The Postmaster General clears up some mixed messages


Postmaster General Donahoe gave one of his State of the Postal Service talks earlier this week.  The PMG wanted clear up what he characterized as “mixed messages."  Apparently there are folks out there — the media, the unions, postal workers, someone — saying things that are incorrect and misinformed.  Fortunately, the PMG was ready and willing to straighten out his employees on these mixed messages. 


On Saturday delivery

One thing that the PMG said “just amazes me” is when people say, “Well, first it's five-day, then it's going to be four [days of delivery, then] three, two, one.”  The PMG went on to say, “Unless their routes have no mail in them, I don't know how in the world you would deliver less than five days a week.  Five-day delivery is going to be critical for business mail, for commercial first-class, and it's very critical to keep our costs down overall when you deliver packages. That's a big advantage that we have….  So the idea that there's plans on moving from six to five and then four, three, two — there's nothing to that.”

It’s hard to imagine where anyone would have gotten the idea that the Postal Service might go beyond eliminating Saturday delivery to something like three-day delivery.  

On July 19, 2011, USA Today ran an article reporting on an interview with the Postmaster General.  One of the topics was the likelihood of ending Saturday delivery.  It has "a much better chance today than a year ago,” said the PMG, but “I don't know if I'd say 'likely' yet."  

Asked about the long term, the PMG told USA Today, "At some point, we'll have to move to three days a week of mail delivery, possibly in 15 years.” 


On the legality issue

When the PMG announced his plan to move to five-day delivery in August, he suggested that current law permits the Postal Service to make the change, so he didn't need to wait for new legislation.  “We think we’re on good footing with this,” he said. “We think right now the opportunity exists to make the changes on our own.”

That came as a surprise to many.  For years, the Postal Service has been saying that it wanted to eliminate Saturday delivery but needed Congressional approval first.  In fact, the Postal Service's five-year business plan presented in February 2012 describes five-day delivery as "requiring legislative changes to achieve," and the USPS FAQ page on five-day still says, “Congress must elect not to renew the legislation requiring the Postal Service to deliver six days a week.”

A couple of weeks ago, the GAO confirmed that view in a letter to Congressman Gerald Connoly saying that the Postal Service continues to be bound by legislation requiring delivery six days a week.  

In his talk last week, the PMG might have cleared things up by saying where he stood on the issue now that the GAO and several members of Congress have weighed in.  Instead, he simply said, “There's a lot of discussion about whether we are prohibited from moving in that direction.  I will tell you this.  We have a board meeting coming up in a couple weeks.  The board of governors will discuss the next moves that we've got to make and we'll go from there.”

In order to clarify matters, then, the PMG suggested that maybe the BOG will stick by its new position that the Postal Service can act on its own, or maybe it will shift back to its original position that Congressional approval is required, or maybe the Board will come up with a completely new move.  


On peak loads

The PMG also wanted to address "the big discussion about large volumes on Monday and the inability to get mail delivered."  That's a reference to a widely held concern that not delivering the mail on Saturday will cause an overload on Monday, which will further delay delivery.  The Postal Regulatory Commission expressed this concern about peak loads in its advisory opinion on ending Saturday delivery.  The Postal Service, however, maintained that it would be able to handle Saturday's volume on Monday without causing delays and incurring a lot of extra costs for overtime.

In his talk, the PMG acknowledged, "It is true in some cases there are some routes that are overburdened on Monday, and we've got to figure out a way to load level the mail, either get more out on Friday or smooth it out Monday and Tuesday.  That's true.  But there are other routes that do not have that much volume on Monday and so we'll work through this.  It's very workable."

The fact that the Postal Service is still trying to figure out how to solve one of the main problems associated with Saturday delivery must not be very reassuring to mailers concerned about when their mail will be delivered.


On overnight delivery

Aside from the uncertainty about what’s going to happen with Saturday delivery, the biggest mixed message out there right now involves the consolidation of mail processing plants.  This plan has gone through so many changes, it’s impossible to know what to expect next.  The uncertainty is one of the main problems. 

The USPS OIG has just issued an advisory report about "lessons learned" from the consolidations so far.  The report describes how the plan changed several times after it was first announced in 2011, and how this "inconsistency" presented challenges for mailers.  The OIG also observed that “consolidation activities during the 2012 fall mailing season conflicted with information shared with stakeholders.  In addition, overall cost saving projections were revised on several occasions, causing stakeholders to further question the initiative.  When information is inconsistent, the Postal Service risks diminishing public confidence while increasing opposition to optimization efforts.”

Now that the Postal Service is accelerating the consolidations, stakeholders must be even more confused.  Over seventy consolidations originally scheduled for 2014 are being moved up to 2013.  No one knows what that’s going to do to delivery times.

When it announced the latest version of the plan in a letter to the APWU, the Postal Service said, “The reason for this change is that the Postal Service has identified the opportunity to accelerate the anticipated savings while still maintaining the interim SCF service standard.” 

In his talk last week, the PMG reiterated the same point: “The consolidations we've announced have been moved up in some cases. They will not have an impact on service.”  But he then went on to say: “What we're trying to figure out is how to maintain that 35 percent overnight service going forward while we make the consolidations.”

The references to “the interim SCF service standard” and "35 percent overnight service" may require a little explanation.  Before Network Rationalization began last year, 42 percent of First-Class mail was delivered overnight.  About 80 percent of it — 35 percent of all overnight mail — is Intra-SCF mail, i.e., “turnaround” mail that originates and destinates within the same geographic area served by a sectional center facility (SCF).  The remaining 20 percent is inter-SCF mail, i.e., mail that originates or destinates outside of the geographic area served by a SCF.

In July 2012, the Postal Service implemented its “interim” service standards for phase-one of the Network Rationalization plan.  That meant overnight delivery ended for Inter-SCF mail but continued for Intra-SCF mail.  Overnight delivery for Intra-SCF mail is due to end in 2014, when the remaining plants on the list are consolidated under phase two of the plan.

The Postal Service is now saying it can consolidate 71 more processing plants and still maintain overnight delivery for Intra-SCF mail.  But how much confidence can mailers have if, as the PMG said in his talk, the Postal Service is still trying to figure out how to accomplish that?   

It must not be an easy thing to do.  Eliminating the overnight delivery standard was the lynchpin of the Postal Service’s entire consolidation plan, it was a key issue when the plan was reviewed by the PRC for its advisory opinion, and it was one of the main reasons the plan has the potential to cause such huge revenue losses.

APWU President Cliff Guffey greeted the PMG’s announcement about the accelerated consolidation schedule with considerable skepticism.  “These closures,” said Guffey, “will eliminate jobs, harm communities, and delay mail delivery every day — Monday through Saturday.”  The consolidations, Guffey added, will drastically curtail local mail sortation and will virtually eliminate overnight delivery.

For one example of what the Postal Service faces, consider the situation in Missouri, where the processing plant in Cape Girardeau is being consolidated to St. Louis.  Anything mailed in southeast Missouri will soon need to go to St. Louis to be sorted, and if it’s local mail, it will need to travel back to southeast Missouri for delivery.  The travel time will make it difficult if not impossible to deliver that mail overnight.  That scenario will play out in dozens of regions across the country. 


On the deficit

The PMG also wanted to clear things up about the root cause of the Postal Service’s financial problems. “People say, fix retiree health benefits, that's all we need to do.  That's false.  Four or five years ago, that would have been true.  Not now.  If we fix the retiree health benefits this year, we will still lose over $2 billion.”

It’s very possible that the Postal Service will lose $2 billion this year, retiree health benefit payments aside.  Five months into the fiscal year, however, the Postal Service has lost only $100 million in controllable operating costs (according to the February financial statement).   At that rate, the Postal Service would end up losing about $240 million for the year.  But the same time last year, the Postal Service was in the red for only $79 million and ended up losing $2.45 billion in controllable costs, so perhaps something similar will happen this year.

Even so, losing $2 billion in one year is not cataclysmic and it’s nothing like what’s regularly reported in the media and by Postal Service spokespersons.  It’s always about the $40 billion losses over the past few years, the $16 billion loss last year, the $25 million lost everyday.  

But those numbers include the $5.5 billion owed annually to the retiree health care fund.  As this table shows, the payments are responsible for 80 percent of the $40 billion in losses, and if it weren't for them, the Postal Service would have an accumulated debt of only $8 billion during 2006 through 2012 — not bad considering how hard the recession hit mailers.  

There are also ways to deal with a $2 billion annual deficit that don't require dismantling the Postal Service.  The PRC’s Annual Compliance Determination (ACD) came out just a few days ago — the PMG didn’t mention it — and the Commission found that “nine Market Dominant products’ prices failed to raise enough revenue to cover even their attributable costs, causing losses of $1.5 billion.” 

Those losses, as the Commission proceeds to note, represent more than 50 percent of the total operating losses that were under management control last year.  These losses would represent 75 percent of the $2 billion loss the PMG is projecting for FY 2013.  In other words, just asking these mailers to pay rates that cover their costs would bring in enough money to allow the Postal Service almost to break even.

The PMG doesn't want to bring these rates into compliance because he fears “rate shock” will drive customers away.  Consequently, some mailers continue to subsidize other mailers, and the Postal Service runs at a deficit that could be addressed by raising rates rather than cutting services — something that affects all mailers.


On layoffs

In his talk, the PMG also addressed rumors about potential layoffs.  “Another statement that's floating around out there is this whole idea of massive layoffs with six- to five-day,” said the PMG.  “I will tell you, I am very proud to say that we have made big changes in this organization and never laid anybody off.  It is like a personal issue for me. I came up in a town where there were a lot of layoffs. I saw what it did to families. It's not a good thing.

“So granted,” he continued, “we've had to make changes. People have had to move around. People have had to change crafts.  We put the buyouts out there.  People have taken buyouts and retired early.  But you know what? That was their choice.  And they left the organization with money in their pocket and with an income through their retirement, which is good.”

The PMG seems to be taking credit for the fact that there haven’t been layoffs so far, but the reason for that is the no-layoff clause in union contracts.  It's not as if the Postal Service has been a big supporter of the restriction.

Getting Congress to eliminate the no-layoff clause was the main theme of a white paper on “Workforce Optimization” that the Postal Service circulated in August 2011.  The report says that the Postal Service would like to eliminate 220,000 career jobs, and it figures that attrition can only reduce the workforce by 100,000, so the other 120,000 would need to come from layoffs.  The Postal Service's five-year plan, the Plan to Profitability, also notes that "employee attrition may be too slow," but it leaves the word "layoff" for a small-print footnote.

As for “attrition,” the PMG says that the employees who have left the service with the buyouts did so by their own choice.   But many of the employees who retired may have felt it was a bit more complicated than that.

Last year, for example, 10,000 postmasters in POStPlan post offices were told that they would be removed from their jobs in 2014.  It was either retire now with some buyout money or face a RIF action later, with no buyout money.  Mail handlers and other postal workers where plants are being consolidated are looking at extremely long commutes to their new facilities or even relocating the family to a new town.  Those who took the buyout probably felt like they didn’t have much of a choice either.

The PMG can say no one has been laid off, but putting people in a position where they have little choice but to quit is almost the same thing.  And saying that there won’t be any layoffs while you’re looking to eliminate far more jobs than attrition will provide is, well, a mixed message.


On the road ahead

One final example of mixed messages in the PMG's talk.  The PMG said that First-Class volume is down almost 35 percent in the last four years, and total volume is down 27 percent.  That’s what “forces us to make changes, and changes are tough, but you have to make them.”

The PMG didn't want to paint too bleak of picture, though.  That might scare away mailers.  So he also had more reassuring words to share as well. “There are some bright spots.  It looks like the volume drop is starting to level off.  That's good.  The first-class commercial continues to stay pretty solid, which is good.”  While volumes will continue to drop for a while longer, eventually the mail will hit a “steady stream” and the Postal Service won’t have to keep looking for ways to cut costs.

In other words, things really aren’t that bad.  The drop in volume will soon come to an end, revenues will stabilize, the financial losses will turn to profits, and there won’t be any need to cut services and slash jobs. 

At the same time, things are so bad right now that the Postal Service needs to eliminate Saturday delivery, cut hours at 13,000 post offices, speed up the plant consolidations even at the risk of being unable to maintain overnight delivery, and shed a couple of hundred thousand jobs. 

In postal world, this is what’s called “clearing up mixed messages.”