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Challenges in the U.S. Postal Environment

Challenges in the U.S. Postal Environment. Ruth Y. Goldway Chairman, U.S. Postal Regulatory Commission UPU Forum on Postal Regulation November 10, 2011 Bern, Switzerland. Role of the Postal Regulatory Commission. Establish more modern system of rate making Monitor quality of service

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Challenges in the U.S. Postal Environment

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  1. Challenges in the U.S. Postal Environment

    Ruth Y. Goldway Chairman, U.S. Postal Regulatory Commission UPU Forum on Postal Regulation November 10, 2011 Bern, Switzerland
  2. Role of the Postal Regulatory Commission Establish more modern system of rate making Monitor quality of service Provide detailed, transparent information on Postal Service’s operations Hear appeals from citizens on post office closings Offer assistance in resolving rate and service inquiries Hear customer complaints and provide redress if appropriate Ensure level playing field between mailers (e.g. decide over allegation of rate discrimination) Assure universal service six days a week
  3. U.S. Postal Market Characteristics USPS is an independent establishment of the Executive Branch of the Federal Government Letter and mailbox monopolies Market dominant and competitive products Price cap (Consumer Price Index) Universal Service Obligation Limited diversification (hybrid mail, money transfer, passport processing, electronic post mark) Mail is still the core business
  4. U.S. Modes of Postal Liberalization Upstream competition (workshare discounts) Downstream access (local drop-ship) Commercial licensing of postal indicia (postage and tracking services) to private companies Competition in the express, priority and bulk parcel delivery market
  5. The U.S. Postal Service Today USPS self-sufficient – no government subsidies to support USO Declining volumes and revenues Increasing costs related to low rate of inflation Growing deficit 2011 - $10.0 billion (estimated) 2010 - $8.5 billion 2009 - $3.8 billion 2008 - $2.8 billion $12.69 billion in debt to federal Treasury through June 30, 2011 $15 billion debt limit
  6. Structural Challenges Future Retiree Health Benefits Fund Average $5.6 billion annual payment for 10 years under 2006 postal reform law $20.9 billion paid from 2006-2010 ($45 billion in fund) Commission study estimated appropriate annual payments should be significantly reduced Pension Fund Overpayment identified by Commission and Postal Service Office of Inspector General Commission estimates overpayment between $50 and $55 billion Cost of Universal Service Obligation/Value of Monopolies 2009 cost of USO - $4.9 billion 2009 value of monopolies - $2.1 billion Cost of USO is going up Value of monopolies is going down
  7. U.S. Postal Service Cash Flow
  8. Impact of Inflation and Deflation Workers compensation liability very sensitive to changes in inflations and discount rates 1% decline in discount rate adds about $1.4 billion to workers compensation liability 1% increase in discount rate reduces liability by about $1.1 billion Price cap limits Postal Service’s ability to increase prices in periods of deflation or relatively low inflations
  9. Postal Service Response Cut costs 4.0% reduction in Compensation and Benefits Costs in 2010 Reduction in work hours (6.0% in 2010) Increase productivity 2.2% in 2010 Follows two years of productivity decline Propose major cost-cutting initiatives Grow revenue New products and services; and market tests Negotiated Service Agreements
  10. PRC Role in Response Advisory Opinion on six vs. five days of delivery Actuarial review of Retiree Health Benefits Fund Technical review of Pension Fund Review of network consolidation and realignment Review of closing of post offices and branches Review of appeals to post office closings Review of market dominant and competitive product classifications Approval of new products and services Review of new rates and conformance with price cap
  11. Congressional Role in Response: Senate Senate bipartisan legislation: Provides $7 billion to U.S. Postal Service from Pension Fund overpayment for employee buyouts and other debt Allows renegotiation of health care benefits for postal workers Requires two years of study before ending Saturday mail delivery Spreads out current 10-year annual payment schedule of $5.5 billion per year to prefund future retiree health benefits over forty years Requires Postal Service to study effects of closing post offices and mail processing facilities further
  12. Congressional Role in Response: House of Representatives Houseof Representatives legislation H.R. 2309: Postal management replaced with restructuring authority if Postal Service fails to pay bills for more than 30 days – financed with $10 billion line of credit fully collateralized by postal facilities Gives Postal Service option of eliminating Saturday delivery six months after legislation enacted Establishes two-year task force to recommend plan to consolidate redundant post offices Mandates postal workers pay same health and life insurance premiums as federal workers and clarifies compensation parity with private sector Allows Postal Service to sells advertising space on vehicles and facilities Allows Postal Service to pay $1 billion to future retiree health benefits fund this year and pay balance in equal installments between FY2015 and FY2016 Provides for consideration of using net surplus in Pension Fund to fund cost of reducing size of postal workforce

  13. www.prc.gov

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