Validation of USPS Business Plan

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

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

In the absence of legislative reform that quickly enables meaningful operational changes and cost reductions, the Postal Service could incur annual losses as great as $18.2 billion by 2015, and accumulate a total debt of $92 billion by 2016. 

The comprehensive 5-year plan provides an achievable roadmap to long-term financial stability and independence from taxpayer support. It also provides for full repayment of $12.9 billion in debt USPS currently owes the U.S. Treasury.

A central tenet of the plan is that success is not dependent upon achieving a mix or subset of reforms. The scale  of the financial challenge requires that all the major elements be pursued concurrently and fully executed within a short window of opportunity.

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

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

The plan has been independently reviewed and analyzed by Evercore Partners, one of the nation’s leading independent investment banks and a prominent financial advisor on major corporate restructurings. Evercore Partners played an important role in analyzing Postal Service models and assumptions and validating the approach taken by management to develop the plan. The plan also reflects prior business model analysis from McKinsey & Company and revenue projections from the Boston Consulting Group.