USPS “could be profitable today” if Congress passed reforms

The US Postmaster General insisted yesterday that the US Postal Service is not going out of business any time soon, despite heading towards a $16bn loss in the current fiscal year. Patrick Donahoe was speaking in front of a gathering of the mailing industry at the National Postal Customer Council annual meeting, where he said USPS “could be profitable today” if the US Congress put the right legal framework in place.

His comments came as it became increasingly clear that lawmakers in Washington will not get round to passing crucial postal reforms before the November elections, and with USPS recording a $13.4bn loss in the first 10 months of its current fiscal year so far, including required payments to the federal government that it is refusing to pay.

In his speech yesterday, Donahoe said he wanted to clear up “misperceptions” within American business that the financial troubles of the Postal Service are threatening the value of the US mail as a service, or the future of the US mailing industry itself.

“People question whether the Postal Service is going to exist in the future. This is one of the craziest ideas out there. We are a $65bn business inside an $800bn industry. We’re going to be here for a long time,” said the Postmaster General and USPS CEO.

“Mail retains just as much value as it ever did and will continue to be a highly effective communications and marketing channel, and despite some of the headlines we see occasionally, mail remains an incredibly effective and important part of marketing America’s products and services.”

Donahoe, who recently addressed USPS employees to concede that Congress was unlikely to find time for postal reform in the current session, said in his speech yesterday that the major financial losses at USPS were largely being caused by mandates from Congress, and the “very restrictive” postal laws governing business operations at the Postal Service.

The Postal Service and the mailing industry were “far too important” to the US economy for services to ever be disrupted, Donahoe argued, but called on the mailing industry itself to help turnaround the negative publicity regarding the financial strife at USPS.

He said: “Unfortunately, until Congress acts and passes Postal reform legislation, this industry is going to have to deal with the negative news. In the meantime we will do what we need to do to protect the industry. Is the Postal Service going be around in the future? Absolutely. Will we continue to deliver mail without disruption? Absolutely.”

Value of the mail

The Postal Service has seen its mail volumes decline by around 25% over the last six years, which has contributed to its financial woes along with pension and healthcare funding obligations, the reform of which are an important part of the legislative changes USPS is seeking from Congress.

But yesterday Donahoe claimed that ordinary Americans were still resisting the idea of conducting all their business online, stating that while single-piece First Class Mail volumes were continuing to decline, commercial First Class Mail volumes have “held steady”, which he interpreted as consumers increasingly paying their bills online but still preferring to receive bills and statements through the physical mail.

He suggested to customers that meeting this consumer demand for receiving items through the physical mail was key to improving their customer service.

During his address to the National PCC, Donahoe said the mail would soon become even more effective as a customer communications channel as the use of data and technology improves, with USPS putting considerable efforts into developing its state-of-the-art Intelligent Mail barcode system of mail tracking, and highlighting ways to connect the physical mail to online communications through innovations like QR codes.

Consolidation

USPS is in the process of a strategy it says can cut its annual operating costs by more than $20bn a year, to balance outgoings with its reduced $65bn annual revenues, although executives have said legislative changes are needed to achieve around half of the planned cost-cutting.

Yesterday USPS chief operating officer Megan Brennan said efforts over the summer to reduce some of the excess processing capacity in the Postal Service network had gone “smoothly”, as had the adoption of new mail service standards to enable the consolidation process.

She said: “We’ve seen very little impact in terms of the way our customers and businesses in the mailing industry are using the mail. And that’s a testament to the education and dialogue that is ongoing.”

The Postal Service is aiming to close as many as 200 mail processing plants across the country, taking the network down to around 232 plants in total, with a first phase to close 140 facilities by Spring 2013. This summer has seen operations from 46 plants consolidated into larger facilities, prior to a hiatus on plant closures designed to prevent disruption during the peak mailing season and during US elections.

“When we resume consolidating activities in February and March, we will consolidate approximately 90 facilities, and we will continue to work closely with our customers so that there are no surprises,” Brennan said yesterday.

She added that USPS was on course to cut its mail processing costs by $1.2bn a year by this time next year through the consolidation process.