Shippers are likely to feel the pain of the U.S. Postal Service’s dramatic attempts to repair its troubled finances whether they use the mail heavily in their business or not.
The actions include cutting some 120,000 workers from postal operations, breaking labor agreements, closing perhaps thousands of facilities and withdrawing from retirement and health plans that have weighed down the USPS’s balance sheet.
The USPS also is likely to seek an increase in Standard Mail rates of 8 to 20 percent in October, said Jerry Hempstead, an industry consultant and longtime parcel industry executive, because the Postal Service can no longer afford to pay more for delivery than it receives from shippers.
Expect UPS and FedEx to follow with their own price increases coupled with targeted discounts, Hempstead said, as carriers court high-volume package shippers.
“The gloves are off. Media mail, bound printed material and everything shipped by Amazon, eBay, Land’s End, L.L. Bean and others is on the table,” he said. “What FedEx and UPS can now say to (shippers) is, ‘You enter the package as a pound and we will give you a price break.’ ”
Internet retailers and catalog shippers have been a big target of the parcel carriers, including the USPS, as online communications has collapsed letter mail volume.
The USPS faces a second year of losses of more than $8 billion as the agency struggles to align its operations with the changed shipping landscape. The Postal Service lost $20 billion between 2007 and 2010, while overall mail volume declined 20 percent, or 42 billion pieces annually, over that span.
The struggles will reach a crisis point in September because the USPS is on the verge of running out of cash at the end of its fiscal year, Sept. 30. That is only partly because of the changed business environment, however: The USPS by law must fully fund its retirement obligations, essentially pre-paying the pension benefits and providing a huge draw on cash reserves.
The Postal Service handled 1.1 million, or 2.6 percent, fewer pieces of mail in the fiscal third quarter ending June 30, compared to the same period a year ago.
Parcel mail appears to be the only stable business segment, while magazine subscriptions increasingly go online and First Class mail withers.
The private sector is in the market for Standard Mail — any mail under one pound and not shipped First Class through hybrid products with FedEx’s SmartPost and UPS’s SurePost. But ending the USPS artificially low pricing will allow the private carriers to piggyback even more on the agency’s infrastructure for the “first and last mile,” Hempstead said.
The Postal Service expects to handle 3.5 billion, or 2 percent, fewer pieces by the end of the year, compared to 2010.
The USPS’s First Class mail service, its most profitable business, has been hit the hardest, with volume down 7.6 percent year-over-year in the first three months of the year. The USPS expects that volume to fall 6.5 percent this year from 2010.
These sharp decreases in volume and the $5.5 billion owed for workers’ federal retirement and benefit plans spurred the USPS to seek job cuts, office closures and an end to Saturday delivery.
The USPS said it needs to cut some 220,000 jobs, about 21 percent of its work force, overall by 2015, but about 100,000 of those would come from attrition. The proposed cuts would remove collective bargaining restrictions and require congressional approval.
It’s also reviewing 3,700 post offices nationwide for possible closure. Hempstead said he doesn’t expect the layoffs and office closings to affect service because new sorting equipment and better consolidation of delivery routes will make up for the smaller footprint.
But even those changes, and the elimination of Saturday delivery, are not certain in a political environment in Washington.
Although cutting Saturday delivery could save the USPS $3.1 billion annually, Congress has been hostile to the effort. Many insist the smaller, rural post offices can’t close because residents in those areas would become more isolated.
The USPS expects to lose $20 billion annually by 2020 if it doesn’t dramatically alter its operations and get legislative changes to its mandates.
In the meantime, however, private industry is making its own decisions about mail. Periodical delivery fell 4.5 percent year-over-year in the January-March quarter, for instance, and most magazine publishers are pushing digital delivery of their material over mailed editions.
Internet retailing, however, is booming, generating more boxes from distribution centers to homes. Home improvement retailer Lowe’s said this month its lineup of goods available for online purchase has grown 73 percent in the past year and that it expects to send far more shipments, even split orders, to customers in the coming years.
“Parcel seems safer and (the USPS) has about 80 percent of the business,” Hempstead said.
But, he said, the USPS will become a “much slimmer organization with a diminished conveyor role.”