US Postal Service 2009 Annual Report Download - page 56

54 | 2009 Annual Report United States Postal Service
Actions Taken
As described in our quarterly reports on Form 10-Q and
updated here, the Postal Service has taken a number of
actions to reduce cash outfl ows and increase cash infl ows.
In 2009, the Postal Service achieved $6.1 billion in cost
savings, including a reduction of 115 million workhours.
This is in addition to the $2.2 billion in cost reductions
achieved in 2008, when we reduced workhours by 50 mil-
lion. We have targeted the elimination of approximately 90
million additional workhours in 2010.
Working with the National Association of Letter Carriers,
we reached an agreement that established a new process
for evaluating and adjusting city delivery routes, resulting
in a quickly implemented procedure to refl ect workload re-
duction. The accelerated route adjustment process covers
all city delivery routes and is being implemented during cal-
endar year 2009. Ultimately, it involved two separate evalu-
ations of approximately 150,000 city delivery routes and
will help to achieve workhour reduction targets in 2010.
We reduced the authorized staffi ng complement at nation-
al headquarters by 15% and are taking similar actions in
the fi eld, having closed six district offi ces and one area of-
fi ce. The authorized complement at area offi ces has been
reduced by 19%. In August 2009, we offered incentives to
union employees represented by the APWU and NPMHU
to retire or resign. As of September 30, we had approxi-
mately 13,400 employees accept the offer. By October
31, that number had grown to 20,150. Net savings are
expected to be approximately $500 million in 2010. Other
cost-containment efforts include freezing the 2009 salaries
of all Postal Service offi cers and executives at 2008 pay
levels and reducing travel spending by 40%.
We are also continuing to pursue efforts to consolidate
excess capacity in mail-processing and transportation
networks without adversely impacting service. This will al-
low us to maximize operational effi ciency and capitalize
on the economies of scale associated with advances in
automated mail processing. In addition, we have placed a
halt on the construction of most new facilities. The limited
facilities funds that are now available are being directed
only to those sites with the most critical needs.
In Quarter II, 2009, the Postal Service initiated an effort
to reduce the cost of existing contracts for supplies and
services. The initiative targeted over 500 existing contracts
for renegotiations that will deliver both short- and long-
term cost reductions in the areas of price, scope and pro-
cess improvements. Through the end of 2009, we have
achieved approximately $475 million in savings from this
initiative and we expect another $650 million by the end
of 2011.
We have also taken steps to build our business. We re-
aligned our product management organizational structure
in 2008, creating a new Mailing and Shipping Services di-
vision that will help bring new products to market more
quickly and effectively. We also created a dedicated sales
force to exclusively promote expedited shipping services.
We have created a number of price and volume incen-
tives to promote volume growth from large and medium
shippers. These include an incentive program for satura-
tion mailers and a summer sale for Standard Mail that was
in from effect July 1 through September 30, 2009. In May
2009, we launched a new national advertising campaign
promoting the value of our Priority Mail Flat Rate boxes. The
campaign is successfully creating product awareness and
stimulating new business, as indicted by the strong Priority
Mail revenues and volumes, relative to our other services.
In 2009, we requested that Congress consider two chang-
es to the laws governing the Postal Service. First, we asked
to restructure our payments for retiree health benefi ts. The
result was P.L. 111-68 which reduced our 2009 payment
to the PSRHBF by $4 billion but did not address our longer
term PSRHBF payment schedule.
Second, we asked Congress for the fl exibility to suspend
the six days per week delivery requirement, in order to
better match our network and fi xed costs to current and
expected volumes. This fl exibility would allow us to con-
tinue to deliver high quality service at affordable prices to
the American public, while regaining fi nancial stability and
positioning ourselves for the future. Specifi cally, we have
requested that Congress remove the annual appropriation
bill rider, fi rst added in 1983, that effectively requires the
Postal Service to deliver mail six days each week. No sav-
ings are anticipated for 2010 from the proposed ability to
adjust the six-day delivery requirement, if granted. Multiple
operational, contractual and customer issues would need
to be resolved before actual implementation of a fi ve-day
delivery schedule. However, such important new fl exibility
would provide signifi cant cost savings opportunities, be-
ginning as early as 2011.
Since P.L. 111-68 did not address the longer term issues of
scheduled PSRHBF payments beyond 2009 or the six-day
delivery requirement, we will continue to update Congress
on these ongoing management and liquidity challenges.
Our ability to generate suffi cient cash fl ows to meet obliga-
tions is substantially dependent on the speed and strength
of the economic recovery, and our ability to execute strate-
gies to increase effi ciency, reduce costs and generate rev-
enue. If granted, the increased fl exibility from Congress,
discussed above, would allow us to reduce costs begin-
ning in 2011, and improve our cash position without sig-
nifi cantly diminishing service to customers. However, no