The Crisis Is in the Mail

The CFO of the U.S. Postal Service is lobbying Congress and the Obama Administration in order to stave off a cash shortfall at the agency.

We really had to understand where our cash was at the end of each month and where it would be at the end of the year to make sure we were liquid. We had to do that to make sure our stakeholders — primarily the U.S. government — understood how serious the situation was. But we also had to be careful to keep our employees motivated and comfortable that we would be able to continue to pay our bills.

Did anything positive come out of the recession?

The downturn has been a catalyst for change. When mail volumes dropped so quickly, we had to rally the troops and find ways to take more hours out of the organization very fast. We also had to find creative ways to reduce our cost basis and look at diversifying our revenue streams throughout.

What have you accomplished so far?

Our fiscal year 2009 cost savings totaled $6 billion, including a reduction of 115 million work hours, or the equivalent of 65,000 full-time employees. We’ve been able to take out overtime hours and implement a hiring freeze; we have not actually laid off people. We don’t expect to be able to make the same level of cuts this year, but we do have a goal of taking out over 90 million work hours in 2010.

Even after such cost cutting, can you still compete with private carriers like FedEx and UPS?
We’re not on a level playing field with FedEx and UPS. We are required by law to prefund our retiree health benefits, and no other company or government agency in the country has a requirement like that.

We also don’t have the flexibility to move quickly in a changing environment. We’re required by law to deliver mail six days a week, even though we don’t have the volumes that necessitate delivering mail six days a week. If FedEx or UPS was in your neighborhood during the heyday of mail delivery three years ago, they’d be there four days a week. Now they are there only two days a week. They can dynamically route themselves to match cost with the actual volume.

We, on the other hand, must deliver mail and packages to 150 million mailboxes six days a week. That’s clearly something we need to fix, given the drop in volume of mail and packages. So we’re working on those two items, reducing the amount of prefunding of retiree health and getting some control over the frequency of delivery.

That’s where Congress comes in.
We’re working very closely with Congress and the Administration to come up with a way that we can return to profitability in two to three years and begin paying down our debt without costing the U.S. taxpayer a nickel.

Right now we’re extremely heavily regulated, and as a result have difficulty reacting to the market. We have an $8 billion [in sales] package business that is totally competitive. We’re the third player in the U.S. market, behind FedEx and UPS. The rest of our business, roughly $60 billion, is primarily mail — advertising mail, standard mail, and first-class mail. The current restrictions that don’t allow us to move quickly and react are the things that we’re working on getting changed.

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