Postal Service Can No Longer Afford Money-Saving Tactics, Study Says

Two of the U.S. Postal Service’s most successful methods for cutting costs – early-retirement incentives and automation – are no longer viable strategies because of USPS’s cash crunch, according to a report released today.

“Overall, offering more early retirements for eligible employees would create additional cost savings,” says the report from the USPS Office of Inspector General on USPS's cost structure. It noted a Postal Service statement indicating that savings from buyouts of more than 20,000 clerks and mail handlers two years ago have already doubled the $15,000-per-retiree payouts.

“The problem, however, is how to incentivize further buyouts that the Postal Service cannot afford to offer in its current financial state.”

Largely because of investments in automation and other efficiency improvements, the Postal Service’s labor productivity has improved by 10% in the past decade, according to the report. That has come despite the cards being stacked against the Postal Service -- in the form of decreasing volume, increasing delivery points, and benefits costs that are skyrocketing largely because of Congressional mandates.

But with spending constraints implemented two years ago, USPS’s capital investment has dropped to less than half of its depreciation costs and is one-third to one-sixth the level that is typical for private competitor UPS.

“A continuing freeze in capital investment, while saving the Postal Service in the short term, may paradoxically lead to higher costs in the future, as it defers projects that could potentially improve productivity, such as information technology (IT) upgrades, network rightsizing, and the purchase of energy efficient vehicles. Rightsizing the network to meet decreasing demand is vital to the future viability of the Postal Service.”

Much of the blame for the Postal Service’s financial problems, the report says, comes from its unusual prefunding of retiree health benefits. Congress established those multibillion-dollar annual payments “to secure the Postal Service’s long-term financial viability” but they “are ironically undermining efforts to keep the Postal Service solvent in the near term."

The report concludes: "The Postal Service is at a critical juncture in its history. Only through a combination of continued cost reductions including a rightsizing of the network to meet declining demand, legislative action to deal with cost burdens, and investing in select projects that continue its long history of productivity increases can the Postal Service return to economic viability."

Related articles:

• Here's How the Postal Service Can Get Back Its Pension and Benefits Overpayments: The Inspector General's report cites this Dead Tree Edition article, which advocates making it easier for USPS employees to retire and offering incentives for employees to switch from full-time to part-time status.
• Donahoe's Answer to Postal Bailout Criticism: The Postmaster General recently explained why USPS "needs relief from Congressional mandates".
• Postal Watchdogs Trying to Unleash USPS Innovation: Many of the new ideas for the Postal Service are coming from two unlikely sources -- the independent Office of Inspector General and the Postal Regulatory Commission.