USPS proposes network changes to improve bottom line

A week after a Senate committee held a hearing to examine the current state of the United States Postal Service and recent proposals to improve its financial condition, the USPS today announced proposed changes to its network that it said would deliver $3 billion in annual savings.

Among the network changes proposed by the USPS were to:
-consolidate or close 250 mail processing facilities;
-reduce mail processing equipment by up to 50 percent;
-dramatically decreasing its nationwide transportation network;
-adjusting its network size by as much as 35,000 positions from its current total of 151,000 mail processing employees; and
-changing its First Class Mail service standard from a 1-3 day window to a 2-3 day window, with customers no longer receiving mail the day after it was mailed.

If enacted, USPS officials said these changes would result in: fewer facilities, greater utilization, and efficiency; earlier mail availability driving more efficient local delivery; and more retail partners and kiosks, as well as fewer brick and mortar Post Offices.

“We are forced to face a new reality today,” said Postmaster General Patrick Donahoe in a statement. “First-Class Mail supports the organization and drives network requirements. With the dramatic decline in mail volume and the resulting excess capacity, maintaining a vast national infrastructure is no longer realistic. Since 2006, we have closed 186 facilities, removed more than 1,500 pieces of mail processing equipment, decreased employee complement by more than 110,000 through attrition and reduced costs by $12 billion.”

Through these proposed changes, which the USPS will file with the Postal Regulatory Commission later this year—and an Advance Notice of Rulemaking which was sent to the Federal Register today—the USPS is eyeing $20 billion in cost reductions by 2015, coming from $6.5 billion in network changes for sorting and transport, retail, and delivery, $5.0 billion in compensation and benefits; and $8.5 billion in legislative changes.

Among the chief legislative changes are going from a 6-day to 5-day delivery schedule, receiving $6.9 billion in overpayments to the Federal Employee Retirement System in the form of a refund, and resolving the mandate to pre-fund retiree health benefits by $5.5 billion annually and manage the legacy cost going forward and allow the USPS to restructure its healthcare system to make it independent of federal programs, among others.

“By changing the service standard, which is today far faster than most people need, it’s easy to cut the number of processing facilities in the network dramatically,” said Jerry Hempstead, president of Hempstead Consulting. “There is significant investment already in state of the art automation which allows the USPS to process mail extremely efficiently and accurately. The fact is that with the decline in mail there is far more capacity in the ability of the automation, in the facilities themselves and on the transportation network to be able to rationalize the system and close half the plants. This change is long overdue. The USPS should also consider outsourcing the surface transportation network to UPS to piggy back on their vehicles like the USPS did with the Priority Mail business piggy backing on the FedEx air network.”

The ongoing diversion of mail from paper to electronic communications has seen total mail volume decrease by more than 43 billion pieces in the last 5 years, with First Class Mail, single piece First-Class Mail down 25 and 36 percent, respectively.

The USPS, which still delivers 563 million of pieces of mail per day, is expected to have a deficit of roughly $8 billion this year for the second straight year.

In an effort to reduce its debt and improve its financial condition, the USPS has cut costs by $12 billion over the last four fiscal years and reduced its career workforce by 110,000 employees.

As of the end of the third fiscal quarter, the USPS had reduced work hours by 9.2 million hours or 3.1 percent compared to the same period a year ago, and during the first nine months of 2011, 2.8 percent fewer work hours were used compared to 2010. The third quarter also saw the voluntary retirement of more than 1,850 administrative employees as part of the current restructuring initiative, according to the USPS.