USPS delays decision to shutter or consolidate facilities until May

The United States Postal Service said yesterday that it has agreed to delay the closing or consolidation of any Post Office or mail processing facility until May 15, 2012.

The USPS has repeatedly stated that it wants to reduce operating costs by $20 billion by 2015 to get back to turning a profit.  In Fiscal Year 2011, it 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.

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 as part of this rationalization, the USPS said in September it would consider closing down 252 of its 487 mail processing facilities.

USPS officials said yesterday’s announcement to delay the closing or consolidation of any Post Office or mail processing facility until May 15, 2012 was in response to a request made by multiple U.S. senators.

“The Postal Service will continue all necessary steps required for the review of these facilities during the interim period, including public input meetings,” the USPS said in a statement. “The Postal Service hopes this period will help facilitate the enactment of comprehensive postal legislation. Given the Postal Service’s financial situation and the loss of mail volume, the Postal Service must continue to take all steps necessary to reduce costs and increase revenue.”

A parcel industry expert told LM that it is entirely likely Congress will further delay this again in May until after the November 2012 Presidential election.

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.

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.

In early December, the USPS 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.

“The USPS is losing billions of dollars, but the bulk of these losses stem from an unusual pre-funding of retiree benefits for workers who have not yet even been hired by the USPS,” said David Ross, Stifel Nicolaus analyst, in a recent interview. “Also, the organization’s inability to appropriately size its business is causing the remainder of the financial strain.  The U.S. government will not let the USPS become insolvent, so while a first glance at its bottom line leads to an ‘on the ropes’ characterization, it should also lead to some governmental action (even if not near-term) to allow the USPS to remain a viable part of the parcel industry.”