USPS announces plan to roll out new delivery schedule, eliminate Saturday mail delivery

Earlier today, the United States Postal Service (USPS) said that effective August 5, 2013 it plans to implement a new delivery schedule.

The schedule will be comprised of Monday-Saturday package delivery and Monday-Friday mail delivery, which the USPS said would result in roughly $2 billion in annual savings. This plan also factors in employee reassignment and attrition, said the USPS.

Even though the USPS has formally rolled out its plan well in advance, making this switch is not a done deal, as it needs Congressional approval. This is because it is an independent agency which receives no tax dollars for its day-to-day operations and is subject to Congressional approval, according to an Associated Press report.

But a Wall Street Journal report noted that Patrick R. Donahoe, Postmaster General and CEO said the agency can execute the change without explicit congressional authority,  explaining that language of the stop-gap measure—or continuing resolution—currently funding government operations creates the opening for the Postal Service to act unilaterally..

Eliminating Saturday delivery has been proposed by the USPS several times in recent years.

The USPS has said repeatedly that due to falling mail volumes and revenues it has considered eliminating Saturday mail collection and delivery except for Express Mail and existing post office box service.

As removing the majority of Saturday-based operations has been discussed on and off in recent years, as the USPS has seen its fair share of financial challenges, due in large part to economic pressures and a migration to electronic media having a significant adverse impact on mail volumes and operating revenues. This has subsequently played out in its numbers, with the USPS beginning the new fiscal year with a $329 million loss in the first quarter, following an $8.5 billion loss in fiscal year 2010.

While the USPS is keen on phasing out Saturday delivery, it has made significant strides on the package delivery side, which has seen a 14 percent volume increase going back to 2010. USPS officials noted that its projections of continued strong package growth over the next decade drove this revised approach to maintain package delivery six times per week.
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 Postal Service is advancing an important new approach to delivery that reflects the strong growth of our package business and responds to the financial realities resulting from America’s changing mailing habits,” said Patrick R. Donahoe, Postmaster General and CEO. “We developed this approach by working with our customers to understand their delivery needs and by identifying creative ways to generate significant cost savings.”

If the change in schedules goes according to plan, the USPS said that mail delivery to street addresses will occur Monday through Friday, with packages still delivered six days per week. And mail addressed to PO boxes will still be delivered on Saturdays and Post Offices now open on Saturdays will remain open on Saturdays.

In explaining the rationale for this move, the USPS cited market research it conducted, as well as research by major news organizations, that show roughly seven out of ten Americans support the shift to five-day delivery as a way for the USPS to reduce costs and become solvent, adding that support is likely to be strong as the USPS plans to continue six-day package delivery.

And it added that in light of its myriad financial challenges, the Postal Service Board of Governors in January “directed postal management to accelerate the restructuring of Postal Service operations in order to strengthen Postal Service finances.
In November, the USPS said it incurred a record net loss of $15.9 billion for fiscal year 2012, compared to a $5.1 billion loss in fiscal year 2011.
Representing $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.  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, as well as a $5.6 billion payment that was due on September 30.
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 at the present time or in subsequent years, according to the Postal Regulatory Commission.
As reported, among the things it has proposed to get back into the black are consolidating its network in the form of facilities, processing equipment, vehicles, and staff, which it said 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.
And the USPS said along with resolving the accelerated schedule to prefund retiree health benefits and has the flexibility to sponsor its own healthcare program for employees and retirees, other components of its plan include:
-allowing the Postal Service to determine delivery frequency;
-allowing the Postal Service to offer non-postal products and services;
-developing a more streamlined governance model for the Postal Service that would allow for quicker pricing and product decisions;
-instructing arbitrators that, during labor negotiations, they must take into account the financial condition of the Postal Service when rendering decisions; and
-resolving the overfunding of the Postal Service’s obligation to the Federal Employees’ Retirement System (FERS).
In an interview with LM, Jerry Hempstead, president of parcel consultancy Hempstead Consulting said that USPS has stated it would still deliver parcels, and last year the USPS was granted the right to move first class parcels (under 13 ounce pieces) into the competitive definition. And In addition, he said the post offices will still be open to accept outgoing parcels and the network acceptance points for the major mailers, including Amazon, FedEx Smartpost, UPS Sure Post, Newgistics, DHL Globalmail, among others, whom will not be affected by this announcement, which is good news for shippers.

“The problem with the Postal Service is not really their mandate to deliver on Saturday, but the problem is the Congressional requirement to prepay retiree healthcare benefits for the next 75 years in a compressed 10-year schedule. No other branch of our government has such funding requirement and no private business budgets this way,” he said.

The USPS, he said, has 330,000 votes in an election, which he said can be seen as 330,000 votes in an election.

“Eliminating Saturday delivery, one sixth of the work week, quid pro allows the USPS to obviate one sixth of the employees in the union,” he noted. “That’s 55,000 folks sent to the unemployment office in these most difficult times. I just can’t see the White House (the USPS comes under the executive branch) eliminating that many well paid jobs. What we may be observing is a shot across the bow of the Congress to create a public outcry, in order to get what the USPS really needs and that’s budgetary relief from the prefunding mandate and the workman’s comp payments it’s forced to make.”