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USPS News: The Status, The Legislation, The Grassroots Effort— and YOU

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The US Postal Service is facing unsustainable financial losses due to declining mail volumes and revenues. Labor costs make up 80% of total costs but are fixed, creating financial challenges. Congress needs to pass postal reform legislation to allow changes like reducing prefunding retirement health benefit requirements and network realignment to improve the financial situation. The Senate passed a bill in April 2012 but the House has yet to vote, and industry groups are lobbying for reforms to ensure the long term viability of the USPS.

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USPS NEWS: THE STATUS, THE LEGISLATION, THE GRASSROOTS EFFORT …AND YOU Ken Garner -Mailing & Fulfillment Service Association Ben Cooper – Williams & Jensen
MULTIPLE FACTORS CONTRIBUTING TO THE PROBLEM AT USPS
USPS IS INCURRING UNSUSTAINABLE LOSSES USPS’s financial losses are at unsustainable levels Declines in revenue are being driven by lower First-Class Mail volumes (down 25% since peaking in 2006) Reduced volumes are, in turn, reducing density and Contribution(1) across the USPS network Note: Bolded figures after 2007 represent Net Profit / (Loss) after RHB Pre-Funding (1) Contribution is revenue less attributable cost as shown in the Cost & Revenue Analysis for fiscal year 2011 that was filed with the Postal Regulatory Commission (“PRC”) (2) In 2009, $4.0bn of RHB Pre-Funding was deferred and will be re-evaluated in 2017 (3) In September 2011, Congress deferred the 2011 required RHB payment of $5.5bn until August 2012
RELATIVE REVENUE AND VOLUME BY MAIL TYPE Source: Volume includes total mail only. Revenue includes mail and ancillary and special services revenue
CONTRIBUTION BY PRODUCT First-Class Mail is the most significant contributor to profit; however, it is also experiencing declining revenue Source: Public Year Cost and Analysis, FY 2011 - Contribution is revenue less attributable cost as defined by the PRC (1) Shipping includes Express Mail, Priority Mail, Parcel Select / Returns, Competitive International (2) Other includes Periodicals, Package Services, Special Services, and other miscellaneous products which make up Total All Mail and Services
COSTS MUST BE ADDRESSED TO ENSURE VIABILITY Costs are projected to outpace revenues at an alarming rate Labor costs, which are approximately 80% of total costs, create a fixed cost structure which is not readily scalable in response to changes in volume and revenue
MAGNITUDE AND TIMING OF CASH FLOWS REQUIRES A NEAR-TERM RESPONSE Note: Liquidity at end December 2011 $2.9bn (1) Total cash flows prior to any borrowings or principal repayments of debt (2) $38bn of RHB Pre-Funding before 2011 not reflected in chart (3) Represents $220mm of daily operating costs, times six day work week
EXECUTING IDENTIFIED INITIATIVES IS CORE TO ADDRESSING USPS’S FINANCIAL CHALLENGES USPS has identified over $20 billion of annual savings within the next five years, of which approximately $10 billion require legislative action Each of the Strategic Initiatives is essential in order to restore the Postal Service to financial viability (1) Annual savings amount includes projected savings resulting from the elimination of approximately $5.8bn in RHB Pre-Funding in 2016
STRATEGIC INITIATIVES (1) Portion of savings requires legislative changes to achieve (2) Does not include impact of employee separation costs
POTENTIAL “SOFT LANDING” FOR EMPLOYEES (1) Includes estimated Social Security and TSP impacts for FERS
INCOME STATEMENT (1) Portion of these savings require legislative changes to achieve (2) Reflects the one-time costs of any collection of layoffs/RIF’s, VERA, and reassignments
STATUS OF INITIATIVES • Healthcare ‒ USPS – provided employee health insurance: no progress; lack of union support ‒ RHB prefunding requirement: no progress; Congressional opposition • Network ‒ Change in service standards: step 1 implemented 7/1/2012, step 2 in 2014 ‒ Network realignment: under way; to be completed by spring 2014 ‒ Retail services: new plan approved by PRC; implementation staring soon ‒ Saturday delivery: no progress; Congressional opposition • Revenue Management ‒ Exigent rate case: USPS won’t implement unless forced by legislation ‒ Decoupling single-piece and commercial First-Class rates: no progress ‒ Marketing initiatives: modest success for EDDM, mobile barcode initiatives ‒ Customer access: continued expansion of USPS.com, Village POs
POSTAL REFORM 2012 • Senate approved S. 1789 on April 25 • House likely will vote during Lame Duck
WHY WE SHOULD CARE ABOUT POSTAL REFORM • One third of US paper manufacture is produced for the mail • Over one half of all print is created for mail distribution • Digital equipment is used for personalized direct mail • The USPS is the primary distributor of print in the US • Collapse of USPS would significantly change the printing industry
SENATE BILL (S. 1789) • Facility closing – delay process for two years • Saturday service – delay decision for two yeas • Return FERS overpayment with portion used for buyouts • “Re-amortize” retiree medical pre-funding • Reform federal workers’ comp • Key – rejected proposals for rate increases
HOUSE PROCESS • House has not focused on postal reform yet • HR 2309 created problems for many members of the House which delayed the vote • Unlikely to have any Democrats voting for the bill in current form • Bill that passed committee will be altered in “manager’s amendment” • House and Senate may try to find agreement before bill comes to a vote in the House
WHAT ARE THE HOUSE PROBLEMS AND CAN THEY BE FIXED? • Perception of HR 2309 is that it would close rural post offices, end Saturday delivery and abolish union contracts • Sponsors agreed to changes to address issues ‒ Limits closing of rural post offices to a small percentage per year ‒ Will allow an “up or down” vote on Saturday delivery ‒ More onerous anti-labor provisions changed • Postal labor union still oppose • Most Democrats in House expected oppose
WHERE DOES IT END? Option 1 – Reform Light •Roughly along the Senate bill lines •Will need to do it all again in two years •Likely will not fix the problem Option 2 – Kick the Can •Transfer FERS Money •Re-amortize REHB •Slow facility closing and Saturday delivery decision Option 3 – Do the Right Thing
TIMING What If Nothing Happens? •USPS will face a cash crisis some time in 2013 •Debt will continue to grow •Confidence in delivery system may erode •Solution no easier to find in 2013 •Fatigue on the part of legislators •Exigency rate case?
WHAT DO WE EXPECT? • During Lame Duck, House will likely agree to a bill that moves closer to Senate version • Likely to “re-amortize” FERS • Likely to slow decision to allow USPS to go to five day delivery • Likely to reform Workers’ Comp • May need to revisit legislation within the next four years
WHAT IS INDUSTRY’S RESPONSE? • Organized into Coalition for a 21st Century Postal Service (40 associations and corporations) to coordinate lobbying efforts • MFSA and related trade associations active grassroots – meetings with elected officials • Letters, emails, phone calls to offices • Providing technical and legal expertise to committee staff on key issues • More than 300 meetings this Congress with DC offices
IS IT ENOUGH? • No – Industry overall is complacent about the future of USPS • Question – If USPS fails, who moves printed products to customers? • Magazines, catalogs, advertising mail continue to depend on postal delivery with no option “Congress will not let the USPS fail” – Fiscal Cliff!
Ken Garner – President/CEO Mailing & Fulfillment Service Association (Association of Marketing Service Providers 1/1/13) kgarner@mfsanet.org 703-836-9200 Ben Cooper – Principal Williams & Jensen, PLLC bycooper@wms-jen.com 202-659-8201

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USPS News: The Status, The Legislation, The Grassroots Effort— and YOU

  • 1. USPS NEWS: THE STATUS, THE LEGISLATION, THE GRASSROOTS EFFORT …AND YOU Ken Garner -Mailing & Fulfillment Service Association Ben Cooper – Williams & Jensen
  • 2. MULTIPLE FACTORS CONTRIBUTING TO THE PROBLEM AT USPS
  • 3. USPS IS INCURRING UNSUSTAINABLE LOSSES USPS’s financial losses are at unsustainable levels Declines in revenue are being driven by lower First-Class Mail volumes (down 25% since peaking in 2006) Reduced volumes are, in turn, reducing density and Contribution(1) across the USPS network Note: Bolded figures after 2007 represent Net Profit / (Loss) after RHB Pre-Funding (1) Contribution is revenue less attributable cost as shown in the Cost & Revenue Analysis for fiscal year 2011 that was filed with the Postal Regulatory Commission (“PRC”) (2) In 2009, $4.0bn of RHB Pre-Funding was deferred and will be re-evaluated in 2017 (3) In September 2011, Congress deferred the 2011 required RHB payment of $5.5bn until August 2012
  • 4. RELATIVE REVENUE AND VOLUME BY MAIL TYPE Source: Volume includes total mail only. Revenue includes mail and ancillary and special services revenue
  • 5. CONTRIBUTION BY PRODUCT First-Class Mail is the most significant contributor to profit; however, it is also experiencing declining revenue Source: Public Year Cost and Analysis, FY 2011 - Contribution is revenue less attributable cost as defined by the PRC (1) Shipping includes Express Mail, Priority Mail, Parcel Select / Returns, Competitive International (2) Other includes Periodicals, Package Services, Special Services, and other miscellaneous products which make up Total All Mail and Services
  • 6. COSTS MUST BE ADDRESSED TO ENSURE VIABILITY Costs are projected to outpace revenues at an alarming rate Labor costs, which are approximately 80% of total costs, create a fixed cost structure which is not readily scalable in response to changes in volume and revenue
  • 7. MAGNITUDE AND TIMING OF CASH FLOWS REQUIRES A NEAR-TERM RESPONSE Note: Liquidity at end December 2011 $2.9bn (1) Total cash flows prior to any borrowings or principal repayments of debt (2) $38bn of RHB Pre-Funding before 2011 not reflected in chart (3) Represents $220mm of daily operating costs, times six day work week
  • 8. EXECUTING IDENTIFIED INITIATIVES IS CORE TO ADDRESSING USPS’S FINANCIAL CHALLENGES USPS has identified over $20 billion of annual savings within the next five years, of which approximately $10 billion require legislative action Each of the Strategic Initiatives is essential in order to restore the Postal Service to financial viability (1) Annual savings amount includes projected savings resulting from the elimination of approximately $5.8bn in RHB Pre-Funding in 2016
  • 9. STRATEGIC INITIATIVES (1) Portion of savings requires legislative changes to achieve (2) Does not include impact of employee separation costs
  • 10. POTENTIAL “SOFT LANDING” FOR EMPLOYEES (1) Includes estimated Social Security and TSP impacts for FERS
  • 11. INCOME STATEMENT (1) Portion of these savings require legislative changes to achieve (2) Reflects the one-time costs of any collection of layoffs/RIF’s, VERA, and reassignments
  • 12. STATUS OF INITIATIVES • Healthcare ‒ USPS – provided employee health insurance: no progress; lack of union support ‒ RHB prefunding requirement: no progress; Congressional opposition • Network ‒ Change in service standards: step 1 implemented 7/1/2012, step 2 in 2014 ‒ Network realignment: under way; to be completed by spring 2014 ‒ Retail services: new plan approved by PRC; implementation staring soon ‒ Saturday delivery: no progress; Congressional opposition • Revenue Management ‒ Exigent rate case: USPS won’t implement unless forced by legislation ‒ Decoupling single-piece and commercial First-Class rates: no progress ‒ Marketing initiatives: modest success for EDDM, mobile barcode initiatives ‒ Customer access: continued expansion of USPS.com, Village POs
  • 13. POSTAL REFORM 2012 • Senate approved S. 1789 on April 25 • House likely will vote during Lame Duck
  • 14. WHY WE SHOULD CARE ABOUT POSTAL REFORM • One third of US paper manufacture is produced for the mail • Over one half of all print is created for mail distribution • Digital equipment is used for personalized direct mail • The USPS is the primary distributor of print in the US • Collapse of USPS would significantly change the printing industry
  • 15. SENATE BILL (S. 1789) • Facility closing – delay process for two years • Saturday service – delay decision for two yeas • Return FERS overpayment with portion used for buyouts • “Re-amortize” retiree medical pre-funding • Reform federal workers’ comp • Key – rejected proposals for rate increases
  • 16. HOUSE PROCESS • House has not focused on postal reform yet • HR 2309 created problems for many members of the House which delayed the vote • Unlikely to have any Democrats voting for the bill in current form • Bill that passed committee will be altered in “manager’s amendment” • House and Senate may try to find agreement before bill comes to a vote in the House
  • 17. WHAT ARE THE HOUSE PROBLEMS AND CAN THEY BE FIXED? • Perception of HR 2309 is that it would close rural post offices, end Saturday delivery and abolish union contracts • Sponsors agreed to changes to address issues ‒ Limits closing of rural post offices to a small percentage per year ‒ Will allow an “up or down” vote on Saturday delivery ‒ More onerous anti-labor provisions changed • Postal labor union still oppose • Most Democrats in House expected oppose
  • 18. WHERE DOES IT END? Option 1 – Reform Light •Roughly along the Senate bill lines •Will need to do it all again in two years •Likely will not fix the problem Option 2 – Kick the Can •Transfer FERS Money •Re-amortize REHB •Slow facility closing and Saturday delivery decision Option 3 – Do the Right Thing
  • 19. TIMING What If Nothing Happens? •USPS will face a cash crisis some time in 2013 •Debt will continue to grow •Confidence in delivery system may erode •Solution no easier to find in 2013 •Fatigue on the part of legislators •Exigency rate case?
  • 20. WHAT DO WE EXPECT? • During Lame Duck, House will likely agree to a bill that moves closer to Senate version • Likely to “re-amortize” FERS • Likely to slow decision to allow USPS to go to five day delivery • Likely to reform Workers’ Comp • May need to revisit legislation within the next four years
  • 21. WHAT IS INDUSTRY’S RESPONSE? • Organized into Coalition for a 21st Century Postal Service (40 associations and corporations) to coordinate lobbying efforts • MFSA and related trade associations active grassroots – meetings with elected officials • Letters, emails, phone calls to offices • Providing technical and legal expertise to committee staff on key issues • More than 300 meetings this Congress with DC offices
  • 22. IS IT ENOUGH? • No – Industry overall is complacent about the future of USPS • Question – If USPS fails, who moves printed products to customers? • Magazines, catalogs, advertising mail continue to depend on postal delivery with no option “Congress will not let the USPS fail” – Fiscal Cliff!
  • 23. Ken Garner – President/CEO Mailing & Fulfillment Service Association (Association of Marketing Service Providers 1/1/13) kgarner@mfsanet.org 703-836-9200 Ben Cooper – Principal Williams & Jensen, PLLC bycooper@wms-jen.com 202-659-8201