USPS defends union deal ahead of grilling in Congress

US Postmaster General Pat Donahoe faces an important test in Congress tomorrow, with House Republicans seeking answers about a union deal they see as a “missed opportunity” for the loss-making USPS to cut its costs. The deal, which still requires ratification by the union members after its eight-month negotiation, adopts a two-year pay freeze but then a wage increase of 3.5% over three years.

Donahoe faces a hearing in front of the House Oversight Committee tomorrow morning, chaired by California congressman Darrell Issa, a Republican ever keen to press his policy of encouraging smaller government.

While the union leadership attempts to persuade its membership the 2010-2015 wage deal agreed last month is the best for members, given the USPS financial crisis, Donahoe will need to explain how the deal does the maximum to cut labour costs – some 80% of the total $73bn annual Postal Service outgoings.

Speaking to reporters this morning ahead of tomorrow’s hearing, the Postmaster General said he’d like to see $73bn cost total getting closer to $60bn per year.

He said the union deal was part of that cost-cutting, and would mean $3.8bn less in labour costs even than the USPS strategic plan demanded when it was released last March.

Labour costs

The union deal includes a pay freeze, new lower pay grades for new workers, a $180m reduction in healthcare contributions and an increased use of part-time and flexible workers to cut costs.

Despite predictions that 40m work hours will be eliminated in 2011, saving $1.5bn this year, the Postmaster General warned that as with any service organisation like USPS, there would always be high labour costs.

However, around 10% of the Postal Service labour costs come from Congressional requirements for the USPS to pre-fund its retiree healthcare benefits system, he said. This is something the Postal Service is hoping Congress will change before the next $5.5bn annual installment is due in September.

“The Postal Service has been very, very focused on saving money – especially over the past 10 years – we’ve reduced the headcount in this organisation, career paid head count by 30% since 2000, in the last three years we’ve reduced head count by 105,000, we’ve taken 240m work hours out of our system,” Donahoe said.

“If we did not have to pre-pay health benefits – like nobody else does – if there was a 20% (volume) downturn we still would have made about $611m profit.”

Joining Donahoe in giving testimony tomorrow will be the USPS board of governors chairman Louis Giuliano, USPS governor James Miller, and the president of the APWU itself, Cliff Guffey.

Commenting on the prospect of tomorrow’s hearing Guffey said: “The union’s main goals were to preserve jobs and to lessen the hardships associated with excessing. The Tentative Agreement will help accomplish those objectives. The USPS is seeking to reduce costs and increase workforce flexibility. The agreement will help management meet its objectives as well.”

Flexibility

One of the big wins for USPS in the union deal, Donahoe suggested today, was in allowing the Postal Service to use more part-time employees, to give the organization more flexibility in its work force.

The current cap on using “non-career, flexible employees” will be stretched from 5.9% up to 20%, “with no restrictions” under the APWU deal, although the proportions vary by job type.

Donahoe said: “What you end up with is an employee who comes in at a lower pay rate, and is also flexible in terms of the hours worked, and if we don’t need them the rest of the day, we can let them go, and if we don’t need them when the mail volume drops we can let them go permanently.”

More flexibility has also been agreed for full-time workers, allowing them more flexible work patterns as an alternative to downsizing the workforce.

Consolidation

As well as direct savings to labour costs, Donahoe said labour savings would come through the consolidation of the USPS network.

“People immediately think: post office closures, but what we’ve been focusing on through the process is how to you provide better access (for customers to post office services) as you go through some of those changes,” said Donahoe.

He said over the past few years there had been more of an emphasis at the USPS on the website, on partnerships with retailers, and on the use of kiosks.

Five-day delivery

Another major piece of the puzzle USPS sees in fixing its financial shortcomings is in moving from a six-day delivery week to a five-day service, losing Saturday deliveries.

“The major issue that we face today: First Class volume is down, this year almost 5% on the same period last year. Standard volume is up. We’ll deliver more mail this year than we did last year, and make less in terms of total revenue. That is a problem,” said Donahoe, adding that in terms of six-day weeks, “we can’t carry on going forward”.

The Postmaster General said the decision had already been made within the Postal Service to go for the five-day system, if allowed.

All that was needed, he said, was authorization from Congress and the system could be in place within six months.

Donahoe said: “From our point of view we could get it earlier, but we want to give the customers a chance to make sure all their systems are set, if they’ve got to make any changes in their mail.”