Is $5.1 billion enough to get the attention of Congress? The loss the U.S. Postal Service piled up in the fiscal year that ended Sept. 30 certainly looks like there is a clear choice now over whether legislators can allow the agency to restructure or default.
Postmaster General and CEO Patrick Donahoe has a plan to return the agency to profitability by reducing “annual costs by $20 billion by the end of 2015,” but he is restricted by mandated requirements on delivery and services — not to mention a pension structure that hangs like a heavy anchor on the USPS’s finances.
“The Postal Service can become profitable again if Congress passes comprehensive legislation to provide us with a more flexible business model so we can respond better to a changing marketplace,” Donahoe said last week in announcing the huge loss.
Congress has taken small steps, including postponing a $5.5 billion retirement fund payment that threatened to push the USPS straight into insolvency last month.
But Donahoe says true relief will come only if the agency is allowed a far greater overhaul of its operations, and even what amounts to its business model, to adjust to the fundamental changes in the world of delivery. In the immediate picture, that means the freedom to cut some 120,000 workers, break labor agreements, close thousands of post offices and end Saturday delivery. He also wants the USPS to have more flexibility in pricing and product development, and a return of $11.4 billion in overpayment to the agency’s retirement fund.
USPS’s grim financial report reignited a bipartisan call for legislation that would reduce the agency’s infrastructure footprint and offer buyouts to at least 100,000 employees. Under the plan, six-days-weekly delivery would continue for at least two more years.
“This is yet more confirmation of what we already know: The Postal Service is in such deep financial trouble that mail delivery would be disrupted sometime next year unless bold action is taken,” said Sen. Joe Lieberman, I-Conn., who is sponsoring the legislation.
The House also has legislation that would create a commission to determine which post offices and distribution centers should be closed. The USPS has done its own detailed analysis based on costs and activity, but that has prompted an outcry in some areas that would see post offices closed. The potential closings generally are in more remote and sparsely populated areas that tend to vote more for Republican candidates, prompting barbed accusations of partisanship in the financial scoring.
President Obama’s 2012 fiscal budget calls for reducing the agency’s retiree health benefits fund by $4 billion and returning the retirement fund overpayment.
Personnel-related costs account for 77 percent of the USPS’s operating expenses, and compensation and benefit payments make up 69 percent of personnel expenses. In comparison, transportation costs only account for 7 percent of the USPS’s total operating expenses.
The USPS has lost more than $25 billion since 2007, and its losses in fiscal 2011 would have been more severe if Congress had not pushed back the retirement fund payment. Mail volume peaked with 213 billion pieces in 2006 and has plummeted to 142.8 billion pieces since, cutting business by a third.
Revenue from First Class mail, the agency’s most profitable business, fell 5.8 percent last year and is expected to keep falling as more people turn to electronic communications rather than stamps.
Similarly, the magazine industry’s shift from print copies to computer tablets helped push periodical revenue down 3.1 percent in 2011. Standard mail delivery growth to 2.9 percent has slowed, as advertisers “become more selective in their mailings,” the USPS said.
Although the growth of e-commerce certainly has cut into mail volume, it’s hardly a total loss for the USPS. Revenue from standard shipping has grown as consumers use the Web more often to shop. Total e-commerce retail sales in the third quarter grew 13 percent year-over-year, and nearly three in four U.S. consumers made an online purchase in the same period, according to comScore, an online tracking and analytics firm.
Package and shipping services now account for only 16 percent of USPS revenue. Still, that such services make up only 1 percent of total volume suggests how much more profitable the business can become.
Getting more of that business means becoming more flexible with retailers that sell so much more of their goods over the Internet, and meeting the competition from private carriers that have seen huge growth in parcel volume in recent years.
FedEx, for instance, has seen package business lead its growth as shipments of document envelopes that were once the company’s signature business have remained stagnant.
The USPS could adjust — if lawmakers understood the costs behind the sepia-toned nostalgia for things such as Saturday delivery. Considering the toxic political environment in Washington, the real scare for Congress might come only if there is a threat to the delivery of election mailers.