‘Perfect storm’ bathes USPS in sea of red ink

Charting a course for rough financial waters ahead at the Postal Service.

By Max Cacas
FederalNewsRadio

If you’re looking for more evidence of the downturn in the American economy, look no further than your local post office or local postal carrier. The U.S. Postal Service is ending its fiscal year in the red, with fewer and fewer people using it to send letters and packages. And that’s creating challenges for the people who run USPS.

The Postal Service ended its fiscal year $2.8 billion in the red, battered by a faltering economy that cut the amount of mail being sent. Mail volume dropped by 9.5 billion items, one of the sharpest drops, by percentage, in years. Postmaster General John Potter said the agency is making sharp cuts in hours and overtime, but stressed that there are no plans for layoffs.

“We are working hard to do everything that we possibly can to avoid layoffs,” Potter added in an interview following the board meeting. The post office has been offering early retirement, which has been accepted by 3,685 workers.

Following the USPS Board of Governors meeting at Postal Service headquarters at L’Enfant Plaza, we talked to Alan Kessler, chairman of the Postal Service Board of Governors.

Of the volume decline, Kessler said, “it’s a little bit deeper for the Postal Service, because it’s been a continuing trend, and that is, volume declines due to Internet competition and other competition. When you compound those declines in volume with what’s happening in the economy, along with rising fuel prices earlier this year, it’s essentially the ‘perfect storm’ that has descended on the Postal Service.”

In an interview, Kessler said the news means his colleagues on the Postal Board of Governors will keep the pressure on USPS management for even more cost savings, and more productivity gains. In the past year, Postmaster General John Potter has produced nearly $1 billion in productivity savings; Kessler says that the current downturn means the governors will be asking Potter to double that amount in FY 2009.

At the same time, amidst the cuts, Kessler says service levels are at an all-time high.

Asked about the possibility of cuts in service, Potter was emphatic in saying no: “When you’re in tough economic times, the last thing you want to do is back away from your customers.”

One of the bright headlines from the Board of Governors meeting: a sharp drop in workhours, translating into labor cost savings, according to H. Glen Walker, chief financial officer of the U.S. Postal Service:

“We reduced the number of workhours that we needed in the business to about 50 million, which translates into the equivalent of 25,000 full-time staffers,” he said in a post-board meeting interview. He credits the Postal Service’s labor unions for their cooperation in working to reduce overtime, and make more efficient use of staff following congressional passage last year of legislation to amend how the Postal Service does business.

The cost of First Class postage went up to 42 cents in May and Potter said the annual increases for letters will continue to occur in May, with the new price being announced 90 days in advance. The increase is based on the rate of inflation.

For packages, however, rates will increase in January so the post office will be in step with its major competitors, which generally announce new rates in January, he said.

Potter said the agency plans to ask Congress to restructure the way it handles payments for retiree health care. A 2006 law requires the post office to create a fund to cover retiree health care, contributing several billion dollars annually for 10 years. At the same time the agency is paying about $2 billion annually for retiree health care.

The postmaster general said the agency would like to start funding retiree health care from the new account, which it will continue to build up, but would like to eliminate the need to pay the extra $2 billion for current costs.


Randolph E. Schmid, Associated Press Writer, contributed to this report.

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