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Legislation proposes change in USPS delivery methods to reduce costs

By Jeff Berman, Group News Editor
July 25, 2013

Earlier this week, the United States House Oversight and Government Reform signed off on H.R. 2748, the Postal Reform Act of 2013, which was sponsored by committee chairman Darrell Issa, R-Calif.

Isaa said in a statement that this legislation would bring the financially beleaguered United States Postal Service (USPS) “financial solvency with cost-cutting reforms and innovative new sources of revenue.”

One of the bill’s biggest proposals is a provision that would move many older “door-slot” delivery units toward curbside delivery mailboxes and, where appropriate, neighborhood boxes. The committee said Door-slot delivery costs USPS, on average, $353 per unit per year and Delivery to curbside mailboxes cost USPS $224 per unit per year, which would save over $4 billion annually.

Other provisions of the legislation include:
-ensuring small and rural post offices are protected from disproportionate number of closures;
-creating a chief innovation officer for USPS;
-protecting existing collective bargaining agreements;
-recalculating projected liabilities for employee pensions; and
-offering additional relief from retiree health care benefit payments

A USPS spokesman told the Associated Press that the USPS would evaluate the bill based on whether it would enable it to achieve $20 billion in savings by 2017. And another USPS spokesperson said in the AP report that the bill’s proposal to convert delivery away from the door to curb or centralized delivery would allow the USPS to deliver mail to more addresses in less time, it is not included in the USPS five-year plan.

As previously reported by LM, in order for the USPS to recoup its significant losses in recent years, it maintains that it needs to accelerate the implementation of its USPS five-year business plan, which it said would reduce annual costs by at least $20 billion by 2015. And along with its goal of $20 billion in annual reductions by 2015, the USPS would like to see annual savings rise to $22 billion by 2016. The plan’s goals include:
-eliminating the fund to pay future retiree health benefit premiums and is proposing to provide employee health benefits independent of federal programs, which it said would save the USPS $7.1 billion annually;
- moving from six days per week delivery to five days per week, which would result in an annual cost reduction of $2.7 billion; and
- pursuing the realignment of its mail processing, retail, and delivery operations, which would result in a savings of $8.1 billion annually and also seek other significant cost reductions to grow or retain revenues within its current business model.

Of the $20 billion in targeted savings within the next five years, the USPS said about $10 billion requires legislative action.

In May, the USPS said it had a $1.9 billion net loss in the fiscal second quarter on the heels of a $1.3 billion net loss of $1.3 billion in the fiscal first quarter and a fiscal year 2012 loss of $15.9 billion.

There are many reasons behind the financial travails of the USPS, but perhaps two of the biggest ones are the decline of First Class Mail, which has traditionally been its most profitable offering. For the fiscal second quarter, the USPS said that First Class revenue fell 3.1 percent—or $237 million, adding that the 4.5 percent volume decline of 854 million pieces was due in large part to an ongoing diversion from paper to electronic communications, including e-mailing business documents and online purchasing orders, as well as other electronic mailing processes.

The second reason has to do with 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.  Last summer, the USPS announced it could not make $5.5 billion in mandated prefunding health retiree benefits to the Treasury, which was due August 1, 2012, as well as a $5.6 billion payment that was due on September 30, 2012.

Jerry Hempstead, president of Orlando, Fla.-based Hempstead Consulting, said that the chances of this legislation being passed into law eventually are slim.

“In almost all new developments the USPS already installs cluster boxes,” he said, adding that “the idea is to reduce head count by attrition yet the number of delivery addresses expands each year. Cluster boxes allows the USPS to provide a convenient service but not replace folks who have left

He also said that the idea lacks support of the unions, which will make it hard to pass through the Senate or the White House and may not even reach a vote in the house because next year is an election year.

“I think Issa was just trying to elevate the issues to the public domain to get conversation going again on the USPS,” he noted. “This minor proposal is not a serious attempt to balance the USPS budget.”

Another parcel expert, Rob Martinez, president & CEO, Shipware Systems Corp, a San Diego-based parcel consultancy said that the Issa plan has its merits, including cost analyses show that cluster box deliveries cost less than half of door-to-door deliveries and also includes exceptions to continue door-to-door delivery for those that require it (elderly, disabled, etc.). 

This plan falls far short of needed change, though, he said, explaining he supports a comprehensive plan that includes:
1-a significant increase in cluster box and curbside deliveries;
2-5-day/week delivery of mail (elimination of Saturday delivery of letter mail);
3-continued restructuring and consolidation of postal facilities;
4-eliminating the pension prepayment mandate while maintaining a percentage of the funds already allocated for future retirees;
5-freeing up a percentage of the pension funds already prepaid to ensure ongoing solvency; and
6-maintaining oversight, but reducing congressional control thereby allowing postal executives to make business decisions to compete in rapidly changing mail and delivery business environment.

“While I’m enthusiastically supportive of much needed legislation to ensure financial solvency of the USPS, the core problem hasn’t yet been addressed:  eliminating the agency’s obligation to make advanced pension fund payments for future retirees as mandated through the Postal Accountability and Enhancement Act (PAEA) of 2006,” he said. “The amount is staggering at $80 billion; 75 years’ worth in just 10 years of payments. No other agency or company in the world has such a mandated burden.
Congress also needs to support the vision and efforts of the Postmaster and USPS executives—and if not support, at least stay out of the way.  The USPS identified $2B in annual savings by eliminating Saturday delivery for letter mail and rationalizing postal facilities.  Moreover, the agency got the public to overwhelmingly approve the plan.  But of course, Congress had to get in the way and overrule the plan.”

About the Author

Jeff Berman headshot
Jeff Berman
Group News Editor

Jeff Berman is Group News Editor for Logistics Management, Modern Materials Handling, and Supply Chain Management Review. Jeff works and lives in Cape Elizabeth, Maine, where he covers all aspects of the supply chain, logistics, freight transportation, and materials handling sectors on a daily basis. .(JavaScript must be enabled to view this email address).

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