• on Jun 16th, 2014 in Ideas Worth Exploring | 6 comments

    Earn more or spend less. Those are the two basic ways to achieve financial fitness, whether you’re talking about the household budget or a multi-billion-dollar corporate balance sheet.

    And that’s what it comes down to for the U.S. Postal Service as it seeks to bring revenue in line with expenses (it lost $5 billion in fiscal year (FY) 2013). So far, the Postal Service has been looking at cost cutting ideas like moving to 5-day mail delivery to changing employee benefits to consolidating networks.

    It’s also been trying to grow revenue, most notably in the package delivery business. But are there some unexplored opportunities to generate income, particularly by taking advantage of one of the Postal Service’s greatest assets – its last mile delivery network?

    We asked that question in a previous blog entry and explored it in more detail in a recent audit report, Delivery Operations – Additional Carrier Services. We came up with nearly two dozen ideas – everything from monitoring services for the elderly and collection of air quality details on delivery vehicles to traffic reporting services and dry cleaning delivery. While these ideas should be explored, most would involve significant financial investments, additional training, and changes to core hours or labor agreements. Also, the 2006 postal law prohibits the Postal Service from offering any new services that aren’t postal in nature.

    But the Postal Service could move relatively quickly to add one new, albeit modest, moneymaker: advertising on postal vehicles. The agency has dipped its toe into similar waters by co-branding with Sony Pictures to promote Priority Mail and “The Amazing Spider Man-2” on mail trucks. But it could also sell space on its vehicles to promote products unrelated to mail.

    On the other hand, even with all those delivery vans, the Postal Service estimates revenue opportunities would be limited to only about $30 million in FY 2015. That’s because advertising would likely be profitable only in densely populated areas and the Postal Service would carefully select advertisers that don’t compromise its trusted brand.

    Should the Postal Service look at every opportunity to raise revenue by leveraging its last mile delivery force or should carriers stick to delivering the mail? What about advertising? Would the postal brand be tarnished if delivery vehicles promoted nonpostal products or is this a worthwhile opportunity to raise much-needed revenue? 

  • on Mar 10th, 2014 in Finances: Cost & Revenue | 4 comments

    Benjamins, dough, cabbage, coin, greenbacks. Most of us could rattle off a dozen or more slang words that mean money. But we might be unsure what certain financial terms -- operating income, liquidity -- mean. When you follow the U.S. Postal Service, this might put you at a disadvantage, especially when it’s quarterly financial statement time.

    Operating income measures earnings (revenues minus expenses) before interest and taxes. Liquidity is the amount of financial resources (cash, equity, assets, credit) that an organization can easily convert to cash for spending and investments. Postal officials often mention the Postal Service’s lack of liquidity. Chief Financial Officer Joe Corbett said in January that the Postal Service’s liquidity, at its highest point in the year, is only about $3 billion. This isn’t much cushion for a $65 billion entity. And the cushion shrinks at certain points in the year, such as in October, when the Postal Service makes its workers’ compensation payment to the Labor Department.

    UPS and FedEx, companies with revenues about $20 billion less than the Postal Service, have liquidity of about $12 billion and $14 billion respectively, he noted. But what does this mean exactly? Well, companies with strong liquidity positions, such as UPS and FedEx, have much greater access to capital than the Postal Service. They have more opportunity to invest, whether in capital projects or new businesses. The Postal Service’s weak cash position means it cannot invest in the infrastructure or innovation. It also has no margin for error. What happens if a catastrophe strikes in October right after the Postal Service has made its workers compensation payment?

    Finally, the Postal Service has no available cash to pay down its debt. It reached its statutory borrowing limit of $15 billion in FY 2012 and it has been unable to borrow from the Treasury Department for more than a year.

    The Postal Service says employees will get paid – this is not an issue. And it has enough cash on hand to pay suppliers. But it has had to forego needed investment in its infrastructure, such as facility maintenance and vehicle replacement. And as the Postal Service considers a new business model for the digital age, it has no available cash to invest in new opportunities. It has not had the funds to make its required prefunding payment to the retiree healthcare fund for the past few years. The postage price increase in late January should help its cash position, but it will not build the bigger cushion it needs.

    Share your thoughts on the Postal Service’s cash position. What is hurt most by the Postal Service’s lack of liquidity? Is it missing opportunities because of its cash shortage? If its liquidity position were to improve, what should be the Postal Service’s priorities (infrastructure investment, paying down debt, lowering postal rates, etc.)? 

  • on Mar 3rd, 2014 in Ideas Worth Exploring | 4 comments

    Canada Post shares a number of similarities with the U.S. Postal Service, including its founding by Benjamin Franklin in 1753 when both Canada and the 13 colonies were under British rule. Both posts are self-supporting, meaning they pay for their operations through the sale of postage and services. And Canada Post, like the Postal Service, has suffered volume losses the past few years.

    Here’s where things get different, though. Canada Post has adopted a radical plan to restore its financial health, featuring bold initiatives that might seem too politically difficult in the United States. Canada Post’s five-point plan is intended to streamline operations, cut costs, and return the corporation to fiscal self-sufficiency by 2019.

    The plan features:

    1. Ending to-the-door residential delivery over 5 years. Two-thirds of Canadian residents already are without to-the-door delivery, so, while it is a major change, perhaps it is not as disruptive as it would be in other countries.
    2. Upping the price of postage. Bought in bulk, stamps that now cost 63 cents (CAD) will be 83 cents. Bought singly, the same stamps will cost $1. The increase still needs approval from the regulator.
    3. Streamlining via franchise post offices. Franchise post offices are more convenient for customers and less costly to operate. There’s a moratorium, however, on closing existing rural post offices given their popularity among customers.
    4. Increasing efficiency. Consolidation and technology improvements, including faster sorting equipment and more fuel-efficient vehicles, should improve operations. No resulting changes are expected in the corporation’s fairly relaxed 2- to 4-day delivery standard for letter service, yet parcel delivery is expected to improve.
    5. Reducing labor costs. Along with the service cuts, Canada Post said it would eliminate 8,000 jobs, mostly through attrition.

    Canada’s plan has met with criticism from opposition political leaders, labor unions, and some citizens. But Canada Post defends the plan saying without major operational changes it will lose $1 billion a year starting in 2020. It also faces a $6.5 billion pension fund shortfall.

    What could the United States learn from the Canada Post plan? Are some of these initiatives worth trying in the United States? Or are they not the right approach for the U.S.? What cost-cutting and revenue-generating ideas should the Postal Service focus on? 

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