Making sure the US Postal Service delivers
The business model for the US Postal Service is broken. Some tough decisions lie ahead, including reducing labor costs and cutting service down to five days.
As Americans lined up at the post office this holiday season, they might have 鈥╪oticed greeting cards for sale. It鈥檚 a money-raising experiment. As 鈥╯ure as dogs chase letter carriers, the US Postal Service needs money.
It lost $3.8 billion for the fiscal year that ended Sept. 30 on top of a combined 鈥�$7.8 billion in 2007 and 2008. Mail volume plummeted, pushed down by鈥� recession and a decline in snail mail from wider Internet use. Volume is expected to slide again next year.
As the USPS admits, its business model based on volume growth 鈥渋s broken.鈥�
The Government Accountability Office has added the postal service to its 鈥╨ist of high-risk government functions needing 鈥渢ransformation."
The GAO鈥� rightly points out that everything must be rethought: the number of retail outlets (the post office has more than any business in the US), processing facilities with excess capacity, delivery (dropping Saturdays, as proposed 鈥╞y the USPS itself, requires Congress鈥檚 say-so), and labor costs.
The cost of labor sticks out like an oversized letter. Compensation and 鈥╞enefits make up about 80 percent of costs at the largest civilian federal鈥� agency. Unionized postal workers have sweeter benefits than other federal鈥� employees and higher wages than workers at private FedEx and UPS.
As a self-supporting government enterprise (the USPS is barred from taking鈥� tax dollars but has run up a $10 billion tab at the US Treasury), it must find a way to cut costs and restructure without giving up its public service of delivery to every address.
The USPS has cut labor costs through attrition, but unions limit its flexibility. The onus is now on unions in upcoming negotiations. It鈥檚 also 鈥╫n Congress to consider the USPS request for five-day delivery and to adjust funding 鈥╮equirements for USPS retirement health benefits.
Those are difficult adjustments. They鈥檙e also ones for the short and medium term. A larger discussion centers on whether the postal service should retain its monopoly over first-class mail. Some experts argue that universal service today consists mostly of getting advertising (such as catalogs and credit-card pitches) to every address 鈥� subsidized by first-class mail prices.
They reason that the first-class monopoly should be opened up to competition from the private sector, and that advertisers should pay for the real cost of mailing their material. On the other hand, private businesses would be unlikely to guarantee universal delivery at a profit.
The monopoly debate is taking place mostly among experts. It is one that needs to be extended to the country as a whole. But first, the USPS, unions, and Congress should address shorter-term measures to cut costs and improve revenue.
That won鈥檛 be nearly as easy as selling greeting cards