The Postal Service just released its year-end financial results for fiscal year 2011, showing a net loss of $5.1 billion. Not pretty, but then we didn’t expect it to be.
What’s going on?
- First-Class (transactional) mail volumes continued their decline in FY2011, dropping 6.4%, leading a drop in overall mail volume of 1.7% for the year. (A glimmer of hope for those us involved in direct mail, Standard (advertising) mail volume was up 2.6% for the year.)
- The Postal Service continues to build up surpluses in its pension accounts and continues to be required to pay more than $5 billion annually to pre-fund its retiree health benefit account, despite the account already having a balance well in excess of $40 billion.
- The Postal Service has both retail and mail processing networks designed to handle mail volumes far greater than the 165 – 170 billion mailpieces that comprise the new normal.
What’s being done?
Postal Service management has put forward a comprehensive plan to achieve $20 billion in cost savings by the end of 2015, but many of the elements of that plan require the support of Congress to move forward.
In addition, the Postal Service is said to be discussing restructuring options with potential advisers. This follows the announcement of one of its largest unions, the National Association of Letter Carriers, that it would be hiring Ron Bloom, the restructuring expert who helped shore up the automobile industry, to revitalize the Postal Service.
While more than a dozen postal reform bills have been introduced in this session of Congress, the two leading pieces of legislation are H.R. 2309, the Postal Reform Act of 2011, sponsored by Reps. Darrell Issa (R-CA) and Dennis Ross (R-FL), and S. 1789, the 21st Century Postal Service Act of 2011, sponsored by Sens. Joseph Lieberman (I-CT), Thomas Carper (D-DE), Susan Collins (R-ME), and Scott Brown (R-MA). Both bills have passed their respective committees and are waiting to be taken up by the full House or Senate. Although there is a slight chance the bills could be debated in December, it’s more likely that they will not be addressed until early 2012.
What’s needed from Congress?
- The dire nature of the financial situation facing the Postal Service demands action NOW.
- Congress must address the $7 billion overpayment to the FERS pension system to enable the USPS to deploy this capital to where it is needed most.
- Congress must address the prefunding of retiree health benefits in a manner that is more affordable for the Postal Service and the rate payers who support it. $5 billion per year is simply too much to pay from the ever dwindling cash flow of the Postal Service. A more reasonable funding schedule can be determined.
- Labor costs still account for 80 cents out of every postal dollar. Congress must support USPS management in their efforts to reduce these costs. Specifically, the USPS must have the flexibility and authority to adjust the size of its retail and processing networks to match current mail volumes (168 billion/year today vs. 215 billion five years ago).
- Dropping a delivery day should not be an immediate option. There are many other cost reduction strategies that can provide equal cost savings for the USPS rather than cutting services. Even if this change is eventually required, it should be implemented in such a way as to ensure predictable mail delivery.
- Raising postage rates above the rate of inflation will only worsen the Postal Service’s challenges by driving mail out of the system. Above inflation rate increases will have a harmful economic impact on the mailing industry, as well as the struggling economy. This cannot be part of the postal solution.
We urge Congress to move quickly to put the Postal Service back on a solid financial footing, protecting the $1.1 trillion dollar mailing industry and the 8,000,000 jobs it supports.
– Kurt Ruppel
Marketing Services Manager
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