Sunday, February 14, 2010

Closing the USPS' Income Gap

The Public Representative performed a service for postal stakeholders in their estimates of the required rate increases to return the Postal Service to break even by 2011 under various estimates of the Postal Service’s retiree obligations. These estimates represent the worst case scenarios for mailers as they assume that the return to break even could only come from increases in rates.

Unfortunately for mailers, the Public Representatives estimates of rate increases are not enough to return the Postal Service to self sufficiency. Simply put, the break even goal for 2011, a goal that guided rate cases under the Postal Reorganization Act, is not sufficient to ensure a financially viable Postal Service. A more realistic goal would include these two parameters:
  • A target for cash flow that is sufficient to fund capital expenditures, working capital, transition costs of a shrinking network and workforce and potential dividends and taxes or payments in lieu of taxes.
  • An EBITDA (earnings before interest, taxes, depreciation and amortization) and an interest expense ratio such that a government guarantee would not be required to raise capital in the debt markets, even if private capital is not employed.The Postal Service may need an EBITDA of between 10% and 15% in order to generate the targeted levels of cash flow.
These targets are independent of the business model employed. They reflect goals that are necessary for both governmental and corporate business models. As such stakeholders that believe that one type of business model or another will prevent job cuts, require fewer closures and relocations of postal plants, preserve the current model of providing retail service, or prevent near-term rate increases above the current rate cap constraints will likely be disappointed if their business model choice is selected by Congress.

So what would really happen to postage rates if the Public Representative used more realistic financial targets? Using the Office of Inspector General recommendations for financial relief, postage rates might need to rise at least 25% without more aggressive actions on restructuring the operating network or modernizing the retail model. Without relief, postage rates might need to rise by 40% or more. (Both of these estimates do not account for the impact of price increases on mail volume.) Not a pretty picture and one that no postal stakeholder believes would ensure a viable postal enterprise as vibrant as it is today.

13 comments:

Anonymous said...

No postage increases would be needed if the USPS had the guts to actually redo their current multi-layered management system, and create a more efficient system, which could eliminate over 60,000 current managers, who average over $80,000 a year in salaries alone. Let Headquarters communicate directly with each Post Office, they don't need the micromanaging if postmasters were hired to be able to run their own office. Any more cutting on the bottom end, the true work force, would put our service on life support, or the morgue. This has been the current plan of savings, but is the wrong road to take, as are unnecessary rate increases. Oh, yes, and how about that "missing" $75 Billion dollars???

Anonymous said...

Anonymous is spot on....This is the real problem. Let Postmasters run the offices assigned to them and do away with 1000's of do nothing middle management. Let Headquarters communicate directly to post offices. This in itself would put us back in the Black.

Anonymous said...

One POOM per District would be a start and then the District Manager would have one level between himself and the Postmaster. No need for 4 , 5 or 6 POOMs per District.
Next would be to elimante the 80 Districts and go back to Regions. The Millions in salary saved would be immediate. All these MGT Jobs are not on the FrontLine and no longer serve a purpose.

Anonymous said...

I agree. Before I retired last year, our postmaster had and still is on assignment elsewhere to do nothing but find ways to cut clerk positions, thus decreasing customer service even more. We have had 3 different officer in charge people since the postmaster went on detail. Let the postmasters stay in their postoffices and do the job they are hired to do. Cut our the middle management jobs who are only there to micromanage. Could save millions.

Anonymous said...

Oh, you two have been drinking the union cool-aid. In what other place an employee gets paid for 8 hours for 5 or 6 of actual work. That is why we are in the hole, we need to get rid of the no layoff clause or the PO needs to be able to enforce standards.

Anonymous said...

Let the postmasters run their own offices. just make sure you put qualified people in these positions. We have too many now that can't walk and chew gum at the same time.

Anonymous said...

The best way to increase revenue, and volume IS TO LOWER THE COST. But that concept might prove to be too conservative for El'Enfant.

jack D said...

Supervisors make about $70,000.Their boss makes about $90,000 or more and their bos make $100,000 or more. The Postal service could veryeasly cut 25,000 mid-management positions.That is over two (2) billion dollars plus benifits they would save.I think we are all tired of service cuts. They keep talking about a five (5) day delivery.I recieve a lot of mail on Saturday including weekly publications. if they stop Saturday delivery i might as well cancel them. That would be more jobs lost plus all the letter carries and clerk that would have to be layed off.Soon they will change the name to U.S. Postal and drop the Service part because we sure don't get any.

Anonymous said...

Absolutely. Let the postmasters run their own shop and stop interfering. One still needs some form of middle management but not what the Postal Service has. Get rid of the areas completely, and cut down the districts to thirty or forty. BUT its not that the "savings" from any salary cuts would be enough to put USPS in the black. Rather, its letting the postmasters run their shop efficiently that would save money. This would be in direct contrast to the highly inefficient current system, where wasteful, expensive, and inefficent procedures are mandated from the top down by people who have no sense of the local conditions.

Anonymous said...

If the Post Office simply recovered the 75 billion dollars they overpaid CSRS fund that the OIG found there would be no need to cut anything.That would wipe out the defict last year, this year, next year and would allow them to repay the 9 billion they borrowed from Comgress last year to stay afloat. Crisis managed.

stephen said...

the postal service has always been one of the most top heavy corporations in the world. They cut jobs on the bottom only to add them to the top.The post office could eliminate 30% of management positions without affecting service.

Anonymous said...

TOP HEAVY TOO MANY GIVING ORDERS AND NOT ACTUAL WORKERS. HIGH SALARY TO WORK 8-5 AND NO REAL PURPOSE. HOW MANY VICE PRESIDENTS CAN ONE COMPANY HAVE? MANAGERS, ASSISTANT MANAGERS, SPECIALIST, IF THEY WERE ALL NEEDED, THEN THEY WOULD HAVE FOUND THE MONEY IS IN THEIR POCKETS, NOT THE CRAFT WORKERS who pay for every benefit.

stephen said...

how many companies can you think of besides AIG and Bank of America that pays outrageous bonuses to their top officials for losing money year after year?