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Postmaster General on Losses, Retirement, Amazon, and Alcohol

The U.S. Postal Service on Friday reported its eighth consecutive annual loss, appealing to Congress for comprehensive reform legislation ahead of a shakeup in the agency’s leadership.

Postmaster General Patrick Donahoe announced his intention to retire on Feb. 1, 2015, with Megan Brennan, the agency’s chief operating officer, set to take the top spot.

Donahoe reflected on his four years running the Postal Service on a conference call with reporters, recounting the institutional reforms he put in place to trim the workforce, consolidate facilities and improve efficiencies in a bid to stanch the flow of red ink.

A 39-year veteran of the Postal Service, Donahoe said that he had been weighing the right time to step down, and decided to make his exit before a new round of negotiations with the postal unions begins next February.

“It’s time for somebody who has a much longer time horizon with the organization to step in,” he said.

“You have to have somebody sitting who’s got a long runway,” Donahoe said of the coming labor negotiations, praising Brennan as “a great leader” and a “great person.”

Brennan, who will become the first woman to serve as postmaster general, said in a statement that she is “deeply honored and humbled to take on this role at such an exciting time for the organization.”

Despite Donahoe’s efforts to cut costs and reorient the organization toward growing business lines like shipping and packages, the Postal Service that Brennan will inherit faces major structural challenges.

For the 2014 fiscal year, which ended Sept. 30, the Postal Service reported a net loss of $5.5 billion, though officials noted that the figures are still unofficial. Following the cyber attack that the Postal Service disclosed earlier this month, the agency is conducting a review to determine whether the systems that produce financial data were compromised. USPS Chief Financial Officer Joseph Corbett said there is no indication that those systems were breached, but that the agency is undertaking an internal review and an outside audit “out of an abundance of caution.”

Shipping and packages remain a bright spot in the Postal Service’s finances, with volume in that segment up 8.1 percent. That increase, coupled with a rate hike that took effect in January, helped the Postal Service grow its operating revenue by $1.9 billion over last year.

However, the continued declines in First Class mail, the agency’s most profitable product, and the statutorily mandated costs associated with employee benefits and worker’s compensation continue to imperil Postal Service’s financial position.

Donahoe and Corbett acknowledge that the First Class volumes will continue to drop, but they are urging Congress to pass a reform package that would provide relief from the current health-care requirements and adjust the payments the agency makes into the Federal Employee Retirement System.

“We’re simply running out of game-changing efficiency measures to offset the downward pressure,” Corbett said.

The Postal Service has not been standing still. The agency has been experimenting with same-day package delivery, for instance. And this holiday season, the Postal Service is offering seven-day delivery of packages, an area it has been testing under a partnership with Amazon.

“In terms of Amazon, they’re a great company to work with,” Donahoe said. “I think that both between Amazon and what we see over the course of the next couple years we’ll continue to see growth in the package business.”

The Postal Service is also seeking authority from Congress to expand into new business lines, including the delivery of beer, wine and liquor.

“People laugh about that, (but) there’s a lot of money to be made in that,” Donahoe said.

The Postal Service is also angling to scale down the delivery of regular mail to five days a week in response to the decline in volume, while expanding shipping and package service as those volumes increase.

“Our future is seven-day package delivery in many zones, five-day mail delivery,” Donahoe said.

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Kenneth Corbin
Kenneth Corbin
Kenneth Corbin is a freelance writer based in Washington, D.C. He has written on politics, technology and other subjects since 2007, most recently as the Washington correspondent for InternetNews.com, covering Congress, the White House, the FCC and other regulatory affairs. He can be found on LinkedIn.