Planning for Higher Volume Is Risky

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Realizing that postal reform legislation is at least a couple years away, and its effect even more distant, the U.S. Postal Service has begun tackling its cost structure. In his statement at the Sept. 6 Board of Governors meeting, postmaster general John E. Potter reported that the field management structure has been realigned, administrative staff has been reduced and headquarters staff will be reduced by 800 positions.

With the bulk of the reductions occurring in field operations, overall employment has been cut an impressive 23,000, mostly through attrition.

As a result, the USPS expects to finish fiscal year 2002 with a loss of less than $1 billion, Potter announced at last week's Fall 2002 Postal Forum in Boston, compared with an earlier projection of $1.35 billion. Chief financial officer Dick Strasser reported a rosier view for FY 2003, projecting net income of $600 million.

The income forecast results from the full-year impact of the June 30 rate increase, further workforce reductions and a projected 1.9 percent rise in mail volume, reversing the volume decline in 2002. Given these projections, Potter renewed his pledge that the current rate structure will remain in place into 2004.

The USPS profit projection will affect several quarters. Movement, however slow, toward reform legislation will become less likely. It also will mean that many in the postal service will feel an easing of pressure to reduce expenses.

But I'd like to discuss the projected increase in mail volume, which the USPS estimates will reach 205.7 billion pieces next year.

Forecasting mail volume is difficult, and even more so after Sept. 11, 2001. To start, let's look at what happened to volume in the postal service's 2002 first fiscal quarter, September-November 2001. Mail volume fell 5.5 percent, with First Class down 2.3 percent and Standard A down 9 percent. Though this dramatic downturn was due largely to Sept. 11 and anthrax, the decline has continued through the year. In the third fiscal quarter, Feb. 23-May 17, First Class volume declined 1 percent and Standard A volume was off 3.5 percent.

The growth rate for First Class averaged about 2 percent during the 1990s. So has the often-predicted long-term decline in First Class begun? We don't know the answer, but we do know some things:

· In 2001, for the second consecutive year, the number of checks processed by the Federal Reserve System declined.

· In 2002, nearly 17 million U.S. households will pay some bills online, up 41 percent from 2001.

It's obvious that electronic bill presentment and payment are increasing. It also seems that the economic downturn is not ending so soon. The recession in all forms of advertising, including direct mail, continues unabated. Therefore, the forecasted mail volume increase for next year may be too optimistic.

To meet the FY 2003 forecast, the postmaster general may need to make a deeper cut with his scalpel. The cost-cutting route to prosperity may not end for some time.

Regarding cost cutting, several items have come across my desk that might be worth postal investigation, including:

· Workers' compensation. Spending on workers' compensation for the first 11 months of FY 2002 was $1.37 billion, up from $892.3 million for the same period last year. It's amazing that workers compensation accounts for almost 3 percent of total personnel expense.

· Telemarketing fraud. The postal service and the FTC are jointly involved in publicizing "National Fraud Against Senior Citizens Awareness Week." As part of their efforts, the USPS Inspection Service so far this year has shut down 80 deceptive mailing operations. The Inspection Service also has shut 40 illegal telemarketing operations.

I'm just as against telemarketing fraud as I am against stock fraud. But why should these investigations be the responsibility and expense of the USPS and not the Justice Department?


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