In an interview with Wall Street Journal, Postmaster General Patrick Donahoe spoke on several different topics, including privatization, labor costs, the future of mail service, package-delivery drones, cost controls, new revenue, labor changes and legislation hopes.

The article below — featuring an interview with PMG Pat Donahoe — appeared in the Dec. 10, 2013 edition of the Wall Street Journal [source: USPS News Link]

Why the Postmaster General Is An Optimist Amid Red Ink

Dec. 10, 2013

Lauren Weber

Patrick Donahoe, the U.S. Postmaster General, calls himself an optimist.

He has to be. He has the unenviable task of managing an agency that acts as a private company in many ways but needs an act of Congress to introduce certain products or change some employee benefits.

That’s no easy feat in today’s Washington. The U.S. Postal Service has waited for years for legislators to pass a bill to fix its ailing finances. In fiscal 2013, it had a $5 billion loss, ending in the red for the seventh year.

Nearly alone among federal agencies, the USPS must prepay billions of dollars into its retiree health fund each year. At the same time, email and online bill payment have eviscerated its most profitable product.

First-Class mail delivery fell from 91.7 billion pieces in 2008 to 66.7 billion in 2013.

Mr. Donahoe was appointed to run the agency in 2010, 35 years after he started out as a postal clerk in Pittsburgh. He has cut costs and signed deals with private firms, including one to deliver Amazon.com’s packages on Sundays, and he is exploring forays into digital products, such as digital postmarks and secure online messaging. Earlier this year, he tried to eliminate Saturday service, but Congress blocked the plan.

The Wall Street Journal spoke with the 58-year-old postmaster about labor costs, the future of mail service, and package-delivery drones. Edited excerpts:

WSJ: The Postal Service operates as a public-private hybrid. How do you manage an organization when you have little control over major issues?

Mr. Donahoe: Everything for us boils down to three major issues: Revenue, costs and legislation. On the first two, we run like any private company. Anything we have control over, we’ve done. We’re generating new revenue — for example, our package volume has been growing at an 8 percent clip. From a cost control standpoint, we’re closing processing facilities, consolidating Post Offices and reducing hours at rural Post Offices. And we implemented big changes in our labor pool. Twenty percent of all our
employees today are ‘non-career flexibles’ [part-time], up from about 8 percent two years ago. We’ve saved billions of dollars there.

WSJ: I imagine your unions aren’t happy about that.

Mr. Donahoe: We negotiated it with one union. We had to take the others through arbitration. Labor is 80 percent of our costs, and it will always be that high. [But] if you’re able to operate the organization with a $60 billion cost basis versus a $72 billion cost basis, you’re better off.

WSJ: How else have you been reducing labor costs?

Mr. Donahoe: Single-piece First-Class Mail has dropped off by almost 60 percent in the last 10 years. Understanding that, we’ve reduced the head count since 2006 by 200,000 people. We’ve added about 15 to 16 million deliveries a day, so our people work hard. Automation has helped. We’ve done this all without layoffs. I’m very proud of that.

WSJ: What’s the right size for your workforce?

Mr. Donahoe: We think that in the near term, if we’re able to eliminate Saturday delivery and do some facility consolidations, the numbers allow 400,000, plus another 60,000 non-career workers.

WSJ: Do you expect Congress to pass a bill?

Mr. Donahoe: I’m an optimist by nature. We’re asking Congress to give us the ability to correct a few issues.

First, let us resolve retiree health benefits. The Postal Service wants to integrate Medicare into our health benefits for retirees. We are the second largest payer into Medicare behind the U.S. government, and we don’t get to take full advantage of its offerings [such as requiring retirees to use Medicare as their primary insurance]. Just that change would save $8 billion a year.

People say, ‘You’re going to hurt Medicare.’ Well, fix Medicare. Don’t penalize us for Medicare’s problems.

WSJ: Do other federal agencies have the deal you’re hoping to get?

Mr. Donahoe: They’re funded by taxpayer money. We’re funded by ratepayer money.

WSJ: What are the other things you want Congress to do?

Mr. Donahoe: Eliminate Saturday mail delivery. Also, we overpay into the Federal Employees’ Retirement System, and they owe us about $6 billion. [NOTE: The administration agrees the USPS has overpaid, but the two disagree on how much.]

We [also] need more flexibility with products. Right before Prohibition, we were forbidden to ship alcohol. Prohibition ended for everyone else, but not us. We should be able to ship wine and beer.

WSJ: It doesn’t look like a bill will happen this year.

Mr. Donahoe: We’re pushing for legislation because the stories about losses are like a giant black cloud over this organization. [Business] customers say, ‘We don’t want to put all our eggs in one basket because what if you can’t meet payroll?’ Let’s fix some of these problems, and then companies will know we’re financially healthy and they’ll be more apt to work with us.

WSJ: What will USPS look like in 10 years?

Mr. Donahoe: The postal model of the future is mail delivery Monday to Friday, package delivery seven days a week in ZIP Codes that can support Sunday, and Saturday operations for retail so that you can go to the Post Office and mail something.

We also see opportunity in the digital space. There’ll be more need for authentication. We’ve done some work on this quietly, especially around secure digital messaging. With health-care records, financial records all going online, there will be more need for security, and we think we can team up with technology companies on digital postmarking and encryption.

WSJ: Between your partnerships with private companies and your desire to leave the government’s retiree health system, some people see these as moves toward privatization.

Mr. Donahoe: I don’t think the Post Office should ever be privatized. People worry about that because they want to get us off the track of being more efficient. There’s a big difference between efficiency and privatization.

WSJ: Amazon says it plans to use drones for package delivery. What would that mean for your business?

Mr. Donahoe: Drones are an interesting concept. But when you think about what the Postal Service,
UPS and FedEx deliver, that’s a lot of drones. So we’ll see.

WSJ: When was the last time you sent a First-Class letter?

Mr. Donahoe: I pay all my bills by mail. If I didn’t, it’d be like driving a Chevy onto the Ford parking lot.

Read more: Why the Postmaster General Says He’s an Optimist Despite Red Ink – WSJ.com.