By Sierra Jiminez
October 25, 2011

\\Two years ago, the U.S. Postal Service raised the price of a stamp by two cents to a whopping 44 cents. Then, talk of five-day delivery service and fewer post offices began to percolate.

What’s next? Full-scale privatization? A buyout by FedEx (FDX) or UPS (UPS)? Or perhaps fishing licenses and stamp sales in the same location?

That last one is actually a near-term possibility.

When it comes to saving our mail service, everyone likes to think they have the answer. But making any major changes is more complicated than it seems.

Last month, Congress saved the United States Postal Service from defaulting on its $5.5 billion pre-funding payment for retiree health benefits by granting a reprieve until Nov. 18. Whether that deadline will be extended is uncertain.

In his speech to the Senate last month, Postmaster General Patrick Donahoe warned that USPS would assume an estimated loss of $10 billion by the end of this fiscal year, driven largely by a decline in mail volume and employee compensation and benefits costs. If legislative reform doesn’t come around by September of next year, the postal service will be facing insolvency. And by 2020, Donahoe estimates their debt will exceed $20 billion.

“What you’re looking at is a slow escalation up to monumental proportions,” said Gene Del Polito, president of the Association for Postal Commerce, explaining that the USPS can either develop or a solution or become insolvent. “And then we’ll have to figure out how to create a new postal service, because the need for one is not going to go away.”

The increased popularity of e-cards, online bill payment, and digital communication has certainly played its part in the 20% decrease in mail volume over the past five years. Just the same, USPS is expected to handle more than 167 billion pieces of mail this year.

“Even though it’s a digital age, we still play an important role,” Donahoe said in an interview with Fortune. “We want to get ourselves in a good financial position, just like any other company,”

Easier said than done.

With all the upfront costs that go into making true universal mail service work and the expectation that it should support itself through its operations, it isn’t exactly an ideal business model. But unlike a privately owned company, which may have to consult with a board of advisors, USPS has to answer to Congress, making just about any effort to change its practices a tedious one.

According to Donahoe, even closing a post office can sometimes take years because of procedures the postal service is required to follow.

“Going forward, the postal service needs to be able to manage the postal service,” said James Campbell, a lawyer and consultant who advises on U.S. postal reform and international postal policy. “We have to allow them to become more commercial and rational.”

Three different bills before Congress aim to do just that. Earlier this year, Sen. Tom Carper (D-Del.), Sen. Susan Collins (R-Maine,) and Rep. Darrell Issa (R-Calif.) presented postal reform proposals to Congress. But these efforts were set aside amid the more immediately concerning debt ceiling crisis.

In addition to those three bills, Sens. Carper (D-Del.,) Collins (R-Maine,) Joe Lieberman (ID-Conn.), and Scott Brown (R-Mass.) are working to draft a bipartisan postal-reform bill that they expect to present to Congress by November. While the specifics of the bill are still up in the air, Carper said it would likely address the costly payments USPS pays into employee benefits and compensation, which accounts for 80% of its operating costs.

“Part of the solution is making sure the postal service is more entrepreneurial,” Carper said. “This is a situation we can fix.”

Postmaster General Donahoe said he’s confident one of the bills in front of Congress will be passed by the end of the year. But just in case, lawmakers are taking another route to solve the postal service’s woes: the deficit super committee. In September, President Obama released his proposal to cut Saturday delivery, restructure the service’s employee health benefits system, and encourage the postal service’s continuing use of early retirement incentives.

USPS has already managed to minimize its debt, largely at the expense of its employees. In its last fiscal quarter, the postal service reduced its staff by 8,000. And since the beginning of the year, working hours have decreased by nearly 3%.

That’s just the beginning. To further save on infrastructure costs, Donahoe said he wants to cut an additional 120,000 employees in the next three years, end Saturday delivery services, and combine postal stations within already existing business, including libraries, gas stations, and grocery stores. All that, he argues, really won’t affect consumers too much.

“The biggest change consumers will see is the six to five-day delivery,” Donahoe said. “The Postal Service is alive and well, and it’s not going out of business.”


You May Like