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The check is not in the mail: Default looms for Postal Service

By EMILY STEPHENSON
July 31, 2012

Camila Rivera, 11, joins postal workers in a national day of protest last year against plans to close thousands of post offices, eliminate Saturday delivery, close mail processing facilities, cut service, and lay off 120,000 employees.
(REUTERS/Lucy Nicholson)

Mail industry companies are concerned about a looming default by the Postal Service on a $5.5 billion payment for future retiree health benefits, saying it adds to uncertainty about agency and helps speed the movement away from traditional mail.

The Postal Service has said for months that it could not afford to make the massive payment, which was originally due in 2011 but was delayed by Congress until August 1.

Congress has so far made no significant push to delay the health pre-payment again. Missing the payment, the first default in the agency’s history, would not cause interruptions in service or prevent the Postal Service from paying suppliers and employees, USPS spokesman David Partenheimer wrote in an email.

But the Mailing and Fulfillment Service Association said the approaching default raises questions about the Postal Service’s financial stability and Congress’s commitment to helping remedy the agency’s money woes.

“Each one of these deadlines that gets hit and missed, I think, creates a degree of uncertainty in the minds of those who make decisions about how they’re going to manage specific marketing campaigns,” said Ken Garner, president of the group representing mailers, printers and other mailing industry businesses.

“It just creates again this movement away from mail as a product,” he said.

The Postal Service, which lost $5.1 billion in fiscal year 2011 and relies on sales of stamps and other products rather than taxpayer funds, wants congressional permission for business changes that include an end to Saturday delivery and an end to the future retiree contributions.

The mail agency has said it also cannot afford a second retiree health prefunding payment due at the end of the 2012 fiscal year, in September, without legislative changes.

“The need for comprehensive postal reform legislation has never been more urgent,” USPS’s Partenheimer wrote.

CASH CRUNCH

Even with the defaults, the agency could face a cash shortfall of $100 million in mid-October, the Postal Service’s inspector general wrote in a memo to Postmaster General Patrick Donahoe dated last week.

But the agency will likely win a short reprieve through extra revenue from election-related mail that is expected to kick in about that time. Holiday mailing should also help get the agency through the winter, but cash is expected to be tight again starting in the spring of 2013, the memo said.

The USPS could save cash by suspending payments to a retirement account that already holds surplus funds, the report said. The USPS has said in financial documents that in the event of a shortfall, Congress likely would step in to keep the agency open.

As Americans have increasingly turned to online communication, the Postal Service has steadily lost money each year and has struggled to meet the annual, multi-billion-dollar retiree benefit payment obligations.

Lawmakers from both parties have said for more than a year that they planned to tackle legislation to overhaul the Postal Service and help return it to profitability, but the House of Representatives and the Senate do not appear close to a deal.

The Senate passed a bill in April that would spread the retiree health payments over more years, allow the Postal Service to end Saturday mail delivery, and let it use surplus funds in the retirement account to offer early retirement incentives as a way to reduce the workforce.

House leaders said last month they hoped to bring their own bill – which would keep the health pre-payments and create oversight groups to close facilities and cut costs – up for a vote before the summer recess. But a House vote has not been scheduled, and lawmakers leave at the end of this week until after the U.S. Labor Day holiday in early September.

“It’s well past time for House leaders to follow through on past assurances to hold a vote on a postal reform bill,” said Democratic Senator Tom Carper, one of the Senate bill’s authors.

SHIFT TO ONLINE

Most members of the mailing community believe Congress will eventually pass postal legislation. But many said they worry that the longer that takes, the more likely a postal overhaul could involve painful changes in service – facility closings, delivery delays or rate increases.

Meanwhile, the uncertainty has spurred some businesses’ efforts to look for ways to move transactions online, supplement direct mail communications with email and social networking, or branch out into new fields, industry insiders said.

“Those negative news stories are not unnoticed by major advertisers, by financial services companies, by other very, very large mailers who are looking at the months ahead in 2013 and thinking, ‘How should I commit my media dollars?'” said Ben Cooper, of the Coalition for a 21st Century Postal Service, which represents the private sector mailing industry and some 8 million workers.

“These are not good signals to the market,” he said.

The movement away from mail has already begun for some businesses. Banks including JPMorgan Chase and Bank of America have used the Postal Service’s struggles to encourage customers to take advantage of online services such as electronic money transfer options.

Dave Lewis, vice president of marketing at ProList in Gaithersburg, Maryland, said many of the associations he works with have stopped sending cards in the mail to remind people to renew memberships. Instead, they are sending the reminders by email.

L.F. Miller, president of Catawba Print and Mail in Hickory, North Carolina, said his company is moving away from primarily making its money on mailing services into on-demand printing and other offerings.

To be sure, mailers say the mail is still the best method of communication for many businesses. Emails can get caught in filters, and older Americans are not active on social networks. The Postal Service also works extensively with big mailers to keep them using the mail.

Don Jarred, vice president of production services for Aspen Marketing Services, said direct mail continues to be a major feature in clients’ marketing plans.

And Neil Metviner, chief marketing officer at OSG Billing, said that while some of his customers have expanded into electronic billing for convenience, he did not see his business changing as a result of fear about the Postal Service.

Even so, some mailers are eyeing alternatives.

“I don’t have faith in making money on the mailing side anymore,” Miller said.

(Editing by Vicki Allen and Tim Dobbyn)

Copyright © 2012 Thomson Reuters

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