USPS plans to save USD 1B this year with automation

The U.S. Postal Service starts 2008 with ambitious goals for cost-cutting and modernization.

The agency last month unveiled a series of changes to its “road map,” the plan aimed at boosting its revenues over the next few years. The changes are driven, in part, by the 2006 Postal Accountability Enhancement Act, the first postal reform law in 36 years.
The plan sets an annual goal of USD 1 billion in cost reductions that the agency plans to achieve primarily by increasing automation. The cost reductions are necessary, said postal executive Linda Kingsley, even though the new law gives the Postal Service the flexibility to raise revenue by developing new products and raising prices for competitive services, such as package delivery.

“The competitive products are 10 percent of our revenue pie. Even if we double that, it still won’t do it,” said Kingsley, senior vice president for strategy and transformation. “And the likelihood of doubling our market share is pretty thin.”

The law also limits the Postal Service’s profits in market areas it dominates, such as first-class mail. The law caps postal rate increases for those products by tying them to the Consumer Price Index. The change is a benefit to consumers, particularly large mailers, but a challenge for USPS.

So the Postal Service hopes to lower costs by using automation to work smarter.
It has aggressively pursued a high-tech system called Intelligent Mail for tracking all classes of mail and identifying bad addresses. The program is in limited use by large mailers, and the Postal Service hopes it will be widespread by January 2009.

It also hopes to unveil the Flats Sequencing System in 2008. The equipment will sequence “flat mail” — magazines and large envelopes — much like letters, which are already automatically sequenced. That means mail carriers won’t have to spend time manually sequencing those items. Kingsley called it “the biggest thing we’re investing in” for the near future. The agency last month unveiled a series of changes to its “road map,” the plan aimed at boosting its revenues over the next few years. The changes are driven, in part, by the 2006 Postal Accountability Enhancement Act, the first postal reform law in 36 years.
The plan sets an annual goal of USD 1 billion in cost reductions that the agency plans to achieve primarily by increasing automation. The cost reductions are necessary, said postal executive Linda Kingsley, even though the new law gives the Postal Service the flexibility to raise revenue by developing new products and raising prices for competitive services, such as package delivery.

“The competitive products are 10 percent of our revenue pie. Even if we double that, it still won’t do it,” said Kingsley, senior vice president for strategy and transformation. “And the likelihood of doubling our market share is pretty thin.”

The law also limits the Postal Service’s profits in market areas it dominates, such as first-class mail. The law caps postal rate increases for those products by tying them to the Consumer Price Index. The change is a benefit to consumers, particularly large mailers, but a challenge for USPS.

So the Postal Service hopes to lower costs by using automation to work smarter.
It has aggressively pursued a high-tech system called Intelligent Mail for tracking all classes of mail and identifying bad addresses. The program is in limited use by large mailers, and the Postal Service hopes it will be widespread by January 2009.

It also hopes to unveil the Flats Sequencing System in 2008. The equipment will sequence “flat mail” — magazines and large envelopes — much like letters, which are already automatically sequenced. That means mail carriers won’t have to spend time manually sequencing those items. Kingsley called it “the biggest thing we’re investing in” for the near future.

Fred Rolando, executive vice president of the National Association of Letter Carriers, also praised the system. “We think the FSS is a great thing,” he said. “It will simplify deliveries for our carriers.”

Murray Comarow, who served as executive director on the commission responsible for the previous Postal Service restructuring in 1971, said the Postal Service should do more to promote its existing products.

“Only a very small fraction of small businesses use direct mail,” Comarow said. “It seems that mom-and-pop stores could be great beneficiaries. And that’s just one unexplored market with a lot of potential.”

Kingsley agreed, and said USPS plans to use letter carriers to “spread the word” about postal services.

“We have a lot of good products, but a lot of people don’t know what we offer,” Kingsley said. “We want to get our carriers out there to tell small businesses where their opportunities are.”

Perhaps the most fundamental challenge for USPS is labor costs: They make up nearly 80 percent of total operating expenses, a ratio that’s been virtually unchanged since 1971. High labor costs are inevitable with the Postal Service’s business model, Kingsley said.

“We have a lot of automation, but we also have 30,000 retail units and 250,000 carriers on the street,” Kingsley said. “The labor figures include direct costs, but also benefits, and some of those are mandated by law.”

Others, like Comarow, see labor reform as an indispensable part of postal reform, and argue that the Postal Service is in trouble without it.

“I worry that all these USD 1 billion cuts are just a blood transfusion,” Comarow said. “They’ll help the Postal Service for a few years, but they don’t fix the underlying problem.”