USPS completes consolidation studies as part of cost-cutting mandates

The United States Postal Service (USPS) announced yesterday that it has completed its Area Mail Processing consolidation studies.

USPS officials said subsequent changes related to these studies are a necessary part of a larger comprehensive plan developed by the Postal Service to reduce operating costs by $20 billion by 2015 and return the organization to profitability.

In September 2011, the USPS said it would consider closing down 252 of its 487 mail processing facilities. But in December the USPS said that it has agreed to delay the closing or consolidation of any Post Office or mail processing facility until May 15, 2012. That decision was made in response to a request made by multiple U.S. senators.

According to the USPS, 264 processing facilities were studied for possible consolidation and of the 264 processing facilities studied, 6 are on hold for further internal study, 35 will remain open for now and 223 will be consolidated — all or in part.

“When completed, the new Postal Service network of mail processing facilities will be sustainable well into the future,” the USPS said.

What’s more, the USPS said that the the network consolidation would reduce operating costs by $2.6 billion annually and result in a net savings of $2.1 billion.

This plan is not a done deal just yet, though. The USPS explained that due to regulatory and labor-agreement requirements, it is beginning a lengthy notification process now in order to be in a position to begin implementing its national mail processing realignment during the summer and fall of 2012, adding that these changes are contingent upon a final decision to change its service standards for First-Class Mail.

Earlier this month, the USPS reported that it incurred a net loss of $3.3 billion for the quarter, following a $5.1 billion fiscal year 2012 loss. USPS officials said they expect these losses to continue until the USPS implements its network redesign and downsizing, as well as restructure its healthcare program. Previous losses in recent years include $8.5 billion for fiscal year 2010 and $3.8 billion for fiscal year 2010.

The USPS has repeatedly stated that it wants to reduce operating costs by $20 billion by 2015 to get back to turning a profit. And it has said that the fiscal year 2012 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.

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.

Jerry Hempstead, principal of Hempstead Consulting in Orlando, Fla., told LM in a recent interview that one way for the USPS to regain financial solvency would be for Congress to 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.

“The USPS does not lack volume; it handles millions of pieces a day,” said Hempstead. “It’s obvious from the loss that they are just not charging enough for the service it provides. The mailers are not paying enough for the service it is receiving. Granted that extraordinary postal increases may hasten the declines in certain classes of mail, but the USPS and the PRC have statistics that can figure in the anticipated decline. A bail out is not quite fair, because we don’t all use the services of the USPS equally. The burden should be carried by those that actually use those services and the fee charged should adequately cover the cost for such service.”