Maintaining good service for commercial mailers is paramount for the U.S. Postal Service, according to CFO Joseph Corbett, but some service disruptions could occur as the agency works to reduce its costs through mail processing center closings and contend with a loss of $5.1 billion in its fiscal year.
“Yes, certain mailers could be impacted,” Corbett said in a media conference call last week. “But over the last three years, we've consolidated almost 200 mail processing centers and done so without a hiccup. That's gone somewhat unnoticed.”
But Corbett admitted that USPS' upcoming plans—to close within two years an additional 300 of the 500 remaining processing centers—“is more challenging” than the previous consolidations.
The Postal Service also has plenty of other challenges ahead. Its net loss of $5.1 billion for its fiscal year ended Sept. 30, announced last week, could have reached an estimated $10.6 billion without recent legislation postponing a $5.5 billion health-benefit prefunding payment.
That deferred payment was due Friday, a deadline Corbett said he was prepared to default on; but that day President Obama signed into law a bill that, among its other provisions, postponed USPS' payment yet again, this time until Dec. 16.
According to Ron Stroman, deputy postmaster general, the only way to fend off a default on that date and not run out of cash sometime in 2012 will be for systemic changes that the Postal Service hopes will be dealt with by various reform bills being considered by Congress.
“I would say there are great elements in the bills moving through both the House and Senate, but it's fair to say that in terms of the cost reductions that we need to become solvent in the long term, none of the bills gets us to where we need to go,” Stroman said, in the media conference call.
“We are hopeful that moving forward we will work to improve the bills, but we need to cut $20 billion of costs out of the system in a very short period of time,” he said, which includes relief from prepaying retiree healthcare benefits.
“None of the bills that is moving through Congress adequately addresses this issue,” Stroman said. “And moving to five-day delivery as soon as possible is obviously part of what we think an overall plan should do.”
The Postal Service is also seeking legislative action to “streamline its pricing decisions,” Stroman said. For example, he'd like to see USPS no longer be required to appeal to the Postal Regulatory Commission to make rate adjustments, but rather set its own pricing.
Stroman did praise some current bills for promising to refund to the Postal Service about $7 billion it has overpaid into the Federal Employee Retirement System (FERS).
“We are pleased that bills in both the House and Senate do get us our FERS overpayments quickly,” Stroman said. “We can use some of that refund to provide incentives to our employees to take early retirement.”
Although contracts with unions representing letter carriers and mail handlers expired at midnight yesterday, USPS and the unions agreed to extend the negotiations deadline until midnight, Dec. 7. The unions represent about 240,000 employees; the pressing point of negotiations is about $19.2 billion in annual wages and benefits.
Mail delivery comprises about half of all employee hours.
Corbett said commercial mailers remain key to the Postal Service's solvency, noting that in 2011 shipping services revenue was up about 6%, and standard mail saw an approximate growth of 3%. Neither, however, could overcome the losses from first-class mail, which makes up about one-half of USPS' total revenue.
Corbett cited two Postal Service promotions that underscore its commitment to commercial mailers: the Reply Rides Free program, offering a postage credit for first-class mail containing a business reply envelope or card, as well as the Every Door Direct Mail program, which simplifies blanket mailings by neighborhood.
“And we will continue to promote flat-rate boxes and mail with an extensive ad campaign,” Corbett said. “We've seen that area grow 80% in the last two years. We've also entered into negotiated service agreements with select customers.
“But unfortunately, the continuing decline in first-class mail remains too significant to overcome on our own,” Corbett said. “We need comprehensive legislation to remove unfunded mandates, and give us the ability to react quickly to changing market conditions.”
