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 
noticed greeting cards for sale. It’s a money-raising experiment. As 
sure 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 
$7.8 billion in 2007 and 2008. Mail volume plummeted, pushed down by
 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 “is broken.”

The Government Accountability Office has added the postal service to its 
list of high-risk government functions needing “transformation."

 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 
by the USPS itself, requires Congress’s say-so), and labor costs.

The cost of labor sticks out like an oversized letter. Compensation and 
benefits make up about 80 percent of costs at the largest civilian federal
 agency. Unionized postal workers have sweeter benefits than other federal
 employees and higher wages than workers at private FedEx and UPS.

As a self-supporting government enterprise (the USPS is barred from taking
 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’s also 
on Congress to consider the USPS request for five-day delivery and to adjust funding 
requirements for USPS retirement health benefits.

Those are difficult adjustments. They’re 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 – 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’t be nearly as easy as selling greeting cards

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