USPS revises business plan, forecasts losing $92bn by 2016

As hopes grow that the US Congress might consider the major difficulties at the US Postal Service soon, USPS issued a revision to its business plan on Friday, with its costs predicted to outpace revenues “at an alarming rate”. Price increases and job losses form the heart of the plan, with USPS insisting that cost savings it will achieve will dwarf the associated loss in demand for slower mail services.

The revision updates Postal Service plans and recommendations for legislative reforms in the light of continuing challenges from Internet communications, which the USPS says is the primary driver of its revenues decline, rather than the economy.

The new five-year plan now calls for reductions in annual operating costs by more than $22bn by 2016 to counter forecast declines in First Class Mail volumes, which have already dropped 25% since 2006.

However, USPS said that to achieve the required cost-cutting, all major elements of the new plan are “essential” and must be carried out at once, with only a narrow window available for the effort.

And, around half of the cost-cutting still requires action from Congress to achieve.

Among the plans, USPS aims to cut its workforce by 155,000 by 2016, mostly through attrition with around half its workforce already eligible for retirement. The Postal Service wants to run its own healthcare programme, which it believes would save $7bn a year. The plan also continues ongoing efforts to downsize the processing and retail networks, while adjusting service levels and if possible eliminating Saturday delivery.

The Postal Service also wants to raise revenue through targeted postal rate increases, including hopes of the above-inflation “exigent” rate rise currently requiring regulatory approval, and the possibility of a 50-cent First Class Mail stamp bringing in an extra $1bn.

USPS said without postal reform, its losses could spiral to $18.2bn each year by 2015, reaching a cumulative $92bn by 2016.

This year’s forecast has suggested the USPS will make a loss of around $14.1bn in 2012, although it is currently sitting close to its $15bn government debt limit, owing $12.9bn to the US Treasury at present.

“Burden”

Commenting on the plan, US Postmaster General Patrick Donahoe said a combination of “aggressive” cost-cutting and reforms to the USPS business model and healthcare system were needed.

“If provided the flexibility to quickly implement this plan, we can return to profitability and better serve the American public,” he said. “If not, we risk becoming a significant burden to the American taxpayer.”

The new business plan, which has been reviewed by corporate restructuring advisors Evercore Partners, comes with the warning that even if all its ambitions are fulfilled, there are “significant risks” facing USPS.

These include the potential for the First Class Mail decline to accelerate, for the US economy to slow, and that the “unprecedented” restructuring of the network will hit service, although the USPS plan insists that the projected reduction in demand from proposed service standard changes would be “dwarfed” by cost savings from the network redesign.

An overly slow implementation of the plan also poses major problems for the Postal Service.

Donahoe said he had confidence the revised plan was “achievable”.

“However, our success depends on whether we can quickly implement our proposed changes, and that depends on whether we can gain the necessary legislative reforms we need to move ahead,” said the Postmaster General.

“Disturbing”

US Senator Tom Carper, one of the leading voices in Congress driving postal reform, said the revised USPS business plan “painted a disturbing, but unfortunately all too familiar, picture”.

“Unless Congress acts quickly and significantly to provide the Postal Service with the tools and resources it needs to modernise its business model, this American institution will be insolvent within months,” said Carper.

“We can’t simply nibble at the edges if we want the Postal Service to survive – we have to move forward with significant reforms.”

America’s postal unions said the revised USPS business plan was “not a rational plan” if it relied on charging more for reduced services. The National Association of Letter Carriers said a “forward-thinking” plan was needed.

NALC continues to blame the Congressional mandate for pre-funding the USPS Retiree Healthcare Benefit fund for much of the financial problems at the Postal Service.

“This unnecessary burden accounts for almost 90% of the Postal Service’s red ink since Congress imposed this mandate in 2006,” the union said in a statement commenting on the new USPS plan.