USPS vs. NBA: Which Collective Bargaining Agreement is worth 220K Jobs?

The National Football League was able to restructure its collective bargaining agreement before preseason started and hopefully the National Basketball Association will follow suit. On the other hand, the United States Postal Service posted a detailed report explaining why it must break its collective bargaining agreement in order to scrap 220,000 jobs by 2015. (Via Washington Post.) Earlier this week, Benzinga reported that the USPS was going to need $5.5 billion for the retiree benefit prepayment due in September. Today, the Postal Service, which posted $3.1 billion in third quarter losses, claims it will be insolvent next month unless it makes the necessary cuts. "Based on current revenue and cost trends, and assuming a move to 5-day delivery, the Postal Service can only afford a total workforce by 2015 of 425,000, which includes approximately 30 percent lower cost, more flexible, non-career employees," notes the report. USPS estimates that only 100,000 jobs will be reduced through attrition, but that is not enough to cut costs. Before the 220,000 jobs can be reduced, the constitutional business requires Congress to remove the "no layoff protections" that currently exists in the collective bargaining agreement. With the layoff protection, the unions are able to protect its workers employed for more than six years from such a drastic reduction in USPS employees. Even with Congressional approval, this will be an enormous amount of workers released within a short period of time. In the past 12 years, the Postal Service has been able to minimize the workforce by 235,000 employees, mostly through attrition. That's not all. USPS petitions the federal government to allow its employees health benefits and retirement programs on its own accord. The Postal Service believes it can offer similar healthcare and retirement programs to that of private companies but at a lower cost than provided by the government. There a multiple reasons why restructuring will be helpful to their goal of solvency in 2015. The first claim is that USPS is a vital part to thousands of other business. Plus, if it was a private company, USPS would've declared bankruptcy and the labor contracts would be restructured to better fit the goals of the next decade. The second claim is "the Postal Service is obligated to provide wages and benefits under the Postal Reorganization Act." The report ends with a lasting conclusion; "However, exceptional circumstances require exceptional remedies." Twenty billion dollars in losses over the past four years is a quite an exceptional circumstance, but is 220,000 workers an exceptional remedy? The losses may come from a large workforce and low mail volumes but the important issue is the movement towards a digital life. Incentives for online bill paying, paperless bills, and convenience have moved people's lives to the Internet. We are less than four years away from 2015. But we have the last four years of technological advancements to blame for the Postal Service's current position. If there isn't a complete overhaul of the USPS by 2015, there may not be daily mail delivery. Action Items: Bullish:

• Traders who believe the fall of USPS is near should look to FedEx FDX and UPS UPS. Both competitors recorded positive earnings and increased sales this past quarter.

Bearish:

• Congress must still approve the order to layoff a whopping 120,000 workers. It's a significant loss, but this could be the slow death of paper. Examine International Paper IP if you believe this side of the story.

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