USPS Response to Hill Request Overview

1
USPS Response to Hill RequestOverview

• The Request USPS to submit a workable plan to
  fund the key capital investments needed to ensure
  long-term viability of the Postal Service
• Environment
• Capital Investment Plan
• Financing the Capital Plan
• Cost Reduction Efforts
• Traditional Approaches
• Network Rationalization
• Workforce Implications
• Current Success

2
Environment

• Declining FCM volume and contribution
• 1.9 new delivery points per year
• Volume has become more difficult to forecast
  less dependent on economy, more diversion.
• Worksharing has increased bringing more mail to
  destination, bypassing origin processing and
  transportation

3
Capital Investment Plan

• Total Draft Capital Plan 2004-2010 -details to
  GAO
• 2.4 3.2B per year, almost 19B over 7 years
• Categories
• Auto/Mech letters, flats, parcels, material
  handling, and infrastructure support (IT)
  sub-categories
• Vehicles maintain existing fleet
• Retail Equip POS and Automated Postal Centers
• Facilities customer service/admin, building
  improvement, major processing sub-categories
• Postal Support and Emergency Preparedness IT

4
Financing the Capital Plan

• Depreciation is primary source
• Part of test year revenue requirement
• Capital freeze focused on facilities due to
  volume and workload declines, not generative
  capital
• Limited Options
• Sell Assets Many smaller facilities are leased.
  Consistently selling assets. Yet need facilities
  where the mail and people are. Any one want to
  buy Chicago?
• Borrow statutory annual limits

5
Cost Reduction Efforts Traditional Approaches

• Capital Equipment PARS, OCR replacement, auto
  tray handling systems, etc.
• BPI and standardization that does not require
  capital
• The type of equipment is not dependent upon the
  network shape related

6
Cost Reduction Efforts Network Optimization
and Rationalization

• 80 of large facilities are lt 30 years old
• Networks have changed many times over the years
  as mechanization / automation have improved
  MSCs, BMCs, SDCs, ADCs, AADCs, PMPCs
• Need for Change multiple shape-based networks
• A Promising Alternative one network from many
• Validate model IG suggested review
• Stakeholder input
• Test concept(s) those w/ and w/o facility
  changes
• Incremental approach do not want a PMPC repeat

7
Cost Reduction Efforts Workforce Flexibility

• Attrition Rates 5.8 - 4.4 percent/year
• Retirement Eligibility
• 110,000 now, another 125,000 by 2007
• Down over 80,000 career from 1999 peak - down
  10,000 this year so far
• Flexibility from OT usage and 11,000 plant casuals

8
Current Success

• Committed to 1 billion per year in savings with
  BPI and Transformation
• 11.8 billion in cumulative savings since end of
  1999
• Service improvements
• Closed over 70 RECs and annexes
• Reduced over 80,000 career employees
• USPS outstanding debt down to 2.25 billion

9
Summary

• USPS can continue to reduce costs, moderate rate
  increases, and further improve service while
  generating funds through traditional means.
• The escrow requirement should be repealed.