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Senate passes bill designed to help USPS recoup losses

By Jeff Berman, Group News Editor
April 26, 2012

As the United States Postal Service (USPS) continues to face a significant uphill fiscal battle, a bill passed by the U.S. Senate this week aims to get it on better financial footing.

The bill, entitled The 21st Century Postal Service Act (S. 1789), passed by a 62-37 margin.

The main objectives of the bipartisan bill, which was sponsored by Sen. Joe Lieberman (I-Conn.), chairman of the Homeland Security and Governmental Affairs Committee, and Senator Susan Collins (R-Maine), Senator Tom Carper (D-Del.) and Senator Scott Brown (R-Mass.), in order to help the USPS become financially solvent include:
-giving the Postmaster General access to money USPS has overpaid into one of its retirement funds to provide incentives to encourage 100,000 eligible employees to retire.  This would help voluntarily “right-size” the workforce to take into account the steep decline in first class mail volume in recent years;
-reducing the amount of money that USPS has to prefund for retiree health benefits by amortizing the costs over 40 years and calculating those costs more appropriately;
-retaining overnight delivery of first class mail, but limit it in some cases to shorter geographic distances;
-preventing the Postal Service from going to five-day delivery for the next two years and require it to exhaust all other cost-saving measures first; 
-requiring USPS to set standards for retail service across the country, consider several alternative options before closing post offices, and provide for increased opportunity for public input;
-allowing USPS to sell non-postal products and services in appropriate cases;
-allowing USPS to ship beer, wine, and distilled spirits. 
-creating a Chief Innovation Officer to foster innovation at USPS
-reforming the Federal Employees Compensation Act, the federal workers’ compensation program; and
-the bill expands the alternatives USPS must consider before closing a post office and it establishes a Strategic Advisory Commission, to be composed of prominent citizens and charged with developing a new strategic blueprint for the Postal Service.

“This is an important victory for the U.S. Postal Service, the American economy, and customers who rely on dependable and universal postal service,” Senator Collins said in a statement. “In recent months, we have seen the Postal Service announce a number of draconian measures including the intent to close hundreds of processing plants and implementing disastrous service standard changes.  Our bill takes a far better approach that helps the Postal Service right size its excess capacity, while still maintaining what is one of the most valuable assets to the Postal Service: its ability to deliver mail overnight to many areas.”

One of the primary drivers for the USPS’s fiscal issues is the ongoing diversion of mail from paper to electronic communications and its 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.

In February, the USPS said it projected its net losses would hit $21 billion by 2016.
On several occasions in the 14 months the USPS has repeatedly that it wants to reduce annual costs by at least $20 billion by 2015.

And in March, the USPS publicly released updates to this plan to reduce annual costs, which include new financial projections and suggestions for legislative reforms, too.

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. USPS officials said these cost reduction goals are necessary, due to its projected declines in First Class Mail volumes, which have fallen precipitously in recent years and represent 44 percent of total USPS volume, due to the aforementioned ongoing diversion of mail from paper to electronic communications, including e-mailing business documents and online purchasing orders, as well as other electronic mailing processes. First Class mail volumes have decreased by 25 percent since 2006.

“The plan we have developed requires a combination of aggressive cost reduction, rethinking the way we manage our healthcare costs, and comprehensive legislation to reform the business model of the Postal Service,” said Postmaster General, Patrick Donahoe in a March statement. “If provided the flexibility to quickly implement this plan, we can return to profitability and better serve the American public. If not, we risk becoming a significant burden to the American taxpayer.”

One of the primary objectives of the USPS’s cost-cutting measures is to eliminate its 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 premiums. The USPS said last year that without government assistance it will not be able to continue to meet this obligation.

The USPS has been unable to fund this obligation from operations and has used all of its retained earnings and drawn down from its $15 billion borrowing authority from the U.S. Treasury. And even with the requested increase, the USPS would not be able to meet this annual obligation in 2011 or subsequent years, according to the Postal Regulatory Commission.

Industry stakeholders have maintained that in order for the USPS to regain financial solvency, Congress should order the USPS and the Postal Regulatory Commission to do a one-time rate increase that would cover all current operating costs, which includes pre-retiree healthcare benefits, which could help it to break even and cover its obligations for servicing its debt, as many feel the USPS does not charge enough for the services it provides.

HSGAC officials stressed that the House “must now act expeditiously so the two chambers can reconcile their bills and turn around the Postal Service’s daily loss of $23 million…and prevent the wholesale closings of postal facilities.”

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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