contacts with personnel familiar with post office procedures, estimates of hourly labor costs and processing volumes were developed. Although several sets of estimates were structured for various types and weights of samples, and using several different inputs for hourly processing volumes and labor costs, our chart No. 5 illustrates what we believe to be the most appropriate set of cost figures. (Indicating display.) CHART NO. 5 MERCHANDISE SAMPLES ESTIMATED POST OFFICE COST (PER UNIT) GROSS WEIGHT 5.234 OZ. Post Office Operations Postal transportation planning and advance preparation Originating Post Office control Trucking cost to destination main Post Offices Unloading and distribution to local Post Offices Local Post Office operations: open cartons and sort to carrier carrier arrangement to walking sequence tie and sack for relay boxes relay to carrier boxes delivery to homes or apartments. General, regional and local Post Office overhead total cost per sample delivered Postage 1968 * .07197 Index-postage vs.cost (121) and may show a profit to P.O.Dept. Now, what we did is we took the steps, the processing and handling steps, that are involved in moving a national mailing of merchandise samples from a processing plant through the transportation and distribution steps ultimately to the consumer. The steps, the individual steps are listed here from known information on volumes, from estimates received on the number of pieces that the clerks or the carriers could be involved with in an hour. We built up this listing of steps and these estimates for each of these steps. These steps include the original planning, long before the mail is entered into the stream-the control, the expense to the post office personnel at the point at which the sample mailing is introduced in the postal system; the trucking to the various destinations from the central sources for all of the national distribution; unloading and distribution to the post offices; the various local post office operations at the destination post office; the opening of the cartons; the sorting to the carriers; the carrier arrangement in walking sequence; the additional tying and sacking he must make of these samples to send to the relay boxes for those he can't take out at the time he leaves the office; the actual delivery on the street to the homes and apartments and, superimposed on the remainder, the general regional and local post office overhead that are indirect costs that must be allocated to each of these samples. The total for the sampling, once again we are talking now about a sample that had actually been mailed on a national basis weighing a little over 5.2 ounces, we come up with just a shade under 6 cents for these handling operations. Current postage, according to 1968 rates, the 22-cents-a-pound rate, for this sample is a little over 7 cents. Ratio of postage to estimated costs, about 21 percent over cost. The salary rates are current rates. While final confirmation of these costs is dependent on the opportunity to review internal Post Office Department records, we offer this exhibit as an unbiased effort to reflect Department costs, and we are currently seeking their comment on the accuracy of these figures. We have recently presented this same cost information to the Department, including a substantial amount of additional detail, and full documentation. We expect to receive their comments soon, after a detailed analysis of this material, but initial reaction was that while the techniques used to determine costs may differ, overall totals appear to be in general agreement with the Department's information. As indicated, the Department has reported two separate areas of concern. The question of cost recovery reviewed here, and the handling problem reported to result from these "nonstandard" merchandise samples. This area of standardization is different from that affecting first-class, airmail and other letter size pieces, anticipating problems involving mechanization-the facing, the canceling, the sorting, and so forth. These machine problems do not concern the bulk mailer, since his mail must be prepared to bypass these steps. He has already done all of the work currently anticipated by the installation of these sophisticated machines. Rather, the merchandise sample handling discussion centers around the final sorting and carrier casing, tieing and delivery problems at the destination post office. The direct mail industry has an excellent record of willingness to cooperate with the Department on mutual problems. Typical examples are the activities of the Postmaster General's Technical Advisory Committee, the exchange of information that occurs during the DMAA-sponsored annual postal parley, and the postal forum, which the Department initiated as an annual event, last year. Specifically, because of the sample handling problem reported by the Department, a special industry committee was recently formed under the auspices of the TAC and the Grocery Manufacturers of America. Several meetings have already been held, and, as an indication of initial results, industry has agreed to the following: (a) To accept a 12-day delivery period for distribution of merchandise samples. The clock doesn't start running on these 12 days till the samples are received at the destination post office. This does not encompass the transportation time from the mailer's plant to the final post office. Currently, the Department makes an attempt to deliver samples received in the offices in 48 hours or thereabouts. Industry has agreed to 12 days. This extended delivery period should allow the post office to schedule delivery most efficiently in coordination with varying volumes of other mail received. (b) The industry has agreed to cooperate fully with a refined "Early Warning System" that may give the Post Office Department better advance notice of a major sample mailing, to allow for optimum use of personnel and facilities. (c) The Post Office Department will supply a detailed summary of peak mailing periods through the year. This will allow major mailers to plan their mailings, as much as possible, around the Department's problem dates. A Department official has commented that these steps alone might solves their handling and delivery problems. In addition the industry is currently cooperating with the Department in a program of special mailing tests designed to study alternate handling techniques for merchandise samples. At the request of the Department, several manufacturers and mailing agencies have supplied merchandise samples, the mail preparation work, and the postage required for these tests. These tests are preliminary at best, and it is too early to determine what benefits, if any, will accrue from this effort, or to what extent industry input will be utilized by the Department, but we offer this as an indication of our good faith in trying to meet the Post Office Department more than halfway. In summary, then, we believe we have demonstrated that: (a) The magnitude of the merchandise sample problem is relatively insignificant when contrasted with the Post Office problems in moving the total volume of mail. (b) As chart No. 5 shows, we believe the Department is already recovering costs for the processing of these merchandise samples, and netting a tidy profit. (c) Industry has made, and will make, every reasonable effort to cooperate with the Department in studying any handling problems that may exist, and working toward solutions that would be beneficial to all concerned. We therefore urge on this committee our conviction that the Post Office Department should not take precipitate or unilateral action with respect to the rate structure of and handling-preparation requirements for sample mailing. Specifically, we request the committee to assert jurisdiction over bulk third-class samples by (1) including bulk third-class sample mail in the study called for by section 2(a) of H.R. 14029, and, in this connection, specifying that the study be conducted as a joint activity between the Post Office Department and industry, and (2) providing that the Postmaster General shall submit the findings developed by the study to this committee for review and such legislative action or other recommendation as the committee may determine after such review. I would be pleased to answer any questions you may have. Thank you for this opportunity to present this information. Mr. DALY. Thank you, Herb. I think, Mr. Chairman, that this is, to our knowledge, the first time that such a study as this has ever been presented before, and it is truly a significant study in terms of this particular area of operation of the Post Office Department. And, of course, we welcome critical analysis from the Department or anyone else concerning these cost figures, because we do believe that merchandise samples enable the Post Office Department to make a profit in this particular area. I wondered if you do have any questions for Mr. Gertz. He has worked very closely in this study and has spent many years in this particular area of activity. Mr. OLSEN. I have only one question, and that would be for some description of how you arrived at the carrier cost of delivery to homes or apartments. Mr. GERTZ. In this case, this was a straight line figure; by determining the average number of mail pieces that the carrier distributes over a 5- or 512-hour tour of his route and the division of the number of pieces, knowing the average hourly rate for the carrier with the average amount of service, and putting in the nonproductive time— the vacation pay, the sick leave and overtime, and so on-and then dividing that hourly rate by the number of pieces. In a discussion with the Department, it was pointed out to us that for this particular figure, for example, their formula is a little more complicated and includes not only number of pieces but bulk and weight. And so currently each of these figures is under review by the Department. It is a rather detailed report in total. We expect comment on each of these figures, comment from them on where we may have a different method, a different technique for arriving at these figures. And ultimately, we are actively seeking response to this information. We recognize that we are outside of the other fellow's ballpark, we are an outsider trying to play his game, trying to simulate his costs. So we have done everything we can as outsiders, without recourse to Department information, to simulate activities, to price them out. We have now said, in effect, this is the best we can do. Since you were in no position to answer this question at the time we asked it, would you look at the information we have and let us know if you agree, or, if you differ, where you differ. And so this was the approach we used. Mr. OLSEN. I believe that is very good. Thank you very much. Mr. DALY. Our next witness is the sales director of the Phillipsburg Division of Bell & Howell, John Jenks. Mr. Jenks. TESTIMONY OF JOHN JENKS, SALES DIRECTOR, PHILLIPSBURG DIVISION OF BELL & HOWELL CO. Mr. JENKS. Mr. Chairman, and members of the subcommittee, I would like to express my gratitude for the opportunity to present the views of my organization, the Phillipsburg Division of Bell & Howell Co., on H.R. 14029. For your background information, my firm, of which I am director of sales, is the largest manufacturer of multistation envelop inserting-stuffing, if you will-machines in the world. Though our largest single market is the direct mail industry, our equipment is utilized by moderate and large volume mailers in many different lines of business-banks, department stores, insurance companies, utilities, oil companies, religious and fund-raising organizations, Federal governmental agencies, and so forth. Seventy-five percent of our business originates in these latter categories. It might interest you to know that both the House and Senate mailrooms have quantities of our machines to process the mailings of Congressmen to their constituents; that the U.S. Treasury is a large user for check disbursement, and that various armed service publishing centers employ our equipment for handling the distribution of technical information." We would hope that cognizance of both our position in our industry and the wide exposure we have had with mailers in a variety of businesses, will add some weight to the views expressed herein. My firm is wholly in agreement with the basic objectives of section 2(a) of the bill; that is, to study present and anticipated mailing patterns, to review available automated mail processing equipment, and to suggest standards that will permit the equipment to accommodate the mailing patterns uncovered. We are most concerned that the Post Office avail itself of any and all reasonable means to expedite the mail in the most efficient manner possible. However, we do fear that the present available automated mailhandling equipment might be used to dictate the standards at the expense of prevailing and projected mailing patterns. This fact, coupled with the lack of provision for a hearing by a public body prior to implementation, as expressed in section 2(b) of the bill, could mean that an unwise standard would be precipitated on the mailing public, with disastrous consequences to equipment manufacturers, such as myself, and to the mailing industry. We would strongly recommend that the findings of the Post Office Department's study be subject to review by Congress and its appropriate committees prior to promulgation and enforcement to mitigate possible adverse economic effects of unrealistic conclusions. We would like to offer as a constructive suggestion that, in the study of establishing the parameters of mailing standards, (and selecting automated mail-handling equipment) careful attention be paid to the |