Bloomberg News

U.S. Postal Service to Cut 35,000 Jobs as Plants Are Shut

February 23, 2012

The U.S. Postal Service, which predicts an annual loss of $18.2 billion by 2015, plans to eliminate 5.4 percent of its workforce by closing almost half its mail-processing facilities to decrease costs.

The service plans to shut 223 of its 461 mail-processing plants by February 2013, Postmaster General Patrick Donahoe said in a telephone interview today. The closings will cut about 35,000 jobs, said David Partenheimer, a spokesman.

The service is shutting post offices and seeking congressional approval to end Saturday mail delivery as more people use the Internet to correspond and pay bills. Mail volume fell 6 percent in the quarter ended Dec. 31 and may drop 14 percent by 2016, led by declines in first-class mail, the most profitable, the Washington-based service said this month.

“We have capacity in our processing plants to process about double the letter mail we have in our system now,” Donahoe said.

The changes probably won’t affect United Parcel Service Inc. and FedEx Corp. (FDX) much because of differences in delivery schedules and prices, said David Vernon, a New York-based analyst with Sanford C. Bernstein & Co.

FedEx, UPS

“I wouldn’t expect a lot of volume to actually migrate,” Vernon said in a telephone interview.

The closings will save the service about $2.5 billion a year, Donahoe said. That’s down from an estimate of $3 billion in September, when the service said it was seeking to close 252 plants.

The service posted a $3.3 billion loss for the quarter ended Dec. 31. It had about 650,000 employees at the end of the year, the service said in a filing this month.

Most of the quarterly loss came from a U.S. law requiring the service to pay about $5.5 billion a year toward the health- benefit costs of future retirees. To date, the Postal Service has contributed $38 billion into the retiree health-benefit fund, Partenheimer said in an e-mail.

The agency had predicted it would reach its $15 billion debt limit last year until Congress deferred the 2011 retiree health benefit payment to this year. The Postal Service, which borrows only from the U.S. Treasury, said this month it has $2.1 billion in borrowing capacity this year.

Plants in Brooklyn and Staten Island, New York, Chicago and Los Angeles are among those approved for closing, according to a list posted on the Postal Service's website.

Operating Efficiency

The service wants the processing facilities to operate for 18 hours a day to improve efficiency, instead of the average 10 hours to 12 hours they run now, Donahoe said.

The labor cuts will occur through attrition, he said. The service will eliminate about 30,000 full-time jobs with benefits, Partenheimer said. It will cut about 5,000 temporary positions, which include contract and part-time work and don’t carry full benefits, he said.

The closings are needed to return the service to solvency so it can keep running, said the head of a postal-customer group whose members include JPMorgan Chase & Co. (JPM) and AT&T Inc. (T)

“The news that the Postal Service is finally doing something to eliminate the redundancies that have inflated the costs of its physical infrastructure is good news,” Association for Postal Commerce President Gene Del Polito said. “Eliminating needless and wasteful costs is the only way to ensure the continued viability of the nation’s postal system.”

The agency has closed 214 mail processing facilities since 2005, including 26 since the September announcement, according to data provided by Sue Brennan, a Postal Service spokeswoman.

No Approval Needed

While lawmakers led by Senator Bernie Sanders, a Vermont independent, are seeking to amend a postal bill moving through the Senate to prevent mail-processing plant closings, the service doesn’t need permission from Congress under current law.

While the Postal Regulatory Commission has an appeals process for people to challenge post-office closings, it doesn’t have a similar procedure for processing plants. Congress must approve changes such as cutting a delivery day or allowing the service to leave the federal employee health plan it’s currently using to manage its own benefits.

Congress should address the service’s mounting losses in ways that don’t require closing plants where the union’s members work, said Sally Davidow, a spokeswoman for the American Postal Workers Union.

“Congress can fix this,” Davidow said in a telephone interview. “They made this mess, they can fix it. That is what is killing the Postal Service.”

She declined to specify what the union would do to challenge the plant closings.

To contact the reporter on this story: Angela Greiling Keane in Washington at agreilingkea@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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