Wednesday, September 29, 2010

The Postal Service Should Default on its Retiree Healthcare Obligation

The Postal Service is broke.   It has expenses far above revenue and has contract agreements and accounts payables far above its ability to pay.    Besides payroll its largest obligations are to the Federal government and transportation companies like FedEx.  It cannot afford to offer the services it is required to provide.  A recent report from the USPS Office of Inspector General states that the Postal Service is even less likely to be financially viable under the current operating model if volumes continue to decline.

In this financial state, the Postal Service must default in its obligations to the Federal Government and force Congress and the administration to choose between restructuring and liquidation.  Clearly, liquidation is not an option as the economic impact of ending mail service would be catastrophic and shifting mail delivery to the private sector would require a significant gap in time when no service would exist.

Default would force OMB and Congress to act and should force changes both at the Board of Governors (BOG) and senior management.  As such, the BOG and Postal management need to take an action that could cost them their jobs.

What would a restructuring look like?

  • Introduction of a financial target requiring revenue greater than what is needed to ensure accounting break even as that target does not ensure financial self sufficiency.
  • Immediate implementation of the Office of Inspector General's plan to cut area and district level employees.   Even if the plan is not perfect, there is not the money available to wait for a better plan.
  • A new operating plan for handling bulk flats and sorting them to carrier route sequence order using a network of between 50 and 100 facilities.
  • Streamlined review of network consolidation proposals under consideration.   The goal would be to implement consolidation proposals already announced in the second and third quarters of FY '11.  This cuts the normal time needed to implement consolidation efforts by six months or more.
  • A second set of consolidations would be introduced for FY '12 by July of 2011.
  • Increases in rates.   Rates would rise immediately on single piece mail to generate revenue to cover severance and other costs of reducing the workforce for this rapidly declining product and parcel services to both cover costs and/or match rate increases of UPS and FedEx.  Increases in rates for advertising focused mail would likely follow both the timing and size in increases in rates that other traditional advertising media charge as advertising rebounds with the pick-up in consumer spending that appears to be accelerating.
  • Introduction of geographically based prices for drop shipped mail and parcels.   This will raise rates in low density areas and lower them in high density areas.  On average this will not affect rates and could expand mail use in areas that have lower delivery costs.
  • All labor contracts would expire with the restructuring.    New contracts would show limited deference to work rules, compensation and other provisions in existing contracts.
  • Consolidate retail services into fewer locations open for longer hours and self service locations by the end of FY 2012.
What would the Federal Government have to cover?
  •  Most if not all of the retiree heath care costs.   Congress would have to accept modifications in the CSRS calculation and use the overpayment to pay off most of the retiree health care
    obligation and accept modifications in retiree health care calculations in order to reduce the remaining liability.
  • The costs of early retirement incentives and severance payments to reduce the work force.
  • All capital costs to rapidly expand self-service to retail using proven technology.  
  • All capital and other transition costs associated with consolidation and closing facilities.

This is not a pretty picture.  Statements from members of Congress do not suggest that they are yet ready to give current management another year of relief from retiree health care payments, and forcing receivership of the Postal Service goes far beyond that step.  However, Postal management should eschew their self interest and default on the retiree health care payments to force Congress's hand. Then and only then, will Congress look for solutions that go beyond tweaking the status quo.

9/30/2010 - Two changes were made in this post from the original version to correct errors.   Accounts payable replaced accounts receivable in the first paragraph.  Both are bad but as the USPS collects revenue up front it has minimal accounts receivable.  It does have substantial accounts payable and other liabilities that need to be paid for which it does not have needed revenue.  The paragraph on geographically oriented rates would was changed to correct an error regarding rates to high density areas.   Rates there would go down not up.  Geographically oriented rates are used outside of the US by postal operators for providing only last mile services as a means to prevent cream skimming either in terms of creating a competing delivery service or exploiting anomalies in the rate structure as compared to the cost structure in ways that would cause the Post to handle substantial volumes below costs


Anonymous said...

you need to clean house at the USPS from top to bottom. you need to get rid of some of the very stupid ways we do things as well as the stupid people who insist they be done that way. it should not take 12 years for a mgt to act upon an employee idea.

Anonymous said...

What a big lie this article conveys.

There is nothing wrong with the postal service that getting rid of PAEA's 5-6 billion yearly give-away to the federal treasury won't fix.

This was a way that republicans fixed up to TAKE 5-6 billion per year from the postal service.

David M Wysong said...

The USPS as an organization, top to bottom,has lost the ability to provide it's most basic service . . . timely delivery of the mail. The content and purpose of the mail stream as changed to an advertising communication medium from a personal communication medium. As such mail owners expect a to gain a ROI of the sizable postage investment. Timing is critical so when it takes 5-15 days for a piece of admail to cross town the value is lost as each day passes.

In the twenty years of being a mail service provider this game of hide and seek or chicken with Congress, labor unions is a bi-annual event. It now seems to be the time to let the dishes hit the floor to wash out the old no longer effective labor contracts,excessive management levels.

USPS default and reorganization will hurt 10s of thousands of people and companies, but this continued kicking the can down the road has to stop.

NasuaMH said...

if fed ex only flew the mail and did not actually sort mail we would not pay them so many billions a year

Anonymous said...

Mr Robinson is all for thievery,as long as it's hard working labor that's getting knocked down and robbed.If he can only think of a way
to get more cash siphoned to the upper 2% of wage earners.Wait a minute,he did the plans up above.Let's take back America from the Tory's,of which Mr Robinson is a card carrying member.

Anonymous said...

The Postal Service has been ripped off by congress since the reorg. in 1972. The same way congress is ripping off the country.
This article is a joke. When the postal service's hands have been tied by congress for the last 38 years and stealing from them.
Why don't you write a real article instead of a joke like this one.
Lip service is what your doing.
You pick on the postal service because they are a semi-government agency. No guts to write the real truth about how the postal services hands have been tied for 40 years.

Anonymous said...

The republicans came up with the idea years ago to "tax" the postal service into paying for retiree benefits far above what they should have. I say "tax" because it looks better taking money from customers of the USPS (hey, that's me!)than to put it where it belongs...on the debit sheet of the federal government. As all OPM studies have confirmed...the USPS would be operating with a surplus if they were not saddled with this
albatross around their neck.

Anonymous said...

Reduce the size of management,Offer early outs to the mail carriers just in my office you would have 15 carriers leave. In addition don't penalize the 2% penalty for leaving early. Offer an incentive package that will entice employees to opt for early out.