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Opinions and views from expert CFOZone members.

Nov 12

How to slash costs at the US Postal Service

Posted by Stephen Taub in US Postal Serviceretiree healthcarerestructuringcost cuttingCash

Stephen Taub

If a company determined it would lose $8.5 billion in the current year, more than it had previously expected, due to lower volume of business, what would it do?

Close plants or warehouses, fire employees and orchestrate a major restructuring.

But, not the government. It just maintains business as usual, for the most part.

Most recent case in point: The US Postal Service. It said it lost $8.5 billion in the year ended Sept. 30, more than double the $3.8 billion a year earlier. It had forecast a loss of "just" $7 billion.

One reason for its financial woes: Mail volume dropped 3.5 percent, resulting in a 1.5 percent decline in revenues, to $67.1 billion.

However, this is the astounding part: $5.5 billion of the loss is to cover health-benefit costs for future retirees. Another $2.5 billion covered adjustments to workers' compensation liabilities for interest rate changes.

To its credit, the Postal Service has requested permission to close post offices and eliminate Saturday delivery.

However, it needs much more drastic changes.

Instead of stopping mail delivery just on Saturdays, it should reduce residential delivery to no more than three days per week.

The internet-especially e-mail-has heavily cut into its business. And retirees have enjoyed direct deposit of their Social Security and pension checks for decades. So, that is not an issue.

I would say 99 percent of all of my mail are unsolicited sales pitches and bills, which I would gladly wait an extra day to receive.

Then the Postal Service should close thousands of branches. In urban and suburban neighborhoods, most people live with 15 minutes of two or three branches.

In the beginning, they should close one of every two and see what happens.

Then, in the branches, encourage use of the automated stamping machines. I know they have been there for several years. But, I rarely see someone using it.

So, offer a, say, 10 percent or 15 percent discount for using them. Keep the lobbies open 20 hours per day to encourage people to use them at odd hours.

Where they own the branches and land outright, do sale-leasebacks with local developers. Many of them are in prime real estate areas. I know we are overbuilt these days. But there is a still a market for real estate in great locations.

The Postal Service should then privatize some of its tasks. Pay Fed Ex or UPS a fee to move the mail from one city to another.

As for the retiree health care, you can't cancel this perk. The deal has been made.

However, ask the retirees to pay higher co-pays and deductibles. Charge them the average fees that retirees with similar coverage from private industry have to pay. No more, no less.

This is a start.

Then we could move on to other government agencies and look for realistic ways to cut sizable costs.



Comments (1)Add Comment
Ben Hackley
written by Ben Hackley, November 13, 2010
Right on the money Stephen. If only the government were run like a business...however, they would have had to close the doors decades ago.

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