Sorting out the post office

This week's hikes in US postal rates point to the need for more reform, starting with labor costs.

This week, the US Postal Service again upped the price of a first-class stamp, but with a sweetener. Those who want to avoid the next increase can buy Forever Stamps, valid as long as the name says. The USPS itself, though, can't go on indefinitely, at least not with its current business model.

"The dynamics of the 21st-century communications market have altered – forever – the basic assumptions of postal economics," Postmaster General John Potter told a House subcommittee in April.

The changing dynamics for America's third-largest civilian employer are these: Electronic communications such as e-mail and online banking are eroding the volume of lucrative first-class mail, where the USPS has a monopoly. At the same time, it faces stiff competition from private companies in package and rapid delivery service. This, while US households and businesses multiply.

That squeeze of declining first-class volume and increasing points of delivery makes future rate hikes as sure as rain and snow (this is the fourth increase since 2001). While a Forever Stamp may placate some individuals, it's not designed for businesses (though they, too, can save if they standardize package shapes for automated sorting). Overall, postage rates are increasing 7.6 percent.

The Postal Service has a growing market in standard direct-mail advertising (i.e., junk mail), but it's far less profitable than first-class mail. And what happens if these advertisers, too, find a more cost-effective way to reach households?

A day of reckoning is approaching and it will have to dawn with a serious adjustment to labor expenses, which make up 80 percent of USPS costs. Contracts with postal unions forbid layoffs, and postal workers enjoy a 20 to 30 percent wage premium over comparable workers, the USPS maintains.

The Postal Service has tried to circumvent this through contracting and attrition. It just had four net years of profit, but this year projects a $5.2 billion loss, primarily due to the cost of healthcare benefits.

More serious efforts at labor cost containment are needed – through negotiation with powerful unions, and through Congress. Market wages could apply at least to new hires. And should a mail carrier in expensive Manhattan really be paid the same as one in Mississippi?

Last year, Congress took a swing at the first serious postal reform in more than 30 years. It got to first base – barely.

To try and force better USPS management of costs, it capped rate increases to no higher than the rise in inflation (this week's increase is not bound by that rule). But Congress must not have been trying too hard because average increases in the past track the inflation rate.

Lawmakers also relieved the USPS of a huge labor expense. But by sending billions in pension costs to the Treasury to pay, it only shifted the burden from postage payers to taxpayers. What's the diff?

Congress members strengthened the postal commission's oversight of the USPS. But they stayed away from serious reform that might have affected labor or, as is happening in Europe and elsewhere, led to better service and efficiency through competition and privatization. Securing universal delivery has inhibited privatization talk, but who's to say the inefficient USPS is the best guarantor of such service?

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