House Republicans demand faster cost-cutting at USPS

Members of the US Congress called yesterday for accelerated efforts to right-size the US Postal Service network to meet “astonishing” mail volume declines currently being seen. A hearing of the House Oversight Committee’s federal and postal subcommittee saw Chairman Dennis Ross, the Republican from Florida, stating that “the handwriting is on the wall” regarding the need to slim down the “bloated” USPS infrastructure.

He said: “We either make necessary systemic changes to the postal infrastructure, or we continue to watch it become more outdated and accelerate the demise of the Postal Service.”

In reply, the Postal Service said it was already working to reduce the size of its network, but that cost-cutting efforts would not be enough to cope with its financial crisis.

Ross, a member of the Republican Tea Party Caucus, which particularly pushes reduction in federal spending, is pushing for savings to be made in the $4.2bn USPS retail network and also by consolidating mail processing facilities.

He criticised USPS yesterday for only closing 6,000 retail facilities since 1971, despite a trend in which more postal customers are using alternative retail access points and the web rather than post offices. “Cost cutting is not occurring fast enough to keep up with the Postal Service’s decline in revenue,” he said.

“Reluctant”

Yet while Congress continues to openly demand closures from the US Postal Service, behind the scenes individual lawmakers have been pushing USPS to avoid closing facilities in their own districts.

The difficulty for the USPS is that it needs these Congressmen on side in order to make other key reforms to its business model to match today’s mail volumes, such as correcting overpayments into its pension funds, delaying required benefit pre-funding payments, and moving to five-day-a-week delivery services.

Yesterday, the Oversight committee’s ranking member, Elijah Cummings of Maryland, said: “Certainly, we all are reluctant to see Postal Services leave our communities. However, requiring that post offices remain open when they are unneeded or under-utilized is akin to imposing an unfunded mandate on the Service.”

The USPS has already reduced its workforce by 110,000 since 2007 and pulled out $12bn in annual cost savings, and is continuing to review excess capacity in a network set up to cope with as much as 300bn mailpieces a year, but which is now seeing volumes slip below 170bn pieces a year heading towards 150bn a year by 2020.

Currently, 90 studies are underway into proposed area mail processing facility consolidations across the US. Some 48 consolidations have already taken place since 2008. USPS is also looking to close around 2,000 of its 33,000 post offices to save on costs.

Flexibility

Giving evidence to the subcommittee yesterday, USPS vice president of network operations Dave Williams said the Postal Service was seeking a rule change to allow it to close under-used post offices, or convert into partner-run counters, rather than only being able to close vacant post offices.

Noting that more than 35% of retail transactions now take place away from the USPS retail counter, he said more flexibility needs to be available for the Postal Service to make use of alternative forms of customer access.

“Aligning the number and location of postal-operated retail facilities to fit ongoing customer habits and needs is just one part of a multi-layered effort, reaching every aspect of our organisation, to enhance access while taking costs out of the system,” said Williams.

The main message from the Postal Service at yesterday’s hearing was that closing facilities is not enough to tackle the massive budget imbalance at USPS.

“We have achieved cost-cutting and savings that would be the envy of most companies,” said Williams, “but we need Congress to act on three key issues: Retiree Healthcare Benefits pre-funding, overpayments to FERS and CSRS [pension funds], and delivery frequency.”

Philip Herr, director of physical infrastructure issues at the US Government Accountability Office, said there were still “fundamental weaknesses” in USPS’s business model, which were being exposed by the declining mail volumes, but told Congress that legal restrictions hinder USPS efforts to right-size its network.

He said USPS needs to be more open in reviewing facilities, but he also stressed the need for Congress to take action.

Herr said: “It is time for USPS management, unions, the public, community leaders, and Members of Congress to take a hard look at what postal services residents and businesses need and can afford. The status quo is no longer sustainable.”

However, while Congressional action is needed to solve a major part of USPS financial problems, USPS cannot rely on action being taken. Congress itself is currently distracted by other national priorities as the US attempts to cut spending and shrug off its slow economic rebound from the recession.

The subcommittee’s ranking member, Massachusetts Democrat Stephen Lynch, said yesterday: “Were it not for all the crises we have in this country and the problem with the national debt limit, I think this would be a major, major issue. But it’s being overlooked by some because of all the other priorities we are concerned with.”