The USPS is at a point where it does not have the financing available to maintain its operations. One reason for the annual net losses is due to the declining rate of first-class mail. The second reason has to do with the required prepayment of $5.5 billion per year toward retirees’ healthcare costs. In order for the USPS to overcome this deficit, they will need to consider their short time frame, government restrictions and labor union backfire in considering the best alternative. One alternative would be to privatize postal services operations which would allow the USPS to change its pricing structure, yet it would potentially significantly reduce market share. A second alternative would be to undergo a system-wide reorganization that would include reducing the number of working days from 6 to 5, reducing staffing by 25% through attractive retirement packages and putting a freeze on new hires and salary increases. While this alternative may have great short-term effects, the reorganization lacks long-term potential and may put the relationship with the labor unions at risk. The third alternative considered involved the expansion of online services. While other countries have experienced success in offering more electronic services, this alternative lacks the level of savings potential of the other two alternatives. After analyzing these three alternatives, it is recommended that the USPS move forward with the reorganization of its operations. This option can be implemented the fastest and has a large savings potential. Additionally, it is recommended that the USPS start to look for new ways to expand its services online, however, the main priority should be to trim its expenses. If the USPS is not successful with the recommended action plan, the USPS should start taking action to privatize its operations. While this contingency plan could take years before the actual plan can be put into motion, the savings potential will be quite large for the USPS. Situation Analysis
Current Postal Service Operations
The United States Postal Service (USPS) is currently one of the largest civilian employers and has been around as long as the United States has been an independent country. With more than 570,000 employees, the USPS operates six out of the seven days of the week and delivers on average 563 million pieces of mail. However, as more people are using email and other electronic modes for communication, fewer letters and packages are being sent through the USPS. In fact, total mail volume fell by 20% between 2006 and 2010 and it does not appear that the trend will change in the future. In fact, USPS estimates that total mail volume will continue to decline from 171 billion pieces in 2010 to somewhere between 118 billion and 150 billion pieces of mail in 2020.
Since the cost of mailing a letter is set at a fixed price of 44 cents per stamp, a letter two houses away will cost the customer the same price as if the letter would be mailed across the country. Also, as the population grows and the number of houses increases with new construction, the number of address the USPS must serve increases while holding constant the price of postage. Furthermore, while first-class mail had funded most of its operations in the past ($34 billion in 2010), junk mail revenue has increased by 7.1% in the last quarter of 2010 (Postal Facts, 2011).
Evidence of the decline of first-class mail can be been seen across the financial information for USPS. While its revenues totaled about $67 billion in 2010, its expenses were even higher at $75 billion. As seen in Appendix A, revenue has been decreasing at an average rate of 3% per year, at the same time that expenses are decreasing by 2%. In 2010, total loss from operations came to $8.374 million and a total net loss of $8.505 million. As long as the expenses are greater than the revenues, USPS will continue to operate in a deficit.