Thursday, August 5, 2010

Why are the finances worse than expected?

With its announcement of the third quarter results, the Postal Service a net loss of $3.5 billion, compared with a net loss of $2.4 billion for the same quarter last year.  The loss raises four questions.
  1. Why are finances worse than last year?
  2. Were the poor results unexpected?
  3. Could the Postal Service have taken actions to mitigate the financial losses?
  4. Will there be consequences for the Board of Governors and senior management?
Why are finances worse than last year? 

Finances are worse for three reasons.  

First, workers compensation liability adjustments required an accounting adjustment of $789.  This has an impact on both the income statement and balance sheet but should have no impact on the Postal Service's cash flow. 

Second, mail volume is declining and the mix is becoming unfavorable.  Mail volume in the quarter was down 1.7% even though Standard mail volume rose by 4.2%.   As such the average revenue per piece of mail (the yield) is more than likely declining more rapidly than volume is.  Evidence to date suggests that the shift toward advertising focused products, which includes periodicals, is occurring at an accelerating rate.   For example, single piece First Class mail is declining at a faster rate than prior to the recession and at a faster rate than the forecast contained in the exigent rate case.

Third, the need for labor and capital resources is declining faster than the decline in mail volume and faster than the decline in available resources through attrition.   The shift toward advertising mail, and other products that are usually entered sorted and near the delivery address, is the primary reason why the demand for labor and other resources are declining. 

Were the poor results unexpected?

The ability of the Postal Service to anticipate the problems in the third quarter depend on whether their planning included scenarios that anticipated the adverse trends that occurred and whether they had in place a system that generates warning flags months prior to end of the quarter that would indicate that financial results were falling below financial goals.   Given that the Postal Service only took actions recently to freeze hiring, it is not clear how early Postal Senior management knew that financial results would be falling behind.  

If the forecasts contained in the exigent rate case are the forecasts that the Postal Service used for planning, then information that indicated that financial results might deteriorate should have been available by the end of the second quarter.  At that time First Class volumes were declining more rapidly than forecast and both senior management and the Board of Governors should have been aware of that trend at that time.

Could the Postal Service have taken actions to mitigate the financial losses?

Clearly the Postal Service could have instituted the hiring freeze a quarter earlier.   It is not clear from information that is publicly available which additional actions should have been taken in the past few months that would have reduced the impact of the adverse trends and workers compensation adjustment.   To the extent that the Board of Governors and management expected that Congressional or regulatory action would mitigate problems in time to reduce losses, then that expectation was mistaken.

Will there be consequences for the Board of Governors and senior management?

Consequences for either the Board of Governors or senior management appear unlikely.  As the Postal Service does not have shareholders, the Board of Governors faces no risk from the poor financial results.  The Postal Service's board does not face the prospect of a disgruntled investor proposing a proxy fight to replace the board.  The Board of Governors all serve fixed terms and the worst that could happen is that they will not be reappointed.   Postal senior management serves at the pleasure of the Board.    However, given that the Board has fully supported the strategic and policy directions suggested by management, there is no indication that the Board has lost confidence in current postal management and would seek their replacement.

15 comments:

Anonymous said...

Should there be consequences for the BOG and senior management? Now that's the real question. Look at the various strategic forecasts the USPS has made over the past ten years and one will find some incredibly bad vision. This BOG, PMG Potter and senior management in general have been consistently wrong in their predictions for the future and worse, they have been consistently slow in reacting to changing scenarios.
Compound that with the fact that the current leadership does a terrible job in communicating with any real degree of transparency and it becomes hard to find anything that comes out of L'Enfant Plaza credible.
The figures for this quarter look especially bad due to an accounting charge that should have been known and discussed. Given the current atmosphere it would seem essential that management divulge any and all charges that could effect the bottom line as quickly and clearly as possible.
Lately BOG member Kessler has been making the op-ed rounds but the other governors have been silent. Most of what Mr. Kessler is saying is banal and uninformative. Congress and the Administration could conceivably put some pressure on the BOG but it's hard to see, in our current political environment how that would pan out. Barring a sudden epihany by the BOG that they've lacked foresight and accountability it would seem that the USPS is destined to continue to wander from crisis to crisis.

Anonymous said...

If there are no consequences, then the USPS is going to continue to fail. Management will keep putting harder and unrealistic goals to its already exhausted letter carriers. A good boss would say hey to its workforce." what suggestions do you have to help our business, since you are the ones out there doing the work?" So far all the programs they have implemented have cost the USPS more money and created more ot. Believe it or not, some of us carriers want to work our 8 hours and go home. Some of us are working with injuries and in discomfort everyday, but cannot retire for finacial reason. It is so frustrating to see all the stupid money wasting ideas coming from the top. Its frustrating to us carriers because we see how much money they actually waste instead of saving our company. I love my job, but this is the worst company to work for because they treat thier most important employees(the ones out there dealing with our customers everyday)as though they are machines and not human. The new programs now, will injure employees and end up costing the USPS more money when all they have to do is ask us for help. Trust us , we do not want our USPS to fail.

Anonymous said...

Instituting the "hiring freeze" earlier would have had little effect on the bottom line. This so-called hiring freeze is really just a freeze on promotions, transfers, and other reassignments of existing employees. A freeze on new hires (with very limited exceptions) has already been in effect for quite some time, and indeed, total Postal employment has been steadily dropping for years.

dryMAILman said...

The award-winning "Safety Depends on Me!" campaign has been an abject failure. What other business had a 'non-cash fair value adjustment' adversely affecting workers’ compensation resulting in a $2 billion expense for a single quarter? What other business would put me in charge of safety? I can't think of any. Things are only going to get worse with the introduction of postal FSS--no one, including me, has any idea how to carry that mess safely.

Anonymous said...

MY G-d! In our office we have a postmaster and supervisor. There is very little work for them to do. A talk was given announcing that the district-wide "associate supervisor program" was being reinstituted!! I LAUGHED OUT LOUD. This after our major unions were just testifying on capitol hill that the USPS is terribly top heavy. managers managing other managers. The post office is a joke. It will remain so since there is no accountability.

Anonymous said...

No real changes have been made from the top. STOP THE BONUSES AND GET RID OF THE TOP HEAVY LAYERS OF MANAGEMENT. Who can make this happen? Otherwise the PO is going to continue to collaspe.

stephen said...

I'm sure that potter and his 40 thieves will all be given handsome bonuses for such outstanding numbers. the post office lost ONLY 3.2 billion dollars. well done

Anonymous said...

Give the employees a reasonable buy out and the PO can save at least $25K for each CSRS employee who takes the buyout. Why won't they offer us an incentive to retire???

Anonymous said...

They keep blaming the people who actually do the work for the reason they are losing money. There are 8 city routes in our office, last week there were 5 managemeent personnel watching 8 letter carriers. We have a PM and Supervisor for 8 carriers. Then they send down two managers from 80 miles away to watch the carriers case mail. When the carriers hit the street, these two mgrs. then go to each carrier case and look for letters that might have been accidently been left in the case (sleepers). Then you have another manager who comes down from 80 miles away and drives around checking the carriers vehicles to see if they turned the wheels of the LLV the right way when the LLV is parked. Then our supervisor goes out with a different carrier for 2 hours everyday. This is how the Post Office saves money! Pay 3 managers to do what could be done locally, not including wasting gas, per diem, a vehicle, etc. You come in from your route after being in the 115 degree heat, the PM and the supervisor are playing games or looking for stuff on the internet. We went almost a year without a PM or supervisor a few years back, and from time to time go with only one boss, so why do we need two highly paid internet surfers?

Anonymous said...

Anyone who believe anything, but especially financial info, that comes from postal mgmt. is a naive fool.

This is the same group that didn't know it was missing $78 billion until an outside group told them.

Add on the fact that they are chronic liars, and you have it.

Until a completely independent accounting of the postal service financial state is done, these numbers are nothing but lies.

HeyDaad said...

I am a 33 year veteran of the USPS, and I retired last year. Postal Management has never looked at the future, or reality, in the present tense. Everything is in place to make the USPS a very viable entity into the 21st Century. The system is corrupted, and the present management is not able to make the decisions required to make itself a player in the marketplace. The USPS, as we know it today, is dead ... unless the current BOG and Senior management are shown the door, and a team of efficient leaders are put in control.

Anonymous said...

High paid unskilled management along with the demands of the union will drive the USPS further into the ground. the only way out is to sell off the USPS to private enterprise where you rise and fall on your merits.

edward stephens said...

All ptr clerks should be cut back to 20 hrs per week.
Myu office has 2 one 25 hrs i 30 hrs with no work available.All supervisers should be salery like managers.All financial offices should be 6hrs open only so staffing could be cut by half.Early out.I have 40 plus years in the service.I the post office were top offer me the dollars that ihave contributed to civil service and reduce my retirement by the same amount i would be gone tomorrow and i think i would not be alone.All office shoul open 8 tyo 5 everyone.I have 10 window clerks and we all receive a clothing stipend.But we all only work the window 10 hrs a week.The rule is min 20.

Edward stephens 02132

Anonymous said...

Why hasn't an auditor checked on all the wasted money from upper management being sent hundreds of miles,put up in hotels,given weekly expense monies. This is happening all over the country and for quite a few years. It all adds up.Managers internet surfing,postmasters walking routes in other states,pre-paying retirement benefits.I'm confused.

Anonymous said...

..maybe the finances are worse than expected, because we have postmasters that come in at 10 am, and go home at 3pm, surf the internet for the short while they are here, and don't do a darn thing all day. then we have 204B supervisors, that go home and mow their lawn, go shopping and even go to tanning sessions, ALL ON THE CLOCK....all the while telling us carriers everyday how much UNDER that DOIS says we are....what a freaken joke!! if this is happening in a small office like mine (5 city routes, 3 rural routes), you can better believe it's happening all over the country!