Long road ahead for the USPS

The myriad financial issues surround the United States Postal Service (USPS) are well documented. In past months and beyond, the USPS has been creative in coming up with ways to reduce its debt and get back to solvency.

But with the ongoing diversion to electronic alternatives, the USPS has literally lost billions in recent years. Just last month it said in Fiscal Year 20111 the USPS had a net loss of $5.1 billion. USPS officials said this loss would have been more than doubled—at $10.6 billion—were it not for passed legislation that postponed a congressionally-mandated payment of $5.5 billion to pre-fund retiree health benefits.

And for the entire Fiscal Year, USPS mail volume was down by 3 billion pieces—or 1.7 percent—annually, with First Class Mail down 5.8 percent from $34.2 billion to $32.2 billion. First Class volume declines have been due in large part to ongoing diversion to electronic alternatives, including e-mailing business documents and online purchasing orders, as well as other electronic mailing processes.

So that brings us to today’s announcement made by the USPS in which it said it is proposing—through a rulemaking process—to move First Class Mail to a 2-3 day standard for contiguous U.S. destinations. But that would be expedited for mailers that properly prepare and enter mail at the destinating processing facility prior to the day’s critical entry time to have their mail delivered the following delivery day.

For a while now, the USPS has said it wants to reduce operating costs by $20 billion by 2015 to get back to turning a profit. And with what it is proposing here though consolidating its network in the form of facilities, processing equipment, vehicles, and staff, would result in a savings of $2.1 billion and serve as a big chunk of its network optimization initiative that it projects to save up to $3 billion by 2015.

As part of this rationalization, the USPS also said in September it would consider closing down 252 of its 487 mail processing facilities. If you are wondering why that card you mailed to Mom is going to be a day or two later in the future, that is likely the reason why.

Also, in September, it announced proposed changes to its network that it said would deliver $3 billion in annual savings.

Among the network changes proposed by the USPS, along with closing down about half
of its mail processing facilities, were to:
-reduce mail processing equipment by up to 50 percent;
-dramatically decreasing its nationwide transportation network;
-adjusting its network size by as much as 35,000 positions from its current total of 151,000 mail processing employees; and
-changing its First Class Mail service standard from a 1-3 day window to a 2-3 day window, with customers no longer receiving mail the day after it was mailed.

If enacted, USPS officials said these changes would result in: fewer facilities, greater utilization, and efficiency; earlier mail availability driving more efficient local delivery; and more retail partners and kiosks, as well as fewer brick and mortar Post Offices.

On November 9, the Senate Homeland Security and Governmental Affairs Committee voted by a 9-1 margin to move forward the 21st Century Postal Service Act, S.1789, which HSGAC said would provide USPS with the flexibility it needs to restructure itself in an effort to save billions of dollars and return to financial viability. Among the key components of this legislation are: buyouts and retirement incentives; health care savings; workers’ compensation reforms; arbitration standards; limitations on five-day delivery; streamlining delivery; retail service standards; processing facilities; and new products and services.

The recommendations made by the USPS will be sent to the Postal Regulatory Commission. A Reuters report noted that the PRC will study the proposed changes and issue a nonbinding advisory opinion. Williams said the service standards would not change before April 2012.

David Williams, USPS vice president for network operations, was blunt in his assessment of where things stand for the USPS in the Reuters report.

“The fact of the matter is our network is too big. We’ve got more capacity in our network than we can afford. More importantly, we’ve got to set our network up so that when volume continues to drop, our network is nimble and flexible enough to respond to those volume losses.”