelly.my name is i'm from a senator's office. coming from the state of alaska, e-commerce and the mailing service in general is foreign to our rural communities, especially for those that do not have close access to, for example, medical facilities, they rely on the mail service for their prescriptions. and of the sort. so i was hoping we could have more of a discussion and some insight from the panelists on what you foresee for the outlook for rural communities as we talk more about postal reform, or whether it is in consideration with what the task force has brought up in regards to rural communities. edward: i will put this in a
bigger context, because i am always talking about beer context, ok? -- about bigger context, ok? i'm sure that you are happy in alaska that the services are there, the what i think you will is, again the context here the emergence of exponential technologies, right, is for example remote medical treatment, where ideally rural alaskabe in and basically consult a doctor who may be in another state, and they can basically get -- they candidate diagnostics there. i have this really cool little thing that can do not only my, i think it can do -- i you not know if they can do blood pressure yet, but we are ability more into products like this. the capacity to do diagnostics. i can tell how long i jogged,
how many calories i burned, my pulse rate, what my stress level is, that goes up and down i am afraid -- >> what is it now? >> pretty cool. [laughter] edward: the point is with exponential technology, yes, you still need stuff physically delivered, but you will probably see a lot more opportunities in terms of what i mentioned, like medical care, to do remote work with robotics and artificial intelligence and these kinds of emerging technologies, it is really going to revolutionize a lot of industries and businesses. medical, assuming we have enough of a free market to do that,, especially right now because it is a controversy whether the doctor in maryland can give information to you in alaska. there is no technical reason, but you are only certified in maryland, you do it in alaska
and we will arrest you and so forth. that is a bigger question and hopefully we can do a panel on that kind of question, because i am really juiced about that. kate: our clients want to have access to rural communities and we want clients there to have access to the outside world, so it is a big focus for us internally to make sure that that access is available. you know, i spoke earlier about the options we give our clients, the express carriers or the postal service, a lot of those express carriers charge rural delivery fees, depending on if you are in an underserved area. the postal service does not charge that. that could be why oftentimes they choose to go with the postal service, because cost is lower. the postal service, i believe, is not allowed to charge such a fee, and it makes sense for them not to charge one because they go to the door every day anyway.
so that is something that we would -- why we support the postal service and what it does or would it helps promote in rural areas. jim: i think what kate said was interesting. rob: there is often a misconception in these policy debates, like the white house task force report talks about downsizing universal service obligations, to have the bare minimum to cover these services. jim: that is good policy speak for people in alaska, but they would be in trouble if this is adopted. that is the wrong way to think about postal service. closing unprofitable postal offices, you are looking at it much too closely. think of it as a network. that network is valuable, not just to the people in rural america, but the people in urban america that want to reach those folks and vice versa. it is important to think about
how to strengthen the network, not think about individual components of the network. edward: by the way come i will add one more thing. -- way, i will add one more thing. in my book, i think it was robert cullen, i do not know where he was, he did an analysis, cannot vouch for the numbers right now, where he took -- he basically took delivery and put it into five categories. if thewanted to see postal service was losing tons of money on rural delivery. and what he found was in fact that they kind of balanced out, that it was only in certain routes in rural areas that they were actually losing money, so if we didn't have a universal service mandate, rural delivery would disappear. but even without one, frankly, i
think it is the network that is valuable. if there was no universal service mandate, they would basically cross subsidize and say we are making profits here and here, ok we will cross subsidize for the final one, but we would do it because the network is valuable. but we have the universal service mandate, so it is not even a question. rob: part of the reason for that is in most small towns, the boxes on the street or the road, the driver comes and throw something in, does not have to walk all the way up to the house, and it does reduce cost. i think there is an inescapable tension, i would argue, between adding more competition and having a universal service obligation. those are just, you cannot have both of those things, so i sort of agree, yeah, there is some of that, but this report is arguing e-commerce and e-mail and all
this stuff, we do not really need the postal service. there is some of that in this report. you only need it may be to get medicine, or perception drugs, to some village in alaska. everything else, you do not needed anymore, because we will all 3-d print everything. i agree that maybe 3-d printing is going to come at some point, but we need an actual network and i think the fundamental point is when you hear about what they are talking about, that that will fundamentally mean if you make it more about the competition then there will be cream skimming, even more than now, and there will be less, less delivery or higher prices to rural areas. the way that the administration task force report once to square that circle is the notion of essential services. if you are in alaska or maine,
you will pay a lot of money to get your dog collar. but if you want to get your prescription drugs, ok, we will subsidize that. what about cold medicine? is that in or out? by the way, do they need to open up every package from amazon or target or walmart -- is there cold medicine in here? a revival of the postal inspectors to sort of police that arbitraryness. edward: again, it is like the report bent over backwards, after acknowledging all the things we have said, they bent over backwards to say, well maybe this, may be that, without much analysis. not only in terms of essential services, but the pricing stuff. and the fact is, if e-commerce, if amazon and ebay and are these guys stopped using the postal
service, they would collapse quicker than you can imagine. and, you know, they do price -- the postal service does price to the market. they drive a bargain with amazon. does amazon get a discount? of course, they are one of their biggest package customers. so, of course you do it you want to make the folks that are giving you the most business happy. that is the way it works. i have very sensitive to, you do not want the postal service competing unfairly and products. there are a lot of products they have try to compete with and they have said no, this is not their core competency, their core competency is supposed to be delivering the mail, not doing all sorts of other stuff. they come up with these weird ideas. i remember when taxes were just kind of coming in, they had an idea where they would put money into having a fax machine in every post office. you would go into the post office and you would pay extra,
and i would say, can you fax this to the post office in minnesota? the prison in minnesota would drive to the post office to pick up the facts. -- fax. then technology went much faster, so. i could give a whole list of ideas they had. maybe get into these other areas. and they tended never to work. so -- i do not want unfair competition, better to stick with what they are supposed to do, which is what we have been talking about at this table, and keep with their core competency. kate: one point, the 2006 law established the regulatory commission, so the prc have to actually approve every negotiated service agreement, or every contract, to make sure that it is not harming the service and they are acting with a business sense. so all of the deals that we hear about, those go through the prc. jim: i wrote about those, too.
at one point the usps wanted to have its own email service, so that you would get your emails ortead of gmail, microsoft whatever, you would get it through the postal service. edward: email is not a moneymaker, it is a way to get you into a network. but to be fair, they do not do that anymore by and large, they really are sticking to the knitting, pilot because i think the postal service realized, we do one thing and we do it really well, so let's do that and make a better. jim, you make a really good point about that -- the pre-funding obligations. and not only sort of in some ways distorting the debate, but reducing capital and could the abilities, modernizing the fleet. assuming if you are buying new trucks in three years, you would
probably be buying a lot more clean electrics, partly just for pollution reasons in the city and other reasons. but i want to ask about drones. do you think there is ever an opportunity for usps to think about drug delivery, not for my house, but for the alaska house, where maybe you are five miles away from the post office? jim: the post offices around the world that are experimenting with this, they really are experimenting with it for remote delivery. that would be very practical. but it would not be prodigal for drones topractical for be flying all over the place in manhattan. this is something that our members are nervous about, as you might expect, but i can foresee a time where the letter carriers operate drones for certain deliveries, if that technology develops. the important thing is we cannot starve capital for over a decade
because of this pre-funding. you cannot imagine how enormous , in 2007 we had a benign percent of our revenue funding the retiree health benefits decades from now. it makes no sense. and so fix the that is the core problem facing the postal service financially. like i said, they have had -- they have the report that the white house put out, it is in their own report, the net operating income before retiree health pay funding, then they have made profit in six straight years, $4 billion in profits. that does not mean that we solved the problem forever, but this is a viable institution if we get out of the way. by the way, in terms of the drones -- edward: i would add that it will probably be experimenting by amazon and companies like that, it went up in the postal service does amazon has the flexibility,
and other companies, to try this without having to go through the postal regulatory commission and then have a hearing on it, then complaining about, i do not know, they will complain about something and so forth. it is like every other kind of government thing, better to let the private market experiment and say, this works better, so than you can take it up. jim: they eventually might take it up. there was a company i was meeting with in california and what they do is they deliver dr ugs, may be blood, but perishable medical supplies to remote african villages. and it is an amazing thing, these villages simply have no roads, they cannot get access to these things, and they are using drones that get there and maybe one hour. it is a really cool area. theink the whole point is,
private sector will take a lead, but if the usps is a starved for capex, they will not be a buddy do that or by other new technologies that they need. unless there is another burning question, i think that is a good place to stop. first of all, i want to thank you all for joining us. we will have more points on the website. you can find ed's work there. aease join me in thanking great panel this afternoon. [applause] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org] [backgroung chatter]
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