Validation of USPS Business Plan

USPS has released an important update to itsbusiness plan for returning to profitability and long-term financial stability.While fundamentally consistent with the approach advanced by the Postal Serviceover the past year, the update incorporates important refinements of financialprojections and recommended legislative reforms.

At its core, the plan requires the reduction ofannual costs by at least $20 billion by 2015, rising to more than $22 billionby 2016. This cost reduction is necessary given projected declines inFirst-Class Mail volume, which already has dropped by 25 percent since 2006.However, the Postal Service can achieve only a portion of these reductionsunder current business model constraints; legislative changes are needed toachieve the full $20 billion in cost reductions.

In the absence of legislative reform thatquickly enables meaningful operational changes and cost reductions, the PostalService could incur annual losses as great as $18.2 billion by 2015, andaccumulate a total debt of $92 billion by 2016. 

The comprehensive 5-year plan provides anachievable roadmap to long-term financial stability and independence fromtaxpayer support. It also provides for full repayment of $12.9 billion in debtUSPS currently owes the U.S. Treasury.

A central tenet of the plan is that success isnot dependent upon achieving a mix or subset of reforms. The scale  of the financial challenge requires that allthe major elements be pursued concurrently and fully executed within a shortwindow of opportunity.

Among the major legislative reforms recommended,the most significant include enabling the Postal Service to provide employeehealth benefits independent of federal programs ($7.1 billion annual costreduction), and transitioning to a national five-day delivery schedule ($2.7billion annual cost reduction).

The Postal Service also is aggressively pursuingthe realignment of its mail processing, retail and delivery operations, whichis expected to yield more than $8.1 billion in annual cost reduction.Additionally, the Postal Service is seeking other significant cost reductionsand is continuing efforts to grow or retain revenues within its current businessmodel.

The plan has been independently reviewed andanalyzed by Evercore Partners, one of the nation’s leading independentinvestment banks and a prominent financial advisor on major corporaterestructurings. Evercore Partners played an important role in analyzing PostalService models and assumptions and validating the approach taken by managementto develop the plan. The plan also reflects prior business model analysis fromMcKinsey & Company and revenue projections from the Boston Consulting Group.