The U.S. Postal Service is facing serious financial difficulties as a result of the economic recession and organization’s inability to control costs, which consistently outpace revenues. Postal volumes from 2007 to 2010 have declined by 17 percent or 36 billion pieces. The Postal Service is projecting that it will lose nearly $7 billion in Fiscal Year 2010 (Oct. 2009 – Sept. 2010). The Postal Service ended April 2010 with a year-to-date loss of $2.2 billion, which is lower than a $3.5 billion loss projected earlier this year for the same time period.
A USPS commissioned study by Boston Consulting, released in March 2010, projected that mail volumes will decline from 177 billion pieces in 2009 to 150 billion by 2020. The study indicates that this volume decline, combined with rising operational costs, could result in a revenue shortfall of $238 billion in 10 years. The Postal Service has already embarked on a course to cut this shortfall in half through on-going cost cutting measures, and is seeking congressional approval to implement a series of revenue saving proposals over the next decade.
Elimination of Saturday Delivery: USPS officially filed a request on March 30, 2010 for the Postal Regulatory Commission (PRC) to provide an “advisory opinion” on a proposal to eliminate Saturday delivery to residences and businesses. The Postal Service believes that ending Saturday delivery will save the agency nearly $3 billion annually. The PRC, however, believes the Postal Service has overestimated the cost savings by $1 billion, claiming USPS is not factoring the loss of mail volume and revenue as mail customers choose alternative delivery options.
If this proposal is implemented, the impact for newspapers will vary depending upon a newspaper’s use of the postal system. Some small market newspapers, particularly community newspapers, rely on the Postal Service for the delivery of its editorial product on Saturday. As described earlier, daily newspapers use the Postal Service for the delivery of their Total Market Coverage products (advertising inserts to non-subscribers), which are often mailed mid-week, but some TMC programs are distributed on Saturday. While some newspapers have expressed concern about the loss of Saturday delivery, others believe that if the Postal Service “leaves the field” on the weekend, newspapers may benefit through increased business from advertisers.
The Newspaper Association of America has not taken a formal position on the 5-day delivery proposal. (The association’s focus is on recent actions by the Postal Service that has favored newspapers’ advertising mail competitors either through proposed rates or the offering of new services that go directly after newspaper advertising share.)
The Postal Regulatory Commission will issue an “advisory opinion” on the five-day proposal after holding public hearings around the country. While the PRC’s opinion will carry significant weight, Congress must ultimately give USPS the authority to reduce service. Over the last 25 years, Congress has prevented the Postal Service from eliminating Saturday service through an annual appropriation bill rider. Given the fact that the elimination of Saturday delivery will result in more than 50,000 jobs, Congress will be hard pressed to provide legal authority for the plan in an election year.
Retiree Health Benefits, Pensions and Other Measures: The Postal Service is seeking other measures to close its budget gap, including the removal of a requirement imposed by Congress in 2006 that the organization prefund retiree health benefits. This will reportedly save $5.6 billion a year. The Postal Service is also planning for the closing of postal facilities, both retail and mail processing, and deploying more cluster boxes in residential communities. USPS is also seeking a reevaluation of its pension obligation, claiming that its pension plan, administered by the Office of Personnel Management, is overfunded and could be an additional source of revenue.
Future Rate Increases: The Postal Service recently announced that it will increase postal rates in 2011 at a level above a statutorily mandated price cap, which is tied to the Consumer Price Index. Since there was a CPI decrease (-0356 percent) as of December 2009, the Postal Service was not able to increase rates in 2010. The Postal Service is expected to file an “exigent” rate case in July or August with the PRC, requesting approval to increase postage above the rate cap. While details have not been finalized or released publicly, most postal observers believe there generally will be rate increases of 5 percent, with slightly higher increases for Periodicals and Standard Regular Flats, which are not currently covering their attributable costs.