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July 1998
Vol. 1 No. 10 Page 7

Contracting Out of Priority Mail Fact Sheet

At a cost of $1.7 billion over a 58-month period, the Postal Service awarded a contract (Phase One) to Emery Worldwide Airlines to create a new Priority Mail network, operating 10 Priority Mail processing plants in major metropolitan areas along the eastern seaboard.

Under the terms of the contract, Emery is required to obtain, equip, and . fully staff the 10 Priority Mail processing plants and provide transportation. The contract sets a benchmark of 96.5% on-time handling by Emery, subject to monetary penalties if not attained. The Postal Service will continue to handle all acceptance and delivery of Priority Mail.

Originally, the Postal Service designed the Priority Mail network for in-house operation with postal workers. The USPS spent several years planning the Priority Mail network. However, in 1997, former Postmaster General Marvin Runyon decided to contract it out to Emery.

When the Postal Service first announced its decision to pay $1.7 billion to Emery to run the Priority Mail network, it told the public that the Emery contract provides some cost advantages. However, an analysis by the American Postal Workers Union proved that postal workers could perform Priority Mail processing "in-house" for millions less than Emery. Even the Postal Service's analysis determined that Emery was more expensive than an in-house operation. Over the 5-year period, the Postal Service is projected to lose millions on their contract with Emery.

The Postal Service decided to use Emery in large part because Emery brought some dedicated air lift and additional ground transportation for Priority Mail. However, the Postal Service could have contracted for the air lift and other transportation separately.

Emery did not face any real competition in winning this project. For example, the Postal Service, which received two proposals, rejected one proposal on technical grounds. So Emery was the only bidder. The size of this project discouraged bidders. This project included air and ground transportation, processing and distribution, and other administrative tasks.

An advantage that Emery had was that it had a dedicated air fleet. However, the records show that Emery contracted with the same airlines as the Postal Service. For example, the Emery contract with US Airways requires US Airways to bump US mail -- including Priority Mail (for which Emery is not responsible) -- to assure that Emery Priority Mail makes the flight. This raises questions of unfair advantage. At what cost, and/or to what lengths, will the Postal Service go to make the deal with Emery work?

Some Emery products compete with Postal Service products. This raises questions about conflicts of interest.

In Phase One, the postal workers lose about 1,400 postal jobs to Emery Priority Mail Centers. By 2005, the Phase One centers will employ about 2,820 people. By that same year, a nationwide network would employ at least 8,500 people. These numbers represent processing and distribution figures and do not include the of retirement to rescue CINIF from bankruptcy. The problem was Emery. Emery was always a heavy-freight carrier. However, after Emery bought Purolator and entered the small-package and envelope-courier business, Emery started losing big money. Upon Moffitt's return, he forced Emery out of the small-package business. When Emery returned to its core expertise (heavy freight) it did very well.

Emery experienced significant problems trying to meet its Priority Mail commitments.

Five of the 10 Priority Mail Centers opened months behind schedule. Emery returned volumes of Priority Mail that it could not handle to the Postal Service to be worked by postal workers. Emery lost $17 million on Priority Mail operations in quarter one, 1998. CINIF (Emery's parent company) took a $6 million charge in quarter one to account for the cost of delays in opening the centers. Emery (Postal Logistics) has problems hiring and retaining employees. This will increase their cost. It is likely that Emery will attempt to pass this increase onto the Postal Service.

Although the Postal Service wrote some mail-security provisions into the Emery contract, postal workers are concerned about the security and sanctity of the mail. We've worked hard to earn the public trust. APWU wants to keep the US Postal Service just what it was designed to be -- and what works best: dedicated American postal workers moving the mail economically, efficiently and securely.

Postal workers can do the work not only cheaper, but also better. Contracting out Priority Mail is about privatization -- it is about turning over postal jobs and operations to the private sector.

APWU Position on Contracting of Priority Mail Processing Centers

An Act of Congress created the United States Postal Service. For 220 years the Postal Service has served the American public as a constitutionally authorized service. Throughout this period there have been efforts to privatize portions of the Postal Service. The Congress historically rejected all such efforts in recognition of the outstanding service we provide to the country. While processing and delivering one-half of the world's volume of mail, we continue to provide the best service at the cheapest cost.

Postal management is privatizing Priority Mail without the required debate and consideration of the elected representatives of the people -- the Congress. Postal management has elected to do by administrative fiat what the Congress has refused to do for over 220 years, privatize postal activities. This precedent harbors negative possibilities for future decisions, making postal privatization possible in piecemeal increments.

Cost considerations drive outsourcing decisions in the private and federal sectors. Unlike those outsourcing decisions, this postal effort will result in higher Priority Mail cost to the general public. The former postmaster general stated that the Emery contract costs more than an in-house operation. By law, the users of Priority Mail will pay the additional costs in higher rates.

Source: APWU Bulletin Board Posting
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