Postal Service outlines plan to stay afloat

The U.S. Postal Service plans to cut delivery days, revamp employee benefits and seek regulatory flexibility to combat declining volume and revenue, agency leaders said on Tuesday.

During a conference in Washington, Postal Service officials unveiled a broad 10-year strategy to cut costs and increase flexibility in the face of significant budget shortfalls. The agency expects to see more than $7 billion in losses in 2010 and, without aggressive action, projects a cumulative deficit of $238 billion by 2020.

A key change USPS is pursuing is a move to five-day delivery. While the agency expects to eliminate Saturday delivery, it plans to keep post office locations open and processing operations on track on weekends. Officials said consumers would rather have fewer delivery days than a rate increase.

"We've built a plan we think is reasonable and accommodates as many concerns as possible but still saves $3 billion [annually]," Postmaster General John Potter said.

Savings from eliminating Saturday delivery could total $40 billion by 2020, according to agency estimates. USPS plans to file a delivery plan with the Postal Regulatory Commission this month.

The Postal Service also is looking for relief from a 2006 provision requiring it to pre-fund retiree health benefits at $5 billion annually, making it the only federal agency with that obligation. USPS estimates that a pay-as-you-go system would increase cash flow by $5.6 billion every year through 2016, and proposed adjusting its benefits policies and contributions so they more closely mirror those of other federal agencies.

Workforce changes are critical to closing the budget shortfall, and the agency will work with unions and management associations on buyouts and future contract negotiations, Potter said. He added USPS needs the flexibility to hire part-time workers, and to ask an arbitrator to consider the agency's financial situation during the collective bargaining process.

"Most of what we described affects jobs," he said. "On the other hand, what would truly affect jobs is the Postal Service going out of business."

Union leaders criticized the five-day delivery proposal and said USPS should address overpayment to its civil service retirement fund instead.

"I do not believe that weakening our commitment of six-day service to the public will enhance the long-term position of the Postal Service as a critical element in our nation's economic infrastructure," said Fredric V. Rolando, president of the National Association of Letter Carriers. "In view of the January report released by the postal inspector general that showed that the USPS was overcharged by $75 billion for postal pension costs, Congress instead should take immediate steps to correct the error."

An American Postal Workers Union spokeswoman agreed eliminating Saturday delivery would hurt service and that the agency should focus on the retirement overpayment concerns.

Potter outlined a number of other proposals, including moderate price increases, a move toward online and mobile applications, and partnerships with retail outlets, as important pieces of a comprehensive strategy.

"At the end of the day, this is all about balance," he said. "We don't see taking an initiative and saying we're going to drive along [only] that line."

Officials agreed that a combination of regulatory and legislative changes, such as relaxing the ban on new retail products and allowing post offices to close for economic reasons, could help set the agency straight.

The Postal Service needs the ability to react more aggressively to a changing market environment, which entails a re-examination of the rules and mandates that govern postal operations, said Louis Guiliano, chairman of the USPS Board of Governors.

According to Tom Dohrmann, principal at McKinsey and Co., a streamlined oversight model would help USPS implement some of the necessary changes. "It is important to ensure that [oversight] enables and reinforces changes to give the Postal Service flexibility and speed to adapt to these changes that will happen over the next 10 years," he said.