Monday, August 13, 2012

Post Office Woes

How To Save The U.S. Postal Service

(By Mike Tae and Adam LaVier, Washington Post, 10 August 2012)

The outside of the Old City Post Office in Washington, now home to the National Postal Museum, bears a noble inscription to the mail: “Bond of the Scattered Family/ Enlarger of the Common Life/ Carrier of News and Knowledge/ Instrument of Trade and Industry.”  It’s a proud statement about what the mail used to be. For more than 200 years after Benjamin Franklin was named the first postmaster general in 1775, the United States Postal Service provided services Americans wanted, in ways no other institution could match — and usually at a profit.  But today, the “bond of the scattered family” comes from text messages, Skype and Facebook. And global businesses favor private letter and package carriers.

In 2010, the U.S. Postal Service projected that it would lose $238 billion over the following decade — a sum roughly equivalent to the gross domestic product of Chile. Sadly, it’s not only the forecasts that are grim for the USPS. On Thursday, the agency reported a $5.2 billion loss for the second quarter.  Despite years of study and recommendations, Congress continues to play small ball with the Postal Service. The leading bills in the Senate and the House each push for budget cuts and downsizing, but these are Band-Aids. They do not resolve the underlying problems of the USPS.
So what should the government do to turn around the Postal Service? Some people want a full and immediate privatization of the agency. That’s what Peter Orszag, the former director of the Office of Management and Budget, called for in a recent column for Bloomberg View, and other economists find the idea appealing. They say a privatized USPS would have the freedom necessary to deal with the agency’s large structural challenges, which Congress after Congress has failed to address.
While privatization may offer some advantages in the long run, doing it now is neither politically tenable nor wise. To take the USPS private, Congress would need to find a consensus to sell off the country’s second-largest employer during the longest stretch of high unemployment in modern American history.  Moreover, the Treasury is liable for post-employment benefits for federal workers. Supporters of privatization cite the $13 billion overfunding of the USPS’s pensions. But few mention the $46.2 billion in underfunded health benefits promised to employees, which no private bidder would ever agree to take on. Immediate privatization would leave taxpayers with yet another multibillion-dollar bill. 

The Postal Service can become a sustainable business and stay under government control. And it can do this in a way that would ultimately lead to privatization without wreaking havoc on its employees or the taxpayers.  For good models, look abroad, where postal services have successfully navigated the extremes of privatization and government monopoly. Sweden eliminated Posten AB’s monopoly, allowed others to enter the market and forced the enterprise to go head to head with its new competitors, while maintaining 100 percent state ownership. Germany reduced its ownership of Deutsche Post to a third and has licensed more than 800 companies to provide alternative services, forcing Deutsche Post to expand and adapt with the competition. Even in Canada, which maintains Canada Post’s mail monopoly as a fully state-owned corporation, the postal service has the mandate and the authority to make changes to preserve public funds.
In the past 20 years, as the ways we stay connected to one another have changed dramatically, many of the postal services around the world have changed, too. But not here. Congress, in fact, has continued to restrict the USPS and aid its private competitors.  Congress fostered the growth of the companies that are eating the USPS’s lunch, passing the Air Cargo Deregulation Act of 1977, nicknamed the “Federal Express Act,” and the Motor Carrier Act of 1980. Both changed transportation laws to meet the needs of private shipping carriers. But the time when UPS and FedEx required special protections against the Postal Service has long since passed. It’s now time for lawmakers to consider how to work for the USPS, not against it.

There are three successful precedents for change that we should consider.  First, many national postal services have expanded and diversified their revenue by offering new competitive products, including global package delivery, logistics and freight forwarding. If it’s allowed to use its sizable revenue from first-class and standard mail delivery to invest in new and growing areas, the USPS can build revenue streams that will last beyond first-class mail.
Second, it is possible to deliver mail to everyone quickly and reliably at an affordable price. But this obligation must be coupled with competitive price adjustments and reasonable limits to delivery service. Postage rate increases are currently set by the Postal Regulatory Commission, whose commissioners are appointed by the president — not by the people who run the business. The USPS needs the authority to effectively cover its costs while preserving universal service.

Third, postal services are pursuing technical innovations to keep up with modern communication. In 2010, Deutsche Post embraced online and hybrid mail services, and made money doing it. (Hybrid mail systems give customers a choice between electronic or physical letters.) The Postal Service could adopt similar innovations.
These are all reasonable changes that have worked abroad. But Congress and presidentially appointed overseers stand in the way of trying them here. In addition to the stranglehold on pricing, the 2006 Postal Accountability and Enhancement Act severely restricts the USPS from expanding its services.  The path forward for the Postal Service will be difficult and involve compromise for everyone. But by loosening restrictions on its ability to compete and allowing it to adapt, Congress can allow the USPS to remain as an “enlarger of the common life” — not just an enlarger of our debt.

U.S. Postal Service Faces Bankruptcy, Plans Cuts To Slow Delivery Of First Class Mail

(Associated Press, December 4, 2011)

Facing bankruptcy, the U.S. Postal Service is pushing ahead with unprecedented cuts to first-class mail next spring that will slow delivery and, for the first time in 40 years, eliminate the chance for stamped letters to arrive the next day.  The estimated $3 billion in reductions, to be announced in broader detail on Monday, are part of a wide-ranging effort by the cash-strapped Postal Service to quickly trim costs, seeing no immediate help from Congress.  The changes would provide short-term relief, but ultimately could prove counterproductive, pushing more of America's business onto the Internet. They could slow everything from check payments to Netflix's DVDs-by-mail, add costs to mail-order prescription drugs, and threaten the existence of newspapers and time-sensitive magazines delivered by postal carrier to far-flung suburban and rural communities.

That birthday card mailed first-class to Mom also could arrive a day or two late, if people don't plan ahead.  "It's a potentially major change, but I don't think consumers are focused on it and it won't register until the service goes away," said Jim Corridore, analyst with S&P Capital IQ, who tracks the shipping industry. "Over time, to the extent the customer service experience gets worse, it will only increase the shift away from mail to alternatives. There's almost nothing you can't do online that you can do by mail."  The cuts, now being finalized, would close roughly 250 of the nearly 500 mail processing centers across the country as early as next March. Because the consolidations typically would lengthen the distance mail travels from post office to processing center, the agency also would lower delivery standards for first-class mail that have been in place since 1971.

Currently, first-class mail is supposed to be delivered to homes and businesses within the continental U.S. in one day to three days. That will lengthen to two days to three days, meaning mailers no longer could expect next-day delivery in surrounding communities. Periodicals could take between two days and nine days.  About 42 percent of first-class mail is now delivered the following day. An additional 27 percent arrives in two days, about 31 percent in three days and less than 1 percent in four days to five days. Following the change next spring, about 51 percent of all first-class mail is expected to arrive in two days, with most of the remainder delivered in three days.

The consolidation of mail processing centers is in addition to the planned closing of about 3,700 local post offices. In all, roughly 100,000 postal employees could be cut as a result of the various closures, resulting in savings of up to $6.5 billion a year.  Expressing urgency to reduce costs, Postmaster General Patrick Donahoe said in an interview that the agency has to act while waiting for Congress to grant it authority to reduce delivery to five days a week, raise stamp prices and reduce health care and other labor costs.  The Postal Service, an independent agency of government, does not receive tax money, but is subject to congressional control on large aspects of its operations. The changes in first-class mail delivery can go into place without permission from Congress.

 After five years in the red, the post office faces imminent default this month on a $5.5 billion annual payment to the Treasury for retiree health benefits. It is projected to have a record loss of $14.1 billion next year amid steady declines in first-class mail volume. Donahoe has said the agency must make cuts of $20 billion by 2015 to be profitable.  It already has announced a 1-cent increase in first-class mail to 45 cents beginning Jan. 22.  "We have a business model that is failing. You can't continue to run red ink and not make changes," Donahoe said. "We know our business, and we listen to our customers. Customers are looking for affordable and consistent mail service, and they do not want us to take tax money."  Separate bills that have passed House and Senate committees would give the Postal Service more authority and liquidity to stave off immediate bankruptcy. But prospects are somewhat dim for final congressional action on those bills anytime soon, especially if the measures are seen in an election year as promoting layoffs and cuts to neighborhood post offices.

Technically, the Postal Service must await an advisory opinion from the independent Postal Regulatory Commission before it can begin closing local post offices and processing centers. But such opinions are nonbinding, and Donahoe is making clear the agency will proceed with reductions once the opinion is released next March.  "The things I have control over here at the Postal Service, we have to do," he said, describing the cuts as a necessary business decision. "If we do nothing, we will have a death spiral."  The Postal Service initially announced in September it was studying the possibility of closing the processing centers and published a notice in the Federal Register seeking comments. Within 30 days, the plan elicited nearly 4,400 public comments, mostly in opposition.

Among them:

_Small-town mayors and legislators in states including Illinois, Missouri, Ohio and Pennsylvania cited the economic harm if postal offices were to close, eliminating jobs and reducing service. Small-business owners in many other states also were worried.  "It's kind of a lifeline," said William C. Snodgrass, who owns a USave Pharmacy in North Platte, Neb., referring to next-day first-class delivery. His store mails hundreds of prescriptions a week to residents in mostly rural areas of the state that lack local pharmacies. If first-class delivery were lengthened to three days and Saturday mail service also were suspended, a resident might not get a shipment mailed on Wednesday until the following week.

"A lot of people in these communities are 65 or 70 years old, and transportation is an issue for them," said Snodgrass, who hasn't decided whether he will have to switch to a private carrier such as UPS for one-day delivery. That would mean passing along higher shipping costs to customers. "It's impossible for many of my customers to drive 100 miles, especially in the winter, to get the medications they need."

_ESPN The Magazine and Crain Communications, which prints some 27 trade and consumer publications, said delays to first-class delivery could ruin the value of their news. Their magazines are typically printed at week's end with mail arrival timed for weekend sports events or the Monday start of the work week. Newspapers, already struggling in the Internet age, also could suffer.  "No one wants to receive Tuesday's issue, containing news of Monday's events, on Wednesday," said Paul Boyle, a senior vice president of the Newspaper Association of America, which represents nearly 2,000 newspapers in the U.S. and Canada. "Especially in rural areas where there might not be broadband access for Internet news, it will hurt the ability of newspapers to reach customers who pretty much rely on the printed newspaper to stay connected to their communities."

_AT&T, which mails approximately 55 million customer billing statements each month, wants assurances that the Postal Service will widely publicize and educate the public about changes to avoid confusion over delivery that might lead to delinquent payments. The company is also concerned that after extensive cuts the Postal Service might realize it cannot meet a relaxed standard of two-to-three day delivery.  Other companies standing to lose include Netflix, which offers monthly pricing plans for unlimited DVDs by mail, sent one disc or two at a time. Longer delivery times would mean fewer opportunities to receive discs each month, effectively a price increase. Netflix in recent months has been vigorously promoting its video streaming service as an alternative.  "DVD by mail may not last forever, but we want it to last as long as possible," Netflix CEO Reed Hastings said this year.

Maine Sen. Susan Collins, the top Republican on the Senate committee that oversees the post office, believes the agency is taking the wrong approach. She says service cuts will only push more consumers to online bill payment or private carriers such as UPS or FedEx, leading to lower revenue in the future.  "Time and time again in the face of more red ink, the Postal Service puts forward ideas that could well accelerate its death spiral," she said, urging passage of a bill that would refund nearly $7 billion the Postal Service overpaid into a federal retirement fund, encourage a restructuring of health benefits and reduce the agency's annual payments into a retiree health account.

That measure would postpone a move to five-day-a-week mail delivery for at least two years and require additional layers of review before the agency closed postal branches and mail processing centers.  "The solution to the Postal Service's financial crisis is not easy but must involve tackling more significant expenses that do not drive customers," Collins said.  In the event of a shutdown due to bankruptcy, private companies such as FedEx and UPS could handle a small portion of the material the post office moves, but they do not go everywhere. No business has shown interest in delivering letters everywhere in the country for a set rate of 44 cents or 45 cents for a first-class letter.

Ruth Goldway, chair of the Postal Regulatory Commission, said the planned cuts could test the limits of the Postal Service's legal obligation to serve all Americans, regardless of geography, at uniform price and quality. "It will have substantial cost savings, but it really does have the potential to change what the postal service is and its role in providing fast and efficient delivery of mail," she said.

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