TOPICS > Economy

U.S. Postal Service Faces Big Changes Amid Struggle to Deliver on Profitability

December 5, 2011 at 12:00 AM EDT
The likelihood that a stamped letter could reach its destination by the next day will be virtually eliminated due to billions in U.S. Postal Service cuts announced Monday. Postmaster General Patrick Donahoe joins Gwen Ifill to discuss the cuts and what's next for the postal service and its customers.

GWEN IFILL: The U.S. Postal Service formally announced cuts in postal service today that will affect how millions send and receive mail as soon as next spring. It was a bid to save money, as the agency tries to reverse its increasingly desperate financial situation.

Come next spring, that first-class letter will take a bit longer to get where it’s going. Almost half of the nation’s mail processing centers, 252 of them, will be shut down. That, in turn, will virtually eliminate the chance that a stamped letter could arrive the next day.

MAN: I think it’s sad, but I think it’s a necessary cost-saving step, from what I understand about the post office’s finances.

MAN: I’m probably a Neanderthal in the fact that I use it to pay for my bills and things. But I know that, in this day of the Internet and e-transactions, that the post office is perhaps a dinosaur.

GWEN IFILL: It’s all part of a wide-ranging bid by the Postal Service to save $2 billion next year and $20 billion by 2015.

Postmaster General Patrick Donahoe announced the cuts in Washington today.

PATRICK DONAHOE, U.S. Postmaster General: Hey, the American public pays bills online. More than 50 percent do today. We can’t sit back and wait for another five or six or 10 years before we make these changes.

GWEN IFILL: David Williams is vice president of network operations for the Postal Service. He says the agency has to respond to the steady drop in first-class mail volume.

DAVID WILLIAMS, Vice President of Network Operations, U.S. Postal Service: The Postal Service, if it continues to lose $8.5 billion, $10 billion — this year, we’re projecting a $14 billion loss if we don’t get legislative relief. So we have to do what’s within our control to put the Postal Service on sound financial ground.

GWEN IFILL: The cuts outlined today do not need congressional approval, but others would, from reducing delivery to five days a week, to cutting employee health care costs.

The Postal Service also plans to close nearly 3,700 local post offices, among them Philadelphia’s original Ben Franklin post office. Franklin founded what has evolved into today’s Postal Service in 1775.

All told, with the cuts announced today, plus those proposed, nearly 100,000 jobs are on the line.

Joining me now to discuss these changes is U.S. Postmaster General Patrick Donahoe.

Welcome to the program.

We heard the vice president of the Postal Service today talk about excess capacity and that the closings of these service centers are about reducing capacity. Could you define that for us?

PATRICK DONAHOE: Well, the way we sort mail today, Gwen, is we have got 485 — 487, to be exact, facilities across the country.

And these facilities sort mail in a 24-hour time frame, but we really only use them about 12 hours of the day. What we’re looking to do to save money, well over $2 billion, is to consolidate a substantial number, so that we’re operating them on a 20-hour window.

GWEN IFILL: So, is that proposal, is that what is driving — that excess capacity, is that what is driving this $14 billion projected loss that you’re talking about today?

PATRICK DONAHOE: What’s happened is this.

America’s mailing habits have changed. As you can see, we were talking today about the fact that, in the year 2000, 5 percent of people paid bills online. Today, 60 percent pay bills online. And when you combine that with the loss that we have seen in advertising mail as part of the recession, we have lost about 23 percent of our total volume, 27 percent of first-class mail.

First-class mail pays the bills in our organization. So when you lose that much — and we take no taxpayer money — we have got to do other things, like consolidating facilities, reducing the number of routes we have out there, in order to close that gap.

GWEN IFILL: Now, when most people think of the post office, they think of their local post office or they think of that blue box on the corner. They don’t think about mail processing centers.

What’s the distinction for the average user of your service?

PATRICK DONAHOE: Well, we have a big network. We have a network that covers the entire country. As a matter of fact, it goes up to Alaska, Hawaii, Puerto Rico. And we have got these large processing facilities, 487 of them total.

And then we have got another 32,000 post offices that receive mail every day from these facilities. Our network works on a 24-hour basis. We ship mail around the country. And what we’re doing is, we’re looking, since we have lost the volume, to try to squeeze down that network, like any other responsible business would.

GWEN IFILL: But when I drop a piece of mail into a blue box, is it not going to get there now, or is it not going to get there until next week now, under these new cuts?

PATRICK DONAHOE: It all depends. If you’re mailing something — if you’re mailing something in the Northern Virginia area going over to Washington, D.C., it would be a — in the blue mailbox, it would be two days.

If you’re mailing it from Northern Virginia to San Francisco, it would be three days. Right now, we have an overnight service for the blue mailbox mail. That is going to be going away. We still will be delivering commercial first class overnight. People can bring their volume into us, into our facilities by noon, and they’d get delivery over a larger delivery territory.

So there will be some improvements in service in that area.

GWEN IFILL: How much is the post office switching from a consumer, individual consumer service and into more of a corporate service for direct mail or for people who are sending magazines, rather than for people who are sending cards in the mail at Christmastime?

PATRICK DONAHOE: Probably about 75 percent of our business today is corporate, whether it’s first-class mail bills that you receive at your house or statements from a mutual fund, advertising mail, and packages.

And the packages are growing. Priority mail last year went up 5 percent. Our portion of what you would call the e-commerce mail, the last mile that we — we deliver a lot of mail from FedEx and UPS — that’s grown 15 percent. So we have some areas that are growing.

But we have areas that are shrinking due to people paying bills online. We just have to adjust.

GWEN IFILL: So people who are sending holiday packages to grandma over the river and through the woods, are those packages going to get there this holiday season?

PATRICK DONAHOE: Those packages will be fine, the more the merrier. Bring them all in here. We have a great priority mail network. We can deliver not only across the United States. We do a great job mailing packages if you’re sending them overseas to the troops in Iraq and Afghanistan.

GWEN IFILL: Now, there’s been a lot of talk also in recent months about ending six-day-a-week delivery, basically wiping out Saturday deliveries. Is that part of this proposal?

PATRICK DONAHOE: Here’s where we are from a Postal Service standpoint.

We have got to reduce our operating expense by $20 billion. We’re self-sufficient. Our volumes are down. And when you look ahead, we see the volume continuing to drop off, especially in first-class mail. So we have got a plan to take $20 billion out of the expenses in the organization, employee retiree health benefits $5.5 billion. Six-day to five-day delivery, for delivery only keep the post offices open on Saturday, that’s worth $3 billion.

I need congressional help on those two things. I need Congress to act and act quickly. That helps towards the $20 billion reduction that we need to put in place.

GWEN IFILL: So the things you’re announcing today are things you can do without Congress?

PATRICK DONAHOE: Things we’re doing today, this is — we can do networks. We can do post offices. We can reduce the number of delivery routes out there.

We also are in negotiations with some of our largest unions to work through to get better wage rates and a little bit more flexibility. These are all things that we can take care of ourselves. Like any other business, we will do those. Where I need the help is with the retiree health benefits and the six- to five-day.

GWEN IFILL: So this is not the end of the cuts you’re going to be making? I just want to be clear. There’s another round, if Congress cooperates, down the road?

PATRICK DONAHOE: Yes, we have got to do this to get ourselves back on good financial footing.

When you look ahead, the Postal Service will be an organization that delivers first-class business mail, advertising mail and packages. We know that. We know what the volumes look like pretty closely. What we have got to do is just make sure that we have got the right infrastructure, an infrastructure that we can afford to provide that service.

GWEN IFILL: What’s the difference between where you are now and bankruptcy?

PATRICK DONAHOE: Well, if you — right now, we have got $15 billion in debt. And we theoretically owe about $5 billion more for the retiree health benefits.

We do not have the money to make that payment. If we were a private firm, we would be bankrupt. But the government has given us a pass on that right now, pending resolving this legislation. We can get our finances in order from a cost standpoint. Plus, we’re also owed back about $11 billion of overpayments into one of our retirement funds. That will put us on pretty good financial footing.

GWEN IFILL: U.S. Postmaster General Patrick Donahoe, thank you so much for joining us.

PATRICK DONAHOE: Thank you, Gwen.