U.S. Postal Service Faces Bankruptcy

Posted by Kate Norfolk On Tuesday, December 6th 2011 in Business

It is actually not much of a surprise that the U.S. Postal Service is facing bankruptcy. The agency has been trying for some time now to become leaner and reduce costs on wasteful operations.

An independent government agency, the U.S. Postal Service has been struggling for the past five years to fight risks of a huge default. Analysts expect it to have a record loss of $14.1 billion in 2012, but management hopes that cost cutting measures will prevent that.

Postmaster General Patricks Donahoe explained: “We have a business model that is failing. You can’t continue to run red ink and not make changes”.

As a result, the agency announced it plans to cut $20 billion by 2015 to be profitable. One of the most important changes is ending next-day delivery of letters, postcards and other First Class mail. This means that you will have to send your letters and postcards at least two or three days ahead of your grandmother’s birthday.

About 42 percent of first-class mail is now delivered the following day. An additional 27 percent arrives in two days, about 31 percent in three days and less than 1 percent in four days to five days. Following the change next spring, about 51 percent of all first-class mail is expected to arrive in two days, with most of the remainder delivered in three days.

According to officials with the U.S. Postal Service, reduction in expenses would be about $3 billion after shrinking its network. The agency also plans to eliminate about 28,000 jobs as part of the processing facilities plan, while 252 processing sites could be closed.

David Williams, USPS vice president for network operations, said: “The fact of the matter is our network is too big. We’ve got more capacity in our network than we can afford”. In the end, the agency has to set the “network up so that when volume continues to drop, our network is nimble and flexible enough to respond to those volume losses”.

Williams adds that the network isn’t the only one to blame. Technological improvements are now available to everyone. A market research showed that many customers do not expect overnight delivery of letters sent outside their towns or zip codes. Customers “are already choosing speed. They’re choosing electronic bill payment, they’re choosing electronic communication via the Internet and email”, explains Williams.