Donahoe: Time running out to save US Postal Service

The US Postmaster General issued a stern warning to US lawmakers yesterday to quickly rethink their current Postal Service rescue proposals and pass meaningful reforms. “Lack of speed will kill the Postal Service,” said Patrick Donahoe, speaking at the National Press Club in Washington DC.

Donahoe’s address came a few hours before a Congressional “supercommittee” decided Republicans and Democrats could not come together to agree a $1.3 trillion national deficit plan – a plan that many had hoped would include assistance for the near-bankrupt US Postal Service.

Two other pieces of postal reform legislation are currently proceeding separately through the House and Senate, but with considerable differences between them and Congress attention on the national deficit, there appears little chance of postal reforms passing before some way into 2012.

Yesterday, Donahoe said the current Congressional proposals do not provide enough flexibility for the Postal Service to make a required $20bn cut in its operational costs each year by 2015.

He said First Class Mail, which accounts for around half of USPS income, is now declining at 7% a year, and that without legislation changes from Congress, the Postal Service could not cut its costs fast enough to keep up.

On current form, he said USPS is now running at a $10bn to $15bn deficit each year.

“This 7% decline puts us in a race to get ahead of the cost curve,” he said. “To become profitable, we must be able to cut costs faster than the rate of decline with First Class Mail.

“Speed is the answer, and speed is the best way to judge whether Congress is truly interested in enabling the Postal Service to operate more like a business.”

Freedom

Last week the USPS revealed that it made a $10.6bn loss in the 12 months up to September, although $5.5bn of that loss, in the form of healthcare prefunding payments to the federal government, has been twice deferred and now has to be paid off by mid-December.

Donahoe wants more freedom for the Postal Service in setting postal prices, adding more flexibility to the 570,000-strong work force and reducing the size of its infrastructure.

He also wants to take the USPS healthcare and retirement systems outside the federal system, since at the moment, “the Postal Service has to borrow money from the Treasury just to pay money back to the Treasury, and it is effectively bankrupting us”.

While the Postmaster General was pleased that Congress is taking an interest in the problems at the Postal Service, he said none of the current proposals were enough to enable the required $20bn cut in annual operating costs by 2015.

Donahoe said Congress needed to look at the Postal Service as a business, operating in a competitive market, pointing out that if private sector organisations faced losses and a decline in business like the Postal Service, they would be able to act to cut their costs “at a moment’s notice”.

He said if Congress does not allow USPS to move to five-day-per-week delivery, reduce its work force and infrastructure and run its own healthcare and pension system, the Postal Service will continue to “needlessly” carry billions in extra operational costs each year.

“If Congress gives us everything we need now, we would be out of the red in 2013, we would have a positive 2014 and a positive 2015,” said the Postmaster General. “We would be in excellent shape with our debt and making profits.”

Although USPS currently holds about two weeks worth of operating cash, the surge in Christmas volumes will tide it over into the New Year, but last week chief financial officer Joseph Corbett suggested that as things stand, the Postal Service will be out of money by October.

Monopoly

Yesterday after Donahoe’s speech, the chairman of the Postal Regulatory Commission, Ruth Goldway, told Post&Parcel that she believed that “decisions are going to have to be made more slowly” than the Postmaster General might like.

The Commission is currently dealing with a massive workload as the Postal Service looks to modernise its processes, standards and products, while also closing plants and post offices.

“If the Postmaster General wants more flexibility, ask him if he wants to give up the monopoly, or the exemptions to the rules that the Postal Service currently has,” Goldway said.

“Congress is interested in resolving these problems, and the mailing community feels there are some positive things in their proposals, but the issues are very complex.”

Goldway added that her belief was that tackling the issue of retiree healthcare benefits, in which Congress is currently requiring USPS to pay 40 years’ worth of future healthcare costs within a 10-year period, will be a “big part of the problem” solved.