Financial issues continue to weigh on the USPS
January 15, 2013
In early January, the United States Postal Service called on Congress for postal legislation in an effort to become solvent. Not too long after it is saying it cannot “wait indefinitely for legislation” at least not at the moment anyhow.
Given the myriad financial issues that the USPS is up against, coupled with the glacial-like pace that legislation for pretty much anything moves at, this is probably a good decision for the USPS, an organization that is currently losing $25 million per day and recently defaulted on $11.1 billion in Treasury payments and exhausted its borrowing ability. For fiscal year 2012, the USPS incurred a record net loss of $15.9 billion, compared to a $5.1 billion loss in fiscal year 2011.
The $11.1 billion—or nearly 70 percent—of this loss are mandated prefunding health retiree benefits which are part of a Congressionally-mandated 10-year payment schedule at an average of about $5.5 billion per year to create a fund to pay future retiree health benefit premium, among others.
So, what is the plan for the USPS now that it has decided it cannot afford to wait around for Congress?
The USPS said the Postal Service Board of Governors met last week to talk about various accelerated cost cutting and revenue generating measures at a time when it is essentially in dire straits financially.
A main edict coming out of the meeting was that the USPS Board of Governors has directed management to accelerate the restructure of USPS operations to reduce costs and improve its bottom line. They said this will occur through restructuring initiatives in conjunction with the USPS revising its 2012 five-year comprehensive plan to account for current financial and liquidity conditions.
It is not like the USPS is waiting around for good ideas to pop up. Many industry experts maintain they put themselves in this position with the prefunding of retiree health benefits, and it is hard to dispute that.
But at the same time it has reduced its annual cost base by about $15 billion since 2006 and reduced the size of its career work force by 168,000 staffers, or 24 percent.
Despite its record-setting fiscal year 2012 losses, there were some positives on display for the USPS, too.
Fiscal year 2012 shipping and package services business revenues for the USPS were up $926 million—or 8.7 percent—at $11.6 billion, and volumes were up 201 million pieces at a 6.6 percent annual growth clip.
These services include Priority Mail, Express Mail, Parcel Select and Parcel Return services and account for 2.2 percent of total USPS volume and 17.8 percent of total revenue. USPS officials pointed to e-commerce fulfillment and last-mile services as drivers for its strong performance.
The upswing in shipping and package revenues is helping to counter the ongoing losses the USPS continues to experience on the Mailing Services side, due to the ongoing diversion to electronic alternatives, including e-mailing business documents and online purchasing orders, as well as other electronic mailing processes.
But First Class Mail revenue for fiscal year 2012, said the USPS, dipped 3.9 percent to $28.867 billion, with volume down 5.3 percent or 3.826 billion pieces.
In order to regain its financial footing, the USPS is keen on coming up with a plan to counter its current dilemma, which it describes as “an inflexible business model that hinders its ability to be self-sufficient.”
That is where legislation is needed and will eventually have to factor into its long-term survival plan. And while its Board of Governors said that cannot wait around indefinitely for legislation, that will not stop the USPS from calling on Congress to “make postal reform legislation an urgent priority” either.
Jerry Hempstead, president of Hempstead Consulting in Orlando, could not agree more with that.
“Congress needs to man up,” said Hempstead. “They can, now that the election is behind us and we have two years before the next congressional election, pass legislation that allows the USPS to operate as a commercial business. I am also in favor of raising postage rates on transactions less than 1 lb., because they need to cover their operating costs and they are a monopoly. It is nuts that the government operates a monopoly, and the monopoly looses money. That speaks volumes about how we run our fiscal house.”
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