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USPS Postmaster General makes his case for legislation to help right the ship

By Jeff Berman, Group News Editor
September 20, 2012

In a speech at National Postal Customer Council (PCC) Day in Atlanta this week, United States Postal Service (USPS) Postmaster Patrick R. Donahoe said that despite the myriad challenges the USPS is facing, the USPS has a solid business plan to return to long-term financial stability.

And he added that resolving legislative issues geared towards making the USPS more profitable and sustainable are front and center for the organization’s future. Two of the biggest challenges currently facing the USPS are declining First Class Mail volumes and substantial annual net losses, among others.

“The Postal Service is moving forward with the parts of our business plan that we can control, and securing comprehensive legislation will allow us to implement the rest of the plan,” said Donahoe. “Our industry is fundamentally strong and has a bright future.”

As LM has reported, First Class Mail volumes have fallen precipitously in recent years and represent 44 percent of total USPS volume, due to the 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.

During the fiscal second quarter, the USPS incurred a net loss of $3.2, following a $3.3 billion fiscal first quarter loss and a $5.1 billion fiscal year 2012 loss. USPS officials said that despite ongoing management actions that have grown and improved efficiency, these sizable losses are expected to continue until key provisions of the USPS five-year business plan move forward. Previous losses in recent years include $8.5 billion for fiscal year 2010 and $3.8 billion for fiscal year 2009.

The main objective of the USPS’ five-year business plan is to reduce annual costs by at least $20 billion by 2015 and see annual savings rise to $22 billion by 2016. Of the $20 billion in targeted savings within the next five years, the USPS said about $10 billion requires legislative action.

“Things like consolidating processing plants and streamlining our retail network, including post offices, and meeting our customers where they are already doing their shopping and where they work and live and offering retail products in existing stores and getting away from so much reliance on brick and mortar post offices is a goal,” said a USPS spokesman in a recent interview. “Those are examples of things we can do on our own without a change in legislation.”

Last month, the USPS said it was unable to make $5.5 billion in mandated prefunding health retiree benefits to the Treasury, which was due on August 1, as well as a $5.6 billion payment due on September 30.

These payments 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.  The USPS said last year that without government assistance it would not be able to continue to meet this obligation.

Changes that require legislative action include shifting to five days a week delivery and the USPS administering its own health benefits program. Without both of these things happening, the spokesman said the long-term cost reduction plan is not achievable, which is why the USPS is seeking comprehensive, long-term legislative help, rather than a short-term fix which would take it back to the drawing board in a sense.

As LM has reported, among the things the USPS has proposed to become solvent 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.

“The laws that govern the Postal Service are very restrictive,” Postmaster Donahoe said. “These laws impose mandates and prevent the Postal Service from adapting to the marketplace and making changes that any of you would do in your business, and as a result the Postal Service has been recording major financial losses. It’s important to understand that the Postal Service could be profitable today with the right legal framework, and so we can’t let businesses that work with our industry make the mistake of assuming that financial problems in the Postal Service have anything to do with the value of mail or the future of our mailing industry. It all comes down to laws that govern the Postal Service.”

In February, the USPS said it completed its Area Mail Processing consolidation studies under which 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.

And in April, the U.S. Senate laid out a plan, entitled The 21st Century Postal Service Act (S. 1789), which passed by a 62-37 margin and aims to help the USPS regain its financial footing.

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.

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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