|EcommerceBytes-NewsFlash, Number 2743 - February 20, 2012 - ISSN 1539-5065 3 of 5|
The U.S. Postal Service released a new 5-year plan last week and said an investment bank, Evercore Partners, helped it analyze its models and assumptions and validated its approach. The plan would see a legislative change to allow it to increase the rate of the First-Class Mail stamp to 50 cents, which would yield approximately $1 billion of incremental revenue, and a reduction to a 5-day delivery schedule, which it says would result in a $2.7 billion annual cost reduction.
The postal service said that while the new plan was fundamentally consistent with its approach it has advocated for the past year, it incorporated "important refinements of financial projections and recommended legislative reforms," and said it has done extensive work with external consultants Accenture, BCG and McKinsey.
The USPS said its financial losses are at unsustainable levels. The proposed plan would reduce overnight delivery of First-Class Mail: Delivery outside the local area up to 200 miles would be delivered within 2 days, and delivery to destinations over 200 miles will be delivered within 3 days. The plan also recommends legislative reforms enabling the Postal Service to provide employee health benefits independent of federal programs ($7.1 billion annual cost reduction).
The Postal Service is also aggressively pursuing "the realignment of its mail processing, retail and delivery operations," including the closing of thousands of post offices around the country, which it says would result in an $8.1 billion in annual cost reduction. According to the Federal Times, the USPS is considering early retirements and buyout offers as a way to slash its staff by 66,000 employees this year and another 51,000 next year.
According to the USPS: "At its core, the plan requires the reduction of annual costs by at least $20 billion by 2015, rising to more than $22 billion by 2016. This cost reduction is necessary given projected declines in First-Class Mail volume, which has already has dropped by 25 percent since 2006. However, the Postal Service can achieve only a portion of these reductions under current business model constraints; legislative changes are needed to achieve the full $20 billion in cost reductions."
Postmaster General Patrick Donahoe said in a statement, "The plan we have developed requires a combination of aggressive cost reduction, rethinking the way we manage our healthcare costs, and comprehensive legislation to reform the business model of the Postal Service. If provided the flexibility to quickly implement this plan, we can return to profitability and better serve the American public. If not, we risk becoming a significant burden to the American taxpayer."
The USPS said that in the absence of legislative reform, the Postal Service could incur annual losses as great as $18.2 billion by 2015, and accumulate a total debt of $92 billion by 2016.
According to PostalNews.com, The National Association of Letter Carriers released a statement last week in which it said it would study the new business plan in more detail over the next few days, "but any plan that calls for cutting Saturday delivery, downsizing our networks and slowing delivery will not restore USPS to profitability."
The plan is available on the USPS website in PDF format.
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