US Postal Service 2013 Annual Report Download - page 84

2013 Report on Form 10-K United States Postal Service 82
In the short-term, should circumstances leave the Postal Service with insufficient cash, it would be required
to implement contingency plans to ensure that mail delivery continues. These measures could require that
the Postal Service prioritize payments to employees and suppliers ahead of some payments to the Federal
Government, as has been done in the past. Additionally, the Postal Service continues to seek a refund of
the overfunding of Federal Employees’ Retirement System (FERS) as those funds would help alleviate
some of the Postal Service’s short-term liquidity risks. The Office of Personnel Management (OPM)
projected that the FERS overfunding was $0.5 billion at September 30, 2013, the latest date available.
However, the Office of the Inspector General (OIG) has determined that if Postal Service specific
assumptions were used to estimate the FERS obligation, rather than the government-wide averages
currently used, the surplus would be substantially greater than the amount calculated by OPM.
POSTAL ACTIONS TAKEN TO IMPROVE LIQUIDITY
On January 14, 2013, the Postal Service Board of Governors directed management to accelerate the
realignment of Postal Service operations to further reduce costs in order to strengthen Postal Service
finances, citing the fact that the Postal Service cannot wait indefinitely for legislation. In January and
February, 2013, approximately 22,800 eligible employees represented by the APWU separated from the
Postal Service. In addition, the increased utilization of non-career employees, as provided by the new labor
agreements, allowed for better alignment of staffing and workload levels, resulting in reduced labor costs.
On February 6, 2013, the Postal Service announced plans to transition to a new delivery schedule
beginning in August 2013, which would include package delivery Monday through Saturday and mail
delivery Monday through Friday. The Postal Service expected to generate cost savings of approximately $2
billion annually, when fully implemented. However, after Congress passed a Continuing Resolution which
clearly prohibits such an action, the Board of Governors announced on April 10, 2013, that implementation
of the modified delivery schedule would be delayed until legislation changing the 6-day delivery requirement
is enacted. The transition to a more cost-effective delivery schedule remains one of the most significant
savings opportunities available to the Postal Service and remains a part of the 2013 Five-Year Business
Plan (Business Plan). The Postal Service continues to request comprehensive legislation that will enable
changes to the business model and allow a transition to a new delivery schedule.
On April 17, 2013, the Postal Service released its updated comprehensive Business Plan which details the
implementation of its targeted program to eliminate nearly $20 billion of annual cost from the business by
the year 2017. This plan continues the Postal Service’s efforts to aggressively pursue the strategies within
its control to increase operational efficiency and to improve its liquidity position. The Business Plan requires
a combination of operational realignment, aggressive cost reductions, and comprehensive legislation to
reform the Postal Service’s current business model. Several key provisions included in the Business Plan,
in addition to the modified delivery schedule, are outlined below.
Alignment of Network Size and Cost with Reduced Mail Volumes
Operational initiatives outlined in the Business Plan include the accelerated consolidation of mail
processing, retail, and delivery networks in order to better align them with mail volumes, and a reduction in
hours at 13,000 Post Offices, accompanied by an expansion in alternate retail access. These extensive
operational changes are being executed while the Postal Service continues to deliver appropriate levels of
service to communities throughout America. This realignment of mail processing, retail, and delivery
operations is expected to generate nearly $6 billion in annual cost reductions by the year 2016. In addition,
as discussed above, the transition to a more cost-effective delivery schedule is one of the most significant
savings opportunities in the Business Plan.
Revenue Management
The Postal Service continues to introduce new service offerings to generate new revenue and to slow the
migration of existing revenue streams to electronic alternatives. Expanded use of digital technologies to
enhance the mail experience, using connectivity to various websites, social media, and points of purchase,
is a focus in enhancing the mail experience. However, legislative action is also required to give the Postal
Service authority to generate new revenue and adapt to changing business conditions because the scope
of products and services that the Postal Service can offer is limited by law.
Implementation of a New Healthcare Program
A vital component of the Business Plan is the requirement that the Postal Service dramatically reduce its
healthcare costs. The Postal Service’s proposed program is intended to provide Postal employees and
retirees with equivalent benefits, but at lower cost. This proposal would require full integration with Medicare