At the National Postal Forum in San Diego, Multichannel Merchant sat down with Joseph Corbett, CFO of the U.S. Postal Service to discuss issues relevant to catalogers.
MCM: Many catalogers fear their postage rates could increase by as much as 22%. How did this come about?
Corbett: The cost coverage report we are required to file annually was reviewed and the Postal Regulatory Commission issued a report. One finding was that they expect us to bring the cost coverages back in line with the standards for complete cost coverage.
MCM: Are other classes of mail complying with these standards?
Corbett: In terms of classes, there are other products that, like flats, are below the cost coverages, but the one they chose to point to was the catalogs.
MCM: What is likely to happen as a result of this?
Corbett: You know, I don’t know. We are still looking at it. We want to make sure whatever decision we make keeps people in the mail. We understand the PRC’s fact-finding. But really we are in the process of finding out how to be complaint with the PRC and how to stay in the mail. It’s a difficult set of circumstances we are in.
MCM: Shifting gears for a moment, how much is the USPS expecting to lose by September of this year?
Corbett: We don’t put it in these terms. We have non-cash items like workers compensation which fluctuate wildly. It was $2.5 billion in expenses which is just a bookkeeping entry, not cash. It is impossible to predict where we will be, based on interest rates which will be in place at the end of the year. But our original financial plan was to be $2.7 billion dollars over our borrowing limit. This is based on a loss of $6.4 billion without the adjustment for workers comp. Our revenue is behind plan for all periods we’ve reported to the PRC, so we’ve adjusted that down, and we are in the neighborhood of $1billion or so short of cash.
MCM: People are saying USPS could run out of money for payroll. Is this a realistic fear?
Corbett: Our objective is to not let this happen. We forecast that under existing laws, if no legislation is passed, we will have more obligations coming due than we have cash. So we would continue to pay payroll and vendors to continue to deliver the mail. There are a couple of large payments to the federal government we would have to look at if we don’t have legislation, the largest of which is the $5.5 billion for retiree health benefits.
MCM: The Postmaster General said the USPS might not pay it this year.
Corbett: We won’t have the ability to pay it unless there is legislation passed giving us the ability to—yes, it’s a near certainty. A decision has not been made by the Board of Governors yet but our projection is that we’ll have an obligation that $5.5 billion at end of year and less than $ 2 billion in the bank, so clearly we won’t have the wherewithal to pay it.
MCM: In the political climate now, how likely is the USPS to get relief from Congress?
Corbett: All I can say is that we continue to work with Congress and the President. I think they understand the situation. It’s difficult to say. It really is. Things as fundamental as raising the debt ceiling are being bandied about.
MCM: Meantime, what is the USPS doing to cut costs?
Corbett: We continue through to the first half of year to push our organization to all time records of productivity. We do that through a continuous reduction of work hours, and a hiring freeze on all classes of employees. An administrative re-organization is underway we should complete by the end of the year and that should save about $750 million per year. The process is one of looking at our organization with a clean sheet of paper and delayering so you have fewer layers of management. It was the primary focus of the plan. We will have 7,500 less supervisory and postmaster positions. We continue to consolidate facilities. We closed 30 already.
MCM: What is the status of the American Postal Workers Union contract, and other unions?
Corbett: We have a contract out for ratification. On the [National Rural Letter Carriers] contract, there will be nothing until the APWU is completed. We have discussions with them, but nothing is done. The letter carriers will expire in Nov. 2011. They are coming up soon, but not yet expired. The rurals expired Nov. 2010 as did APWU.
MCM:- The Postmaster General said he’ll push for five-day delivery. How much will this save?
Corbett: $3 billion a year.
MCM:- This figure is in dispute, and there is opposition to five-day delivery.
Corbett: Our costs are $30 billion on a fully loaded basis, we are taking one sixth of the days out. There are a lot of customers’ services we are not discontinuing as soon as we get it approved. We are confident.
MCM: Is it realistic to expect Congress to approve five- day delivery?
Corbett: It’s inevitable given the decline in first class mail. Delivery is 50% of that. Most of the reduction we’re talking about is reducing 130 full time equivalent positions, most reductions are from mail processing, and few are from letter carriers because of six days week. Now the next frontier has to be the mail carriers. The six-to-five day delivery would accommodate that. Whether or not it will happen this year, I’d prefer not to comment.