The U.S. Postal Service's (USPS) Board of Governors made history today by naming Megan J. Brennan, its executive vice president and chief operating officer, the first woman postmaster general in the agency's 222-year history.
Brennan, 52, will take over in February and also assume the title of CEO. She will succeed Patrick R. Donahoe, 59, who today announced his retirement after 39 years with the agency. Brennan will become the 74th head of USPS. She is also the fourth postmaster general in a row to come out of USPS' operations.
USPS traces its roots to the Second Continental Congress in1775, when Benjamin Franklin was appointed the first postmaster general. The Post Office Department was formed in 1792 as a Cabinet-level agency. It was transformed into its current form in 1971 under the Postal Reorganization Act.
Brennan joined USPS in 1986 as a letter carrier in Lancaster, Pa. She began her managerial career as a delivery and collection supervisor. She was named to her current position in December 2010, two months after Donahoe was appointed postmaster general. Brennan was not made available for an interview but said in a statement that the appointment is "an honor of a lifetime."
Brennan oversees the daily operations of a network that includes 491,000 career employees; 200,000 delivery vehicles; and more than 31,000 facilities. Transportation operation and delivery services fall under her purview. USPS spends about $6 billion a year on transportation services.
During her nearly four-year tenure, Brennan implemented operational changes to transform USPS' image from being a letter carrier to that of a parcel delivery company transporting the lion's share of merchandise ordered online. Since 2012, USPS has expanded service options for its "Priority Mail" delivery services, while in some cases shrinking delivery times to as short as one day for what historically had been a two- to three-day service. It began Sunday deliveries for e-tailing giant Amazon.com in what may become part of a broader effort to deliver packages seven days a week, up from the current six-day-a-week limit. (USPS is offering seven-day-a-week package deliveries during the holiday shipping season).
In September, USPS launched a program cutting Priority Mail rates for large shippers while foregoing a shift to a pricing formula based on a parcel's size rather than its actual weight, something UPS Inc. and FedEx Corp.'s ground-parcel unit will move to for all ground shipments later this year or in early 2015. USPS maintains a strong position in the "last-mile" delivery business, where carriers and parcel consolidators leverage its universal service mandate to tender packages for the trip from destination post offices to residences.
Brennan has supervised this transition amid the constant pressures of driving down costs to align with the continuing decline in first-class mail, USPS' most profitable product. Since 2005, USPS has reduced its total network of processing facilities from 657 to 318. It also has 220,000 fewer employees today than it did in 2004. One tailwind has been a reduction in transportation costs that come from supporting a smaller footprint of processing centers, as well as from better fleet utilization, Donahoe said in a press conference today.
USPS' increased focus on parcel deliveries has resulted in solid volume increases for the past several years. In its 2014 fiscal year, which ended Sept. 30, shipping and package services volume grew by 8.1 percent to 300 million pieces from a year-earlier. The growth in the package business, along with price increases implemented early in 2014 that actually resulted in year-over-year operating revenue gains for first-class mail, enabled USPS to post back-to-back annualized operating revenue increases, reversing a four-year decline that began in 2008.
Fiscal 2014 operating revenue rose to $67.8 billion from $67.2 billion. Factoring out a one-time, $1.3 billion revenue hit due to changes in accounting estimates for its "Forever" stamps, fiscal 2014 operating revenue would have been $1.9 billion higher than in the prior years, USPS said. However, its net loss widened to $5.5 billion from $5 billion as the agency grappled with continued shrinkage in its core business and a large financial liability that it lacks the resources to meet.
USPS confronts a seemingly intractable decline in first-class mail volumes, due in large part to digital migration of traditional mail services. Fiscal 2014 first-class mail volumes dropped by 2.2 billion pieces year-over-year, leading to a 1.8-percent decline in overall mail volumes. "There's no sign of a let-up" in the trend, Donahoe told reporters.
USPS has also been hit by consolidations across multiple U.S. industries that have shrunk the universe of mailers and reduced the volume of first-class, single-piece mail dropped into mailboxes across the country. Donahoe said USPS has experienced a 60-percent decline in so-called blue-box mail, coined for the color of mailboxes, over the past 10 years.
The largest cost item is a $5.7 billion Congressionally mandated liability to pre-fund retiree health benefits. USPS defaulted on the obligation in September, citing insufficient cash reserves to make the payment by the end of its fiscal year.
Donahoe said it will be impossible for USPS to overcome the drop in first-class mail without legislative reform that allows it to reorganize its finances and enter new lines of business. Donahoe said USPS would be keenly interested in delivering beer, wine, and spirits, product lines that it is currently barred from entering. It also wants to consider broadening its penetration into grocery deliveries, especially with Amazon, he added. Such initiatives require prior approval from the Postal Regulatory Commission, however.
Donahoe affirmed support for postal reform legislation sponsored by Sens. Tom Carper, D-Del., and Tom Coburn, R-Okla., that would eliminate the current retiree health care payment schedule, cancel any outstanding USPS payment obligations, suspend payments until fiscal year 2016, and then begin a new payment schedule amortized over 40 years.
The legislation would also allow USPS to move to a five-day a week mail delivery schedule if it finds that it would help attain long-term solvency and if total mail volume during any period of four consecutive quarters drops below 140 billion pieces. USPS had floated a proposal to reduce weekly mail deliveries to five days from six, but dropped the idea amid a strong public backlash.