As described in our quarterly reports on Form 10-Q and updated here, the Postal Service has taken a number of actions to reduce cash outflows and increase cash inflows.
In 2009, the Postal Service achieved $6.1 billion in cost savings, including a reduction of 115 million workhours. This is in addition to the $2.2 billion in cost reductions achieved in 2008, when we reduced workhours by 50 million. We have targeted the elimination of approximately 90 million additional workhours in 2010.
Working with the National Association of Letter Carriers, we reached an agreement that established a new process for evaluating and adjusting city delivery routes, resulting in a quickly implemented procedure to reflect workload reduction. The accelerated route adjustment process covers all city delivery routes and is being implemented during calendar year 2009. Ultimately, it involved two separate evaluations of approximately 150,000 city delivery routes and will help to achieve workhour reduction targets in 2010.
We reduced the authorized staffing complement at national headquarters by 15% and are taking similar actions in the field, having closed six district offices and one area office. The authorized complement at area offices has been reduced by 19%. In August 2009, we offered incentives to union employees represented by the APWU and NPMHU to retire or resign. As of September 30, we had approximately 13,400 employees accept the offer. By October 31, that number had grown to 20,150. Net savings are expected to be approximately $500 million in 2010. Other cost-containment efforts include freezing the 2009 salaries of all Postal Service officers and executives at 2008 pay levels and reducing travel spending by 40%.
We are also continuing to pursue efforts to consolidate excess capacity in mail-processing and transportation networks without adversely impacting service. This will allow us to maximize operational efficiency and capitalize on the economies of scale associated with advances in automated mail processing. In addition, we have placed a halt on the construction of most new facilities. The limited facilities funds that are now available are being directed only to those sites with the most critical needs.
In Quarter II, 2009, the Postal Service initiated an effort to reduce the cost of existing contracts for supplies and services. The initiative targeted over 500 existing contracts for renegotiations that will deliver both short- and long-term cost reductions in the areas of price, scope and process improvements. Through the end of 2009, we have achieved approximately $475 million in savings from this initiative and we expect another $650 million by the end of 2011.
We have also taken steps to build our business. We realigned our product management organizational structure in 2008, creating a new Mailing and Shipping Services division that will help bring new products to market more quickly and effectively. We also created a dedicated sales force to exclusively promote expedited shipping services.
We have created a number of price and volume incentives to promote volume growth from large and medium shippers. These include an incentive program for saturation mailers and a summer sale for Standard Mail that was in from effect July 1 through September 30, 2009. In May 2009, we launched a new national advertising campaign promoting the value of our Priority Mail Flat Rate boxes. The campaign is successfully creating product awareness and stimulating new business, as indicted by the strong Priority Mail revenues and volumes, relative to our other services.
In 2009, we requested that Congress consider two changes to the laws governing the Postal Service. First, we asked to restructure our payments for retiree health benefits. The result was P.L. 111-68 which reduced our 2009 payment to the PSRHBF by $4 billion but did not address our longer term PSRHBF payment schedule.
Second, we asked Congress for the flexibility to suspend the six days per week delivery requirement, in order to better match our network and fixed costs to current and expected volumes. This flexibility would allow us to continue to deliver high quality service at affordable prices to the American public, while regaining financial stability and positioning ourselves for the future. Specifically, we have requested that Congress remove the annual appropriation bill rider, first added in 1983, that effectively requires the Postal Service to deliver mail six days each week. No savings are anticipated for 2010 from the proposed ability to adjust the six-day delivery requirement, if granted. Multiple operational, contractual and customer issues would need to be resolved before actual implementation of a five-day delivery schedule. However, such important new flexibility would provide significant cost savings opportunities, beginning as early as 2011.
Since P.L. 111-68 did not address the longer term issues of scheduled PSRHBF payments beyond 2009 or the six-day delivery requirement, we will continue to update Congress on these ongoing management and liquidity challenges.
Our ability to generate sufficient cash flows to meet obligations is substantially dependent on the speed and strength of the economic recovery, and our ability to execute strategies to increase efficiency, reduce costs and generate revenue. If granted, the increased flexibility from Congress, discussed above, would allow us to reduce costs beginning in 2011, and improve our cash position without significantly diminishing service to customers. However, no assurance can be given that our efforts will be successful or that Congress will enact additional legislation in time to impact 2010, or at all.
In light of the above issues, in July 2009 GAO listed the Postal Service as one of its “high risk” government agencies. In its report, Restructuring the U.S. Postal Service to Achieve Financial Viability, GAO cited our mounting losses, increasing debt levels and inability to cut costs fast enough to offset the accelerated decline in mail volume and revenue. To achieve financial viability, GAO suggests that the Postal Service develop and implement a broad restructuring plan which includes many of the initiatives mentioned above. GAO suggests the following:
GAO also notes that many of these initiatives require Congressional support.
The following table illustrates our scheduled cash flow obligations in future years, including payments under revolving credit lines.
Schedule of Cash Flow Obligations (dollars in millions)
|
Payments Due
|
|
2010
|
2011–2012
|
2013–2014
|
After 2014
|
Total
|
Notes Payable
|
$3,675
|
$—
|
$300
|
$6,225
|
$10,200
|
Interest Payments
|
153
|
306
|
303
|
1,585
|
2,347
|
Capital Lease Obligations
|
99
|
196
|
180
|
441
|
916
|
Operating Lease Obligations
|
762
|
1,348
|
1,097
|
4,339
|
7,546
|
Retiree Health Benefits (PSRHBF)
|
5,500
|
11,100
|
11,300
|
11,500
|
39,400
|
Total
|
$10,189
|
$12,950
|
$13,180
|
$24,090
|
$60,409
|
