The Clock is Ticking

In Washington, two clocks are ticking.   The clock associated with the debt limit will hit zero days, zero hours, zero minutes and zero seconds on August 2.  The clock associated with the Postal Service will hit the same point next year.

Earlier this year, Postal Service CFO Joseph Corbett stated that the Postal Service's zero hour will come in July 2012.  However, he noted that the date could come sooner or later depending on Congressional action, changes in economic growth, and changes in operating cost factors.

CFO Corbett's projection of a July 2012 shutdown date required the Postal Service to stop making its FERS annuity payments and default on its legal obligation to make a payment to fund its retiree health care liability.   He also assumed that the Postal Service will make changes in its retail and processing network currently under consideration as expeditiously as possible.   Finally, he assumed that the Postal Service could fully take advantage of the cost savings derived from the APWU contract, including cost savings that will affect Supervisors and Postmasters as soon as the law permitted.

What CFO Corbett, did not expect when he made his May, 2011 projection of a July, 2012 Postal Service shutdown was the slowdown in the U.S. economy.   Friday, Reuters reported that Goldman Sachs issued its second downward revision to economic growth since CFO Corbett's pronouncement.  The projection of economic growth has dropped from 4.0% to 1.5% in the quarter just ended (the 2nd quarter 2011) and its forecast for the 3rd quarter has dropped its GDP growth projects from 3.5% to 2.0%.    Goldman stated that it is currently reviewing its forecasts for the 4th quarter and beyond which suggests that it is not willing to make a projection beyond the current calendar quarter right now.   

Goldman is not optimistic regarding employment growth either as it projects that the unemployment rate will be 8.75% at the end of 2012.   The unemployment rate projection suggests minimal change in employment levels over the next 18 months.

Today, the mix of mail makes the Postal Service highly sensitive to changes in the economy and that sensitivity grows as it loses market share in the delivery of recurring bills and payments.  The dramatically lower forecasts of economic growth and higher forecast of unemployment suggest that CFO Corbett was highly optimistic in assuming the Postal Service would have sufficient cash to continue operations through July 2012.  The slower economic growth suggests that a new projected shutdown date will fall in the Spring of 2012.  CFO Corbett needs to tell postal stakeholders now what his current forecast projects.   

Could a July 2012 Shut-down Date for the USPS Be Optimistic?

The Wall Street Journal has reported that a number of private sector economic forecasters are toning down their economic forecast for the rest of 2011.   Slower economic growth is not good for the USPS as it means less revenue across all mail classes.  Slower economic growth is one of the factors that CFO Joe Corbett noted which could cause a July 2012 shut down date to happen sooner when he spoke at MTAC today.

The April 2011 preliminary financial report shows losses before dealing with workers compensation or retiree healthcare payments.   First Class volumes are down at high single-digit levels, which likely means that single-piece volumes continue to drop at well above 10% year-to-year.   Even Standard Mail volumes and revenue seems to have stalled.   The data also shows significant increases in transportation expenses, mostly driven by rising fuel costs and increased vehicle maintenance caused by a delivery vehicle fleet that has long passed its sell by date.

Postal Stakeholders need to stay on top of economic factors that drive either postal costs or revenue.  They need to determine on their own how changing economic forecasts move the shut down date forward or back.

The USPS Has a Shut Down Date

Twitterer, nonprofitpostal tweeted today that Joe Corbett, USPS CFO, stated that "assuming no legislation, and no worse news, the USPS starts shutting down July 2012 when it runs out of operating cash."

This makes for a rather interesting political problem for Congress.   If Congress doesn't act, the Postal Service would shut down just before the Republican National Convention.   This timetable almost guarantees that if nothing is done the future of the Postal Service could become a hot topic for Republican candidates during later primaries, and talk radio, cable news, and the blogosphere during what could be relatively slow political news cycle in the weeks prior to the convention.

Could the Postal Service Grind to a Halt in FY 2012?

Yes, according to Postmaster General Pat Donahoe's testimony

With no remaining borrowing authority, at some point in FY 2012, the Postal Service easily reaches a point where making payroll is no longer possible.  Unable to pay our employees or suppliers, we are forced to cut back service. We cannot afford fuel for delivery vehicles and lack resources to operate our facilities. Unable to support our infrastructure, the mail delivery system grinds to a halt.  No mail is collected or delivered, resulting in serious repercussions throughout the mailing industry, ultimately leading to  million-dollar losses for thousands of companies and lost jobs, wages, and benefits for millions of workers. These results  take a significant toll on an already shaky economy.

Bill Mc Allister, the dean of postal industry reporters, pointed me toward this quote from his testimony that provides more specifics about what could happen than my previous post "Will FedEx be Stiffed?" 

This quote suggests that the Postal Service may have a shut down date in mind given current financial projections.   This announcement should add postal employees, mailers and parcel shippers to the list of those who have to look at the risks that they face from a potential shutdown.   The sooner they can get information on possible shut-down dates, the sooner they can make preparations for alternative means of delivery if a shutdown occurs or seek alternative employment to avoid being caught up in a potential shut down.