on Feb 2nd, 2009 in Finances: Cost & Revenue | 19 comments

The Postal Service lost $2.8 billion in fiscal year (FY) 2008. This year, the Postal Service is concerned its loss could grow to $6 billion or more. Since the Postal Service is limited by law from borrowing more than $3 billion per year and the Postal Service started 2009 with only $1.4 billion cash on hand, there is a danger the Postal Service could face a liquidity problem as payroll and benefits alone are about $54 billion a year.

Last Wednesday, Postmaster General Potter testified to the Senate subcommittee that oversees the Postal Service. (Click here to view that testimony.) The Postmaster General asked for two forms of relief:

  • Moderation of payments for retiree health care — Under the Postal Accountability and Enhancement Act (PAEA), the Postal Service must make annual payments (more than $5 billion each year) for the next 8 years into a special fund for future retiree health care benefits. In addition, the Postal Service must pay separately for current retirees. The Postal Service requested the ability to start paying for current retirees out of the retiree health care fund now rather than in 8 years as called for in the PAEA. The large annual payments into the fund would continue.
  • Optional 5-day delivery — The Postal Service would like the Board of Governors to have the option of reducing delivery from 6 days a week when circumstances warranted.

What do you think of these options?

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I think the polling question about the retiree health care costs is very confusing.

USPS should NOT have to pay at such an accelerated rate for future retiree health care costs....

Although I think the two options above are viable, I also believe that improvements in other areas can have a positive impact on the Postal Service's bottom line. With that in mind, I think the Postal Service should take more advantage of what the OIG offers as far as identifying inefficiency, waste and fraud. Instead of viewing the OIG as an adversary, the Postal Service should view the OIG as a partner.

Every six months, the OIG publishes its Semi-Annual Report to Congress, which provides dollars associated with the audits and investigations that were completed during the previous six month period. OIG audits and investigations cover strategic, financial and operational risks. A small portion of the financial impact of OIG work during the April 1 - September 30, 2008, period reveals OIG auditors identified over $163 million in findings of questioned cost, i.e., cost that are unnecessary, unreasonable, unsupported, or an alleged violation of law, regulation, or contract. In addition, OIG investigators identified more than $109 million in cost avoidance...with the majority of this amount related to injury compensation fraud.

The OIG's work should be used by Postal Service management as a tool to assist with making improvements. Unfortunately, many...not all...Postal Service management employees view the OIG as an enemy and not a partner. I don't know what you guys think...but if my company was failing and someone identified over $271 million...I would appreciate their efforts and seriously consider suggested solutions to stop the bleeding.

I think there is an upside to this downside. The Postal Service ought to view this financial crisis as an opportunity to do things they thought they could not do. The big elephant in the room is PAEA. In my humble opinion, PAEA is a bad piece of legislation because it failed to address the issue of labor costs and how they are set. The law reformed how prices ought to be set but not the underlying 80% of costs (I know not all of it is set by the binding arbitration process but most of it). This structural imbalance is a problem. Sure pre-funding was a bad provision and it should be rectified by allowing the Postal Service to pre-fund based on actuarially-sound payment schedule (and not budget neutrality considerations) and allow the Postal Service to pay its current retirees from the fund. After all, that's the purpose of the fund; why delay it till 2016? This would help but it should not detract the "fateful triangle" of this issue Congress, postal management and unions to tackle labor costs. And this does not have to perceived as a union-busting strategy. Unions can be part of the solution. Binding arbitration needs to be re-examined (I find it anachronistic) and regional wages instead of nationally-uniform wages need to be considered as a starter.

I realize these are easier said than done. In the meantime, The Postal Service needs to continue to reduce its costs (but not necessarily at the cost of service -- no pun intended) and seek new opportunities for revenue generation. I personally feel agnostic about 5 day delivery. But let's do the studies first and see what they tell us.

The post office must change with the times first class is not coming back no matter what you try. Now you have to go after new business the same as your competitors. When I track a package being shipped via one of your competitors you know exactly when you will receive it. On the other hand the PO has a useless tracking system that does not tell you when to expect your shipment even though you paid for priority service. If you don't get a piece of the package business the cost for fist class mail will be too expensive for anyone to use it. Get a better tracking system and then you may survive.

It seems its hard times for everyone around the world.

Every business needs to consider its customers in order to survive and make a profit. The following announcement concerns the Forever Stamp:

The Postal Service has issued the Forever Stamp, which offers convenience to consumers by reducing the need to buy new postage or "make-up" stamps (1-cent and 2-cent stamps) when prices change. The Forever Stamp will initially be sold at the new First-Class Mail single-piece 1-ounce letter rate — 41 cents. The value of the Forever Stamp will always be the First-Class Mail single-piece 1-ounce letter rate that is in effect on the day of use, unaffected by any subsequent changes in the future.

If the post office realizes that when rates increase like they are about to do in May, people will generally purchase stamps in quantity. Good for the customer and good for the Post Office since they will get revenues in advance of when they will be realized.
However the Paost Office also says that Forever Stamps, the only ones that anyone would purchase at a time when rates will increase, was never intended to be purchased in quantity and that is the reason that you cannot purchase the Forever Stamp as a coil, the most convenient for the customer.
Why doesn't the Post Office offer the Forver Stamp in a coil?

Money...I don't want to hear it. the USPS is supporting two law enforcemnet agencies - the OIG and the Inspection Service. Cut one out completely and consolidate. The former Chief of the Inspection Service was called-out on National television for excessive travel. He subsequently resigned the next day. As a carrier, I am tracked and monitored throughout my tour, if I "mess-up" the OIG and/or the Inspection Service could fire me - I would lose my pension and everything else.

The Inspection Service also has a $10 million dollar contact with an outside service that provides "contractor" assitance. These "contractors" are retired Inspectors who are making around $90,000 a year on top of their $85,000 to $90,000 a year pensions. All they do is "desk" work - they retire on a Friday and come back in on a Monday, with $90,000 more in their pockets. The Inspection Service also maintains a "special" office in Pittsburgh, PA that costs the agency around a MILLION a year. American's need to wake up and realize that fraud, waste and abuse is still alive in our Government and that the USPS in one of the biggest problems.

Not all contractors are retired Postal Inspectors, some are carriers who bid on contracts, because it isn’t cost effective for a LLV to take these routes that are way out of the way from any ones route. Contract Rural Carriers are very much a part of the service and deliveries to the postal service.

Also, as I said not all contractors are retired Postal Inspectors. I work very closely with all of the areas within this origination. And I can tell you…this contractor does not make $90,000 dollars a year. I am a 911{contracted} Dispatcher. I left a wonderful position with a real 911 Job, to come here and see how this agency works.{for the experience if you will} I do not even have insurance, retirement, sick leave, and the vacation pay isn’t paid on the check when you take vacation hours. It is paid in a lump sum on your hire date, and for some reason you separate from your position even two weeks before your hire date, we loose all of our vacation pay. Even though we listed Vacation pay on the paper work, it does not ensure we will receive our pay we have used prior to departure. Hence we have to work these extra hours to make sure we have enough money to meet our monthly obligations. I am just happy I have a job in these troubling times. The fringe Bennies will come with a different job.

I think it is funny when management and OIG talks about the desperate times we are now in; however, I believe that management doesn't take the big picture into account. Where else would you pay an employee to drive 60 miles to deliver an express piece that costs $15.00 to make sure it is not a failure. Most companies would call it a failure, and save the $65 and time (about $50 for 2 hours) (thus $115 total for this one delivery). Until management gets truly involved in saving money, how do they expect people on the workroom floor to become involved. It is put up or shut up now. Actions speak louder than words.

Michigan clerk's suggestion is very shortsighted. Specifically, not delivering the Express Mail item may save money in the short term, but in the long term it will cost the Postal Service another customer and possibly more, as the person who counted on the item being delivered on time as promised will no longer use the Postal Service and they may very likely tell others not to use the service based on their experience. Less customers equates to less revenue and repeat business.

I think one way to save a lot of money is to get rid of all of those analyzing and statistical programs. SPMS is a good best example. I have my box mail up in plenty of time, so I don't have to worry about a late scan, but what do you think is going to happen in offices that have a hard time getting their box mail up on time? They are going to do their scan before the uptime so they won't get beat up by the POOM-whether the mail is done or not. Am I right?

What about offering free PO Box service in lieu of curbside delvery? If you see the difference in costs to deliver between the two, there is more than enough to make it worthwhile. You may lose $42 in revenue, but that will be offset by the more than $100 in savings on the cost side of the equation.

Cut back spending on diversity programs. Every month my district celebrates some form of "National (something) Month" or has a cultural celebration. How much money are we spending on this stuff? We are in the business to deliver mail, not to hold cultural celebrations.

I totally agree with David Tannenbaum "Get a better tracking system and then you may survive." A new, reliable system and MUCH BETTER train staffs will win customers back immediately.
USPS are famous

Close the thousands of offices that dont make money. Let Congress answer to the American public why they wont allow USPS to close offices.

I don't think closing small offices is the answer. The small post office has been around for a long time. Some of the smaller offices are not losing a lot of money but are providing a great service to the customer. I believe customers will take their business elsewhere if the small office in their community is closed. Those offices that are open only for a couple of hours a day should be the only offices closed.

All of these comments are valid-especially Michigan Clerk and RSquire. Closing smaller post offices, cutting service from 6 to 5 days, letting the OIG tell USPS how to save money, study or take another look at labor costs, close the secret PA place...all are bad ideas.
USPS should increase to 7 days and have OIG do a study of how not to loose money next year, period. Legislation for the PEAE must be revised as a starting point and then 7 day delivery service should be next [do you have to ask permission for that too]. Our economy is looking for confidence and that would send a clear message. Actions always speak louder..even than legislation. Then combine the two 'law enforcement' groups that USPS supports and get a better tracking system and issue the forever stamps in a coil and never close another post office and look at fair labor laws by the area worked and track WHY offices don't make money and stop the philanthropy work [maybe not in the new stamps issuing business, but let OIG figure that out too].

We have many good people with a wealth of knowledge and experience. Why not tap this valuable resource. Have you ever read "Wisdom of Crouds" James Surowiecki? Go to netlibrary.com and create a free account on the "United States Postal Service Corporate Library". Look on Nonfiction ebooks. You can download this book for free. This book was an eye opener.

We're going through similar pain in the UK where it's proposed to privatise the Royal Mail.

Interesting comments

Is the situation better now or it's still the same?