Postal Service to close processing plants this summer

  HOPE YENWASHINGTON -- The nearly bankrupt U.S. Postal Service is moving forward with a multibillion-dollar cost-cutting plan that will close nearly 250 mail processing centers, saying on Thursday it can no longer wait as Congress remains deadlocked over how to help.

At a news briefing, Postmaster General Patrick Donahoe said the agency's mail processing network had simply become too big, given declining first-class mail volume and mounting debt. It will now consolidate nearly 250 plants as originally proposed, including 48 this summer, but will stretch out the remainder over a longer time frame in 2013 and 2014.

Earlier this month, nearly half the Senate had written letters to Donahoe asking that he hold off on closing any mail facility until Congress could pass final postal overhaul legislation. The Senate last month passed a bill that would halt many of the closings. The House remains stalled over a separate postal measure allowing for more aggressive cuts.

"To return to long-term profitability and financial stability while keeping mail affordable, we must match our network to the anticipated workload," Donahoe said. Failure to do so, he stressed, would "create a fiscal hole that the Postal Service will not be able to climb out of."

Under the modified approach, up to 140 processing centers will be consolidated by next February - roughly 48 in August and about 90 next January and February. Closings would be suspended during the Postal Service's busy election and holiday mail season. Another 89 closings would occur in 2014.

The consolidations are initially expected to reduce postal staff by 13,000 and save the struggling mail agency roughly $1.2 billion annually. By the time the full round of cuts is implemented by late 2014, the post office will have 28,000 fewer employees with estimated annual savings of $2.1 billion.

The latest postal move comes after vociferous protests from communities across the U.S., particularly those in rural areas, over the mail agency's initial multibillion dollar cost-cutting plan to close up to 3,700 post offices and 252 mail processing centers. The Postal Service last week backed off the closing of post offices, saying it would cut costs instead by reducing operating hours in 13,000 mostly rural locations.

Thursday's announcement seeks to allay consumer concerns about immediate, broad-scale cuts to mail processing centers that would have slowed first-class mail delivery of prescription drugs, newspapers and other services beginning this summer and would have virtually eliminated the chance for a stamped letter to arrive the next day.

Under the new plan, about 80 percent of the U.S. areas that currently enjoy overnight first-class mail delivery will continue to do so through the end of next year. After that, barring congressional action, the Postal Service will proceed with additional steps that could slow first-class mail and reduce overnight delivery more significantly, said Megan Brennan, chief operating officer of the Postal Service.

The Postal Service has been grappling with losses as first-class mail volume declines and more people switch to the Internet to communicate and pay bills. The agency has forecast a record $14.1 billion loss by the end of this year. Without changes, it said, annual losses would exceed $21 billion by 2016.

Donahoe stressed that even with the mail agency's latest moves, it still faces mounting losses without congressional action that would give it more leeway to eliminate Saturday mail delivery and reduce health and labor costs.

If the House fails to act soon, postal officials say they will face a cash crunch in August and September, when the agency must pay more than $11 billion to the Treasury for future retiree health benefits. Already $13 billion in debt, the health payment obligation will force the agency to run up against its $15 billion debt ceiling, causing it to default on the payments.

In many sprawling rural areas like Hope, Alaska, residents say they would have to drive nearly 100 miles for mail services in Anchorage if their local post office couldn't stay open long enough. Timely delivery from mail processing centers is also particularly valued in the winter months, when hazardous road conditions can make travel to a store or pharmacy difficult if not impossible.

"My wife's medical plan is basically that prescription drugs are mailed to her," said Doug Pope, a semi-retired lawyer who lives near Hope, an old gold rush town where the post office faces reduced hours. "There's a lot of people who will be here for months without going to Anchorage."

Pope says he's willing to accept moderate postal cuts, explaining that he's not sure what else can be done and whether politicians in Washington will do anything about it.

"I do think it's a sign of a larger, more worrisome trend to me that instead of trying to focus on our larger issues in our society, what we're trying to do is nickel and dime people on sort of the downstream end of everything," he said. "But that's a political issue."

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Associated Press writer Mark Thiessen contributed to this report from Hope, Alaska.

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Postal cutbacks to delay 1st-class mail

  By HOPE YENWASHINGTON -- Utility bills are paid, legal briefs are filed and the Christmas shopping all gets done online. But for magazines, clothing catalogues and movies, the mail still matters.

For some mail-dependent businesses, quick and cheap first-class mail service from the U.S. Postal Service is still the best way to reach prospective customers and subscribers. And for many, it's still an important way to get paid.

The Postal Service, which has been losing money for five years, said Monday that it is shuttering more than 200 mail processing centers, adding at least a day's wait for many first-class deliveries. The news was met with concern and frustration from some businesses - and shrugs from others that long ago stopped relying on the post office.

"It's less of a disaster than it would have been 10 years ago, but it'll be a cash flow crunch for some companies," said Todd McCracken, president and chief executive of the National Small Business Association. "It'll be longer to get your invoice, and longer to get a check back."

First-class mail is supposed to arrive at U.S. homes and businesses in one to three days; about 42 percent of it arrives in one day. The cutbacks will back up deliveries to two to three days; periodicals could take up to nine days.

Cookie Driscoll of Fairfield, Pa., designs and sells decorative animal stickers to gift shops. She uses the Postal Service for almost all deliveries because prices are low and predictable, and delivery is fast. She also receives most of her income by paper checks through the mail.

"The trickle-down effect of this is going to be frustrating," she said. "It's not going to put me out of business but it's an irritant. Every time small businesses turn around we get hit with something else."

The change could represent an operational headache for L.L.

Bean, which mails 250 million catalogues a year to sell outdoor clothing and equipment. Now the company knows the day its catalogues will arrive in homes, and it can put on extra staff at call centers on the appointed day. It won't be able to do that anymore.

"We are increasingly concerned about any proposal that would degrade the level of service such as greater variability in delivery deadlines," said Carolyn Beem, an L.L. Bean spokeswoman.

Most Netflix customers who subscribe to the company's DVD-by-mail service watch movies on the weekends and should still be able to return movies Monday and have new ones on Friday, according to Michael Pachter, an analyst at the investment firm Wedbush. But other users will notice a delay, he said.

Netflix - one of the Postal Service's biggest customers, with expenses of up to $600 million a year - has repeatedly warned in regulatory filings that any Postal Service cutbacks that delay its DVD-by-mail deliveries will make it more difficult to keep subscribers happy. And, with encouragement from Netflix, customers are already abandoning mail service for movies delivered online.

But for many companies, the changes will have no effect. Some have already stopped relying on the Postal Service, moving online for billing or to overnight companies FedEx Corp. and United Parcel Service Inc. for critical deliveries. First-class mail volume is 78 billion per year, down from a peak of 104 billion in 2001. It is projected to drop by roughly half by 2020.

The healthcare company Medco said in a statement that it did not expect the postal changes to have a major effect on its business, although the online drug distributor used the Postal Service to send most of its 110 million drug shipments last year.

Keith Ashmus, an attorney at Frantz Ward in Cleveland, said his office can now file pleadings and motions electronically, so it sends far less mail than it used to. Documents served by mail are allowed three days to arrive, which means there will still be enough time for delivery by first class even with the changes.

In some cases, magazine publishers and other bulk mailers who drop off shipments at processing centers that remain open may be able to get their materials delivered the next day.

A spokesman for the MPA-the Association of Magazine Media, a magazine trade group, said the changes may cause printing and transportation problems for weekly publications.

The service changes will almost certainly send more business activity online and to FedEx and UPS.

David Ross, a transportation analyst at investment firm Stifel Nicolaus predicts the new business from postal cutbacks will stem the losses FedEx and UPS saw in overnight document deliveries during the recession.

The 28,000 job cuts announced by the Postal Service likely won't make a big difference to the economy or job market, economists say.

Private delivery companies will probably get more business as the Postal Service cuts back.

"It adds to the fear about higher unemployment and inadequate job growth," said Jonathan Basile, an economist at Credit Suisse.

But when the cuts are spread over several months, in an economy with about 140 million jobs, there won't be a large impact, he said.

Postal Service employment has been declining for years. The service has cut more than 30,000 jobs in the past year, the government's Friday employment report showed.

Postal Service employment peaked at 909,000 in 1999 and has declined steadily since, falling to 612,400 last month.

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AP Business Writers Samantha Bomkamp in New York, Hope Yen and Christopher S. Rugaber in Washington and Michael Liedtke in San Francisco contributed to this report.

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Postal cuts to slow delivery of first-class mail

  By HOPE YENWASHINGTON -- Facing bankruptcy, the U.S. Postal Service is pushing ahead with unprecedented cuts to first-class mail next spring that will slow delivery and, for the first time in 40 years, eliminate the chance for stamped letters to arrive the next day.

The estimated $3 billion in reductions, to be announced in broader detail on Monday, are part of a wide-ranging effort by the cash-strapped Postal Service to quickly trim costs, seeing no immediate help from Congress.

The changes would provide short-term relief, but ultimately could prove counterproductive, pushing more of America's business onto the Internet. They could slow everything from check payments to Netflix's DVDs-by-mail, add costs to mail-order prescription drugs, and threaten the existence of newspapers and time-sensitive magazines delivered by postal carrier to far-flung suburban and rural communities.

That birthday card mailed first-class to Mom also could arrive a day or two late, if people don't plan ahead.

"It's a potentially major change, but I don't think consumers are focused on it and it won't register until the service goes away," said Jim Corridore, analyst with S&P Capital IQ, who tracks the shipping industry. "Over time, to the extent the customer service experience gets worse, it will only increase the shift away from mail to alternatives. There's almost nothing you can't do online that you can do by mail."

The cuts, now being finalized, would close roughly 250 of the nearly 500 mail processing centers across the country as early as next March. Because the consolidations typically would lengthen the distance mail travels from post office to processing center, the agency also would lower delivery standards for first-class mail that have been in place since 1971.

Currently, first-class mail is supposed to be delivered to homes and businesses within the continental U.S. in one day to three days. That will lengthen to two days to three days, meaning mailers no longer could expect next-day delivery in surrounding communities. Periodicals could take between two days and nine days.

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.

The consolidation of mail processing centers is in addition to the planned closing of about 3,700 local post offices. In all, roughly 100,000 postal employees could be cut as a result of the various closures, resulting in savings of up to $6.5 billion a year.

Expressing urgency to reduce costs, Postmaster General Patrick Donahoe said in an interview that the agency has to act while waiting for Congress to grant it authority to reduce delivery to five days a week, raise stamp prices and reduce health care and other labor costs.

The Postal Service, an independent agency of government, does not receive tax money, but is subject to congressional control on large aspects of its operations. The changes in first-class mail delivery can go into place without permission from Congress.

After five years in the red, the post office faces imminent default this month on a $5.5 billion annual payment to the Treasury for retiree health benefits. It is projected to have a record loss of $14.1 billion next year amid steady declines in first-class mail volume. Donahoe has said the agency must make cuts of $20 billion by 2015 to be profitable.

It already has announced a 1-cent increase in first-class mail to 45 cents beginning Jan. 22.

"We have a business model that is failing. You can't continue to run red ink and not make changes," Donahoe said. "We know our business, and we listen to our customers. Customers are looking for affordable and consistent mail service, and they do not want us to take tax money."

Separate bills that have passed House and Senate committees would give the Postal Service more authority and liquidity to stave off immediate bankruptcy. But prospects are somewhat dim for final congressional action on those bills anytime soon, especially if the measures are seen in an election year as promoting layoffs and cuts to neighborhood post offices.

Technically, the Postal Service must await an advisory opinion from the independent Postal Regulatory Commission before it can begin closing local post offices and processing centers. But such opinions are nonbinding, and Donahoe is making clear the agency will proceed with reductions once the opinion is released next March.

"The things I have control over here at the Postal Service, we have to do," he said, describing the cuts as a necessary business decision. "If we do nothing, we will have a death spiral."

The Postal Service initially announced in September it was studying the possibility of closing the processing centers and published a notice in the Federal Register seeking comments. Within 30 days, the plan elicited nearly 4,400 public comments, mostly in opposition.

Among them: -Small-town mayors and legislators in states including Illinois, Missouri, Ohio and Pennsylvania cited the economic harm if postal offices were to close, eliminating jobs and reducing service.

Small-business owners in many other states also were worried.

"It's kind of a lifeline," said William C. Snodgrass, who owns a USave Pharmacy in North Platte, Neb., referring to next-day first-class delivery. His store mails hundreds of prescriptions a week to residents in mostly rural areas of the state that lack local pharmacies. If first-class delivery were lengthened to three days and Saturday mail service also were suspended, a resident might not get a shipment mailed on Wednesday until the following week.

"A lot of people in these communities are 65 or 70 years old, and transportation is an issue for them," said Snodgrass, who hasn't decided whether he will have to switch to a private carrier such as UPS for one-day delivery. That would mean passing along higher shipping costs to customers. "It's impossible for many of my customers to drive 100 miles, especially in the winter, to get the medications they need."

-ESPN The Magazine and Crain Communications, which prints some 27 trade and consumer publications, said delays to first-class delivery could ruin the value of their news. Their magazines are typically printed at week's end with mail arrival timed for weekend sports events or the Monday start of the work week. Newspapers, already struggling in the Internet age, also could suffer.

"No one wants to receive Tuesday's issue, containing news of Monday's events, on Wednesday," said Paul Boyle, a senior vice president of the Newspaper Association of America, which represents nearly 2,000 newspapers in the U.S. and Canada. "Especially in rural areas where there might not be broadband access for Internet news, it will hurt the ability of newspapers to reach customers who pretty much rely on the printed newspaper to stay connected to their communities."

-AT&T, which mails approximately 55 million customer billing statements each month, wants assurances that the Postal Service will widely publicize and educate the public about changes to avoid confusion over delivery that might lead to delinquent payments. The company is also concerned that after extensive cuts the Postal Service might realize it cannot meet a relaxed standard of two-to-three day delivery.

Other companies standing to lose include Netflix, which offers monthly pricing plans for unlimited DVDs by mail, sent one disc or two at a time. Longer delivery times would mean fewer opportunities to receive discs each month, effectively a price increase. Netflix in recent months has been vigorously promoting its video streaming service as an alternative.

"DVD by mail may not last forever, but we want it to last as long as possible," Netflix CEO Reed Hastings said this year.

Maine Sen. Susan Collins, the top Republican on the Senate committee that oversees the post office, believes the agency is taking the wrong approach. She says service cuts will only push more consumers to online bill payment or private carriers such as UPS or FedEx, leading to lower revenue in the future.

"Time and time again in the face of more red ink, the Postal Service puts forward ideas that could well accelerate its death spiral," she said, urging passage of a bill that would refund nearly $7 billion the Postal Service overpaid into a federal retirement fund, encourage a restructuring of health benefits and reduce the agency's annual payments into a retiree health account.

That measure would postpone a move to five-day-a-week mail delivery for at least two years and require additional layers of review before the agency closed postal branches and mail processing centers.

"The solution to the Postal Service's financial crisis is not easy but must involve tackling more significant expenses that do not drive customers," Collins said.

In the event of a shutdown due to bankruptcy, private companies such as FedEx and UPS could handle a small portion of the material the post office moves, but they do not go everywhere. No business has shown interest in delivering letters everywhere in the country for a set rate of 44 cents or 45 cents for a first-class letter.

Ruth Goldway, chair of the Postal Regulatory Commission, said the planned cuts could test the limits of the Postal Service's legal obligation to serve all Americans, regardless of geography, at uniform price and quality. "It will have substantial cost savings, but it really does have the potential to change what the postal service is and its role in providing fast and efficient delivery of mail," she said.

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