The U.S. Postal Service may be using innovation and entrepreneurial strategies to make inroads against private carriers but it doesn't appear to be making inroads on the bottom line.
The USPS is forecasting a significant loss in the new fiscal year despite projected boosts in rates and revenue.
But postal officials say they are trying to match the gains in volume and revenue with improved efficiency and productivity under a new five-year strategic plan.
USPS Chief Financial Officer and Executive Vice President Richard J. Strasser told the USPS Board of Governors the Postal Service is likely to lose about $1.8 billion in the new fiscal year that began Oct. 1 despite implementing a 5.4 percent postage rate hike in January. The organization will seek board approval for the increase in November.
USPS is already speculating about the need for another rate increase in 2007, Postal Service spokesman Jim Quirk said.
"The customers have told us … they want regular rate increases … and we are trying to come up with a design" that will yield predictable, "moderate regular increases" that account for growing costs, he said.
Higher operating costs and the requirement to fund a $3.1 billion escrow account are driving the loss this fiscal year, Strasser said. "We project revenue of $72.3 billion, an increase of 3.4 percent, to be offset by a like percentage increase in expense."
The postal service plans to reduce costs by "$1.1 billion, including work hour reductions of 42 million hours," Strasser said.
However, the organization said it also plans to commit $2.9 billion for capital investment, including $1.6 billion for equipment projects that will provide eventually a return on investment.
The spending reflects the priorities outlined in the "Strategic Transformation Plan 2006-2010," approved by the Board of Governors last month. USPS said the plan represents the next phase of the original transformation plan launched three years ago.
"Transformation became the watchword of the Postal Service in 2002," said Postmaster General John E. Potter. "Our goal was to position the Postal Service to navigate a dynamic market environment and communications landscape successfully. The results speak for themselves … We have reduced costs and increased productivity."
USPS has also, especially this year, increased its volume and revenue. In August, overall shipment volume increased 5.9 percent year over year and revenue 4.7 percent pushing the volume up 2.9 percent and revenue 1.2 percent for the first eight months of the year.
The USPS made impressive inroads into services strongholds of the integrated carriers.
Priority Mail volume was up 10.3 percent year over year in August with revenue climbing 10.7 percent, while Express Mail volume was up 8.3 percent and revenue increased 8.1 percent over the same period last year.
"Over the past year … the U.S. Postal Service, through a renewed management focus, has raised its game and become more competitive," said Morgan Stanley analyst Jim Valentine.
In its new five-year plan, the Postal Service pledged to remain focused on its core business and strategies that produce results, Potter said.
"We will continue to reduce costs by improving efficiency in all our operational and business processes. We will bring service performance to even higher levels … (and) use the best technology to make the mail a rich source of information both for our customers and our operations managers," Potter said.
Ed McKenna
