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USPS Is Going Broke

USPS and Unions

In March, 2011, the U.S. Postal Service (USPS) and the American Postal Workers Union (APWU) reached a contract agreement that preserves jobs and provides a 3.5 percent pay raise for three years. Labor costs represent 80% of USPS expenses, a very high percentage in this day of automation. The agreement protects APWU employees against layoffs and provide a 3.5 percent wage increase over the life of the contract. There will be no changes to health care benefits in 2012. From 2013 to 2016, there will be a slight increase in employees’ share of the health care contribution. The USPS spent $4.3 million on employees who did nothing, called “standby time,” because of union requirements. The amount paid for so-called standby time has “significantly decreased.” In fiscal 2009, USPS employees logged over 1.2 million hours in standby time, costing the agency more than $30 million. This declined to around $20 million in 2010 and is on track to be less than $10 million this year.

However… The USPS, which expects to lose $7 billion this year (2011), is so low on cash that it will not be able to make a $5.5 billion payment due this month (September, 2011) and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances. The problem is that the USPS relies on first-class mail to fund most of its operations, but first-class mail volume is steadily declining. In fact, in 2005 it fell below junk, or advertising, mail for the first time, and continues to lag behind junk mail. Projections are that advertising mail pieces will decline an additional 12%-30% by 2020.

“I really believe that the USPS is going to get to a point where, regardless of what it does with the prefunding [of retiree health care], it is going to implode,” says R. Richard Geddes, an associate professor of policy analysis and management at Cornell University. “It is either going to default on those obligations to its retirees or we are going to have to give it a direct bailout from the United States taxpayers.”

Union Reaction to USPS Downsizing

The USPS is planning to reduce payroll by 20 percent, citing increasing costs from employees and declining mail volume. Among the costs cited were retirement and healthcare. It was in 2007 that Congress mandated it pay over $ 5 billion a year into its retiree funds.
Unions reacted angrily Friday (August 12, 2011) to a proposal by the USPS to lay off 120,000 workers by breaking labor contracts, and to shift workers out of the federal employee health and retirement plans into cheaper alternatives. Labor experts and other unions also sounded the alarm that any move by Congress to break postal contracts would further wound an already ailing labor movement. “When you break a contract, basically what you’re saying is that we have left the era of good-faith bargaining and negotiation and entered into employer unilateralism,” said Bill Fletcher of the American Federation of Government Employees. USPS remains in negotiations with the National Rural Letter Carriers Association on a similar long-term deal and is set to begin talks with the National Association of Letter Carriers in August, 2011.

The GAO Has Its Say

Phillip Herr is Director of Physical Infrastructure Issues, where he examines federal spending for the U.S. Government Accountability Office (GAO). Herr and his team concluded that the current USPS business model is so badly broken that collapse is imminent. His report to the GAO was delivered in April, 2010. The more he tried to figure out the USPS and its financial agonies last year, the more he was puzzled. He asked USPS officials, “What’s your 10-year plan?” Herr recalls. “They didn’t have one.”

Many countries closed as many post offices as possible, moving these services into gas stations and convenience stores, just as the USPS is trying to do now. Today, Sweden’s Posten runs only 12 percent of its post offices. The rest are in the hands of third parties. Deutsche Post is now a private company and runs just 2 percent of the post offices in Germany. In contrast, the USPS operates all of its post offices.

USPS a Wondrous Creation

The USPS is a wondrous creation. But… Since 2007 the USPS has been unable to cover its annual budget, 80 percent of which goes to salaries and benefits. The USPS has stayed afloat by borrowing $12 billion from the U.S. Treasury. This year (2011) it will reach its statutory debt limit. After that, insolvency looms. On March 2, 2011, Postmaster General Patrick R. Donahoe warned Congress that his agency would default on $5.5 billion of health-care costs set aside for its future retirees scheduled for payment on September 30, 2011, unless the government comes to the rescue.

Donahoe promises that if the USPS is excused from its annual health-care prepayment of $5.5 billion, he will wring enough costs out of the system to turn a profit on its remaining mail stream. He wants to close post offices and move some of their operations into convenience stores and supermarkets, where nonunion workers can staff them.

To see just how far the USPS has fallen, watch the motion picture, “Miracle on 34th Street,” starring John Payne (not a typo), Maureen O’Hara, and (a very young) Natalie Wood.

But that’s just my opinion.

Rich Mitchell is the Sr. Managing Editor of Conservative Daily News. His posts may contain opinions that are his own and are not necessarily shared by Anomalous Media, CDN, staff or .. much of anyone else. Find him on twitter, facebook and google+

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Comments (19)

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  1. bill says:

    after 45 cents a letter, i will now start paying my bills online.

  2. Max says:

    CDN ADMIN: You new format blows. The ad video isn’t appreciated. It’s impossible to track my comments without flipping through archives. I won’t be coming back.

  3. Anonymous says:

    The post office starts people around 20 dollars an hour. That alone is enough to kill any buisiness.
    They give them a dollar per year rais. I think that deffinitly outpaces inflation.
    They give them 50% or better retirement pay. What is Half of $50 again?
    They give them full benefits and more time off per year than any privately owned business.

    Anyone who says the employee costs are not part of the problem, Obviously knows what they are talking about.

    Around 80% of their expenses are employee based. Which is funny because I think about 25% must be tied up in gas.

    Most of the USPS’ work could be consolidated into one facility and could do away with 20% of their employees. Truth be told postal jobs are so easy, they could be ran by a single contract unit with an attached federally run annex. The best location is obviously Wal-mart. No more waiting in long lines for stamps, recieving could be open 24-7. And the actual postal employees could concentrate on the mailstream

  4. Lord Vader III says:

    Typical unions. They would rather see the USPS go under than accept layoffs and pay cuts. Just another great example of unions running this country into the ground.

  5. JC says:

    The post office needs to reinvent itself to keep up with the trends. Individuals use less post office services, but businesses still rely on the post office in a big way. Yet, the post office is not very “business friendly”. For instance, the last pick-up is usually at 5:00 p.m. at most boxes. Most businesses in our area close at 5:00 p.m. The post office needs to look at where their revenue is coming from and do a better job servicing them. They need to start “thinking outside the box”. Private industries need to do this all the time to stay afloat.

  6. Brian Cook says:

    Excellent article Warren! Yet another example of the parasite killing the host.

  7. Postal retiree says:

    I’m curious…
    Will the postal service eliminate the year-end bonuses to its supervisors, managers and postmasters as it attempts to reduce health benefit coverage to its retired personnel?
    BTW, supervisor’s bonuses (CUT) each December comes to several thousand dollars for each of them while the workforce is mandated to do more for less pay…
    But, those bonuses are just a drop in the bucket to the 8 billion dollar deficit.
    The primary reason for the ever continually increases in postal revenue is MODERN TECHNOLOGY, not its employees or the unions that represent them.
    Remember, postal employees may not (by law) strike and their salaries and benefits are negotiated in good faith by both the unions and the postal service powers that be…
    So, don’t accuse postal unions of raping the system…the system has simply outlived its usefullness with the creation of the Internet, much as the blacksmith virtually became a trade of the past through modern technology known as the horseless carriage.
    I predict the postal service will become a competitor of FedEx and UPS in the delivery of parcels as the need for door to door delivery of mail lessens.

    • Max says:

      “The primary reason for the ever continually increases in postal revenue is MODERN TECHNOLOGY, not its employees or the unions that represent them.”

      Not exactly. The failure of people (both unions and employees) to adapt in-step with modern technology is responsible for revenue DECLINE at USPS. This is true for every company that allows technology to antiquate their services. Of greater concern are the managers taking in bonuses when USPS is operating in the red, while allowing technology to sink them even deeper. And what have they done to keep up with the internet? They have a website for tracking shipments or printing stamps (fizzle). Could they use technology to boost business? Yes, but they are too dumb to be creative. Bonuses for “red ink” usually has that effect.

      “I predict the postal service will become a competitor of FedEx and UPS in the delivery of parcels…”

      Not unless they stop subsidizing packages (about 8 billion worth). Even with USPS below market pricing, FEDEX makes a profit because they couldn’t stay in business otherwise, and they fall under the RLA making local unionization harder to do, which is why FEDEX layoffs are common. UPS profits too, but their union has greater influence over UPS employee’s.

      You can’t pin the blame solely on technology, when it’s USPS management that has failed to adapt.

    • Ebony says:

      I see from the comments on this website that the post office is getting the public to believe what they want them to believe. They are blaming the union and workers for their troubles.

  8. Ty says:

    I don’t understand how the Union’s are allowed to rob to the point of industries being insolvent. What is better, giving up your 3.5% raise, or giving up your job for good? Greedy workers are killing the system. Don’t they see it? We will all loose a service, and they don’t seem to care. I Don’t want the government to bail them out. That would be like paying $1.50 for every stamp. Let them go under and the Union labor can go sulk in a corner and think about what they have done.

    • John says:

      I agree with TY, I worked for a poatal contractor out of the Bulk Mail center in Jersey City N.J. all of the people that work there are lazy,they close down the in bound gate to have a smoke when there not on break,they walk to another gate to talk with someone,they are nasty to the contract drivers and most of all they think the postal service owes them====== I say fire them ALL and make the U.S.P.S. PRIVATE======

  9. rick says:

    Who really cares. Snail mail is long out of date. Delivery takes to long and is unreliable. Let them be unemployed and broke like the millions of other Americans. While we are at it lets make every member of Congress take a salry of 50,000 dollars yearly and no medical insurance. Let the bastards go out and but their own like we have to. Lets see how many of those clowns want to serve then. As well lets not allow thme to accept money for speaking engagements. Do the peoples work or get the HELL OUT

    • RAY TURTLETAUB says:

      RICK:
      You ask (who really cares)!
      Well, the 400,000 postal employees care and their salaries are helping to keep the economy from dropping to even lower levels than the U.S. is experiencing today.
      You should be thankful for every employed American because, with the lose of each work sector your job is getting closer to being the next job to be eliminated.
      When that day comes, another RICK will undoubtedly say. “WHO CARES?

  10. Max says:

    USPS is a terrible business model. The unions hijacked it long ago, and breaking contracts will face serious legal challenges.

    The plan to have 3rd party involvement is long overdue. One of USPS’ past objections for doing this has been mail security, and pride for a delivery rate that is truly remarkable. But what they have never publicly admitted to is the high percentage of mis-deliveries (when you get other peoples mail) since they don’t even track it, but it happens every day, on perhaps 80 percent of all routes. Having worked as a PTF letter carrier for one year, the inefficiencies are enormous, reflected by a continuous battle between Post Masters and Union Workers. Contrary to what most people might think about the duties of a Post Master, his hands are tied as the unions hobble any efforts they might have in seeking efficiency improvements.

    • WILLIE R. says:

      MAX served one year as a part-time letter carrier and considers himself an expert as to why the postal service is suffering.
      Well, MAX, the postal service is in dire straits because the Internet has deemed the USPS no longer needed by the masses of former postal patrons…
      That it, clear and simple; unions are not the cause of the eventual demise of Ben Franklin’s post office department.
      P.S.
      The postmaster general isn’t asking good ol’ uncle Sam for cash, just permission to realign its day to day operations to accommodate the sign of the times…such as the reduction of 6 day a week delivery to 5 days

      • kathy says:

        I totally agree with you Willie. Can anyone tell me when a business has run efficiently when the government is involved? I say let the government get out of the way and let the USPS run the company like any other company would by making the cuts as needed and restructure itself from within.
        There is alot of waste in any company but they get to choose while the post office has to ask permission to do anything that might help keep it afloat.
        Yes, the mail volume is declining due to the internet but there are still people that don’t want their information broadcasted over the internet and pay bills the old fashioned way. I’m one of them because I like recieving mail and magazines plus it’s still cheaper to send a letter than paying for internet. Also, what happens to all of those people that don’t own a computer let alone have internet access?

      • Max says:

        Willie R, How crude and rude of you. I never stated I was an expert, I put forward my opinions according to my personal observations.

        Since you seem to equate opinions with experience… you should sit down and shut up you silly fool. Nobody wants to hear a union blowhard.

      • Max says:

        “Well, MAX, the postal service is in dire straits because the Internet has deemed the USPS no longer needed by the masses of former postal patrons…”

        Wrong, WILLIE R. Former postal patrons are dying off faster than flies. It is the new generation of teenagers that don’t even know where the post office is in their local communities. And while USPS loves blaming the internet for all of their problems, which in truth accounts for some of it, most of the revenue decline is from a failure to adapt with technology.

        • Anonymous says:

          Wow all I can say is some of these comments are really harsh. I have been working for the Post Office for 17 years. And proud to be there. It’s unfortunate what is happening around the world with jobs, but we should be supporting an agency that has been around for a very looong time. I personnally no they have to do something to keep themselves more competitive. This is one person who is backing the Postal Services all the way!