10 Remedies for an Ailing Postal Service

BOSTON (MainStreet) -- On Tuesday, members of unions associated with the U.S. Postal Service took to the streets with a message for the public:

"The Postal Service isn't funded by taxpayers," reads a flier distributed by members of the American Postal Workers Union, National Association of Letter Carriers, National Postal Mail Handlers Union and National Rural Letter Carriers' Association hoping to get the word out to the public that legislative action is needed to save the service from planned closures, layoffs and service reductions.

"All its revenue is earned from the sale of its products and services, meaning that the dire warnings of a taxpayer bailout are completely unfounded. The Postal Service hasn't used a dime of taxpayer money in 30 years," the unions note.

"The Postal Service made a net profit of more than $600 million sorting and delivering the mail the past four fiscal years," it adds. "Despite the worst recession in 80 years, despite competition from the Internet, despite everything you've heard, postal operating revenues exceeded costs by $611 million in the four fiscal years since 2007."

Among those who was watching the nationwide rallies closely is Steve Hutkins, creator of SaveThePostOffice.com.

He started his site, a clearinghouse of postal news and calls to action, to help save the small post office near his home in Hudson Valley, N.Y. Over time, he realized there was a bigger mission to be had in advocating for the Postal Service as a whole.

He worries that post office closings, which will likely number in the thousands, are on a fast track.

"Now that they are actually holding the public hearings, sending out the questionnaires and starting a process that really only takes a few months, many post offices are going to be closing before the end of the year," he says.

In total, looking at current closings and what will likely follow, upward of 8,400 post offices could be lost during the next two years, he says.

"It is not shocking, because the postmaster general himself said that he expects half the nation's post offices to close, 16,000 or the 32,000, over the next six or seven years," Hutkins says. "The post office as an institution is disappearing and will be replaced by postal counters in Wal-Mart ( WMT) and supermarkets. People aren't going to know a post office anymore."

The loss will be devastating, Hutkins says.

"They are an essential piece of the fabric of the country," he says. "It does get emotional because you see something that is so important to the country in a deep, existential way being taken away because the people who run the Postal Service believe it needs to be run like a business. That is their mantra. If a business has retail outlets that aren't bringing in revenue, they close them and too bad for everybody else. But a post office isn't like everybody else. Post offices are really deeply involved with what the country is all about. The founding fathers, in the Constitution, saw right from the beginning how important the post office is to the founding of a democracy."

Hutkins also believes the escalating pace of post offices closing will hurt small businesses.

"It will particularly hurt the kind of businesses that send lots of parcels -- an online bookstore or pharmaceuticals, the kind of stuff that costs $3 to $5 to send at the post office, but if you walk over to UPS ( UPS) it is $15. When the postal service came out with its list to close thousands of post offices, eBay's ( EBAY) stock went down 6%. All those eBay businesses depend on the post office for their product lines, and their profit margins are so tight they can't afford to send out large numbers of packages at $15 a pop. There are lots and lots and lots of small businesses like that."

The following are 10 ideas that have been proposed -- and debated -- as potential remedies to what ails the post office:

Legislative action
The 800-pound gorilla in the room regarding the Postal Service deficit is a Congressionally mandated schedule -- of about $5.5 billion in pre-funding payments each year -- to stave off potential liabilities in its employee pension fund.

A statement by unions taking part in the rally Tuesday stresses that the current shortfall "doesn't result from mail delivery."

"The $20 billion in postal losses you've heard about stems from a 2006 congressional mandate that the Postal Service pre-fund future retiree health benefits for the next 75 years and do so within a decade -- a burden no other public agency or private firm faces," the statement reads. "The Postal Service is actually paying, out of its operating budget, for the future retiree benefits of people who haven't been born yet. That cost -- $21 billion since 2007 -- accounts for 100% of the agency's red ink over that period."

"The importance of dealing with the pension system, first and foremost, cannot be overstated," Hutkins says. "This deficit is an imaginary thing that was created by Congress demanding how the Postal Service funds its pension and retiree health care programs. So what you have is, essentially, a manufactured crisis, not a real one."

"The other big financial problem, which also has nothing to do with the mail, is that the Postal Service doesn't have access to tens of billions of dollars of earned revenue that are sitting in surplus funds," the statement by postal unions adds. "As a quasi-public agency, it needs Congress to give it access to its own money."

The various postal unions have voiced their support of H.R. 1351, the United States Postal Service's Pension Obligation Recalculation and Restoration Act of 2011, filed by U.S. Rep. Stephen Lynch, D-Mass. The bill, which has bipartisan support and more than 200 co-sponsors, seeks to remedy the pre-funding issue by restructuring the annual payment and refunding nearly $7 billion critics say was overpaid. The Obama administration favors the refund.

Lottery
A piece this month suggested, with a dose of snark, that a lottery could be among the ways to save the postal service.

The idea isn't all that far-fetched.

The United Kingdom, Australia and Switzerland are just a few of the nations that sell nationalized lottery tickets at post offices. In 1980, a $10 lottery ticket was issued by New York to help pay for the Winter Olympics at Lake Placid and sold in post offices.

Last year, in what was literally a footnote in a report on postage rate increase scenarios, the idea of a national lottery was pitched.

"One type of new activity could offer the potential for substantial profits for the Postal Service and utilize its current retail infrastructure with its 36,000 retail outlets, claimed to be the largest retail network in the world," wrote Kenneth Richardson, a public representative on the Postal Regulatory Commission. "The Postal Service could initiate and operate a lottery, effectively a national lottery. Sales could be encouraged if winners were tied, for instance, to sales slip identification numbers or other postal purchases or mail tracking numbers. The national scope of the Postal Service could exceed that of current multistate lotteries in scale which generate hundreds of millions of dollars, annually, if not billions, for their sponsoring states."

Decoupling
The merits of "decoupling" were pitched in a report issued Thursday by the U.S. Postal Service's Office of the Inspector General.

"Decoupling of the delivery and retail network has the potential benefit of improving service, increasing revenue, reducing cost and improving productivity," it said.

At issue is the long-standing (nearly 150-year-old) tradition of the Postal Service combining retail and delivery functions in its facilities, management and employees.

"Retail is too often ignored, receiving secondary managerial attention whencompeting with delivery for time and resources," the report says. "Decoupling could help transform retail into a growth and best-practices driven, strategic business unit. Despite the long history of coupling, the operational needs between retail and delivery are actually few, relatively minor, and can be overcome. The key need that does exist -- shared clerk work hours -- could better be addressed with a reasonable increase in work hour flexibility."

The report makes the case that foreign postal services have engaged in various forms of decoupling, as have major private delivery companies in the United States, such as the United Parcel Service and Federal Express.

"Delivery and retail operations each have important contributions to make to the Postal Service's long-term viability and financial health," the report adds. "Developing an integrated strategy that maximizes the potential value of both functions has the potential to be extremely beneficial to the Postal Service and its customers."

Customer service, the report says, could also be improved, because "a clerk's first priority is often back-room operational support activities -- even if that means a retail customer waits longer in line."

Rate increases
The Obama administration threw its support Sept. 19 to postage rate increases that go beyond traditional adjustments for inflation.

The administration promoted the rate increase as part of a $3 trillion deficit-reduction plan. That recommendation included a suspension of Saturday mail delivery as part of the effort to stem the $10 billion loss the Postal Service is on track for this year -- because of future pension obligations -- and save more than $20 billion over the next few years.

The proposed increase, similar to one proposed last year, would hike rates by 8% to 9% for periodicals and catalogs and 5.8% as an average increase for all other mail.

Testifying before Congress in March, Ruth Goldway, chairwoman of the Postal Regulatory Commission, spoke about what she sees as the benefits of not letting rates exceed inflation adjustments.

"The price cap ... has proven to be a powerful incentive for the Postal Service to improve efficiency and reduce costs, including $11 billion in cost reductions in the past three years," she said. The streamlined rate-setting processes "have performed well, assuring postal customers small, predictable price increases not to exceed the rate of inflation. Since 2008, including the 1.7% increase approved this February, postage rates for market dominant products will have increased by a cumulative 8.4%, compared to a 16.8% increase in the published rates for Postal Service competitive products, which are not capped."

Retail locations
A byproduct of decoupling is a pitch by some postal officials to place Postal Service retail locations within supermarkets and other retailers. In more rural areas, even small general stores could serve as de facto post offices as locations are otherwise shuttered.

Hutkins sees the push for in-store locations as a troubling push toward privatization.

"There are forces that want to shape the future of the postal service, and their agenda ultimately is to privatize as much of the business of the postal service as possible," he says. "Behind all of this is a desire to capture the profits of the postal service by private corporations. Right now one-fifth of the money that comes into the Postal Service goes out to private corporations, and they want more. When you move a post office to a Wal-Mart or supermarkets you are essentially privatizing postal service."

In a recent report by the U.S. Postal Service's Office of the Inspector General, the benefits of in-store locations was touted by using the Canadian mail system as an example.

"Canada Post introduced a new retail strategy in the late 1980s, driven by a need to better serve customers with new locations and longer opening hours," it says. "Due to a lack of funding for new bricks-and-mortar facilities, a franchising model was partially deployed. Research confirmed that a customer's trip to the post office is usually one among several other shopping errands. Installing franchises within many of Canada's best retailers made access significantly more convenient ... The primary value proposition to host businesses was traffic generation. The income from the postal outlet was at break-even or slightly positive, but the gain for the host business was additional revenue generated by consumers coming to the postal outlet and making purchases from the host business. It is typical for the postal outlet to be in the back of the store, forcing consumers to pass through aisles of merchandise on the way to and from the outlet."

Longer hours
Increasingly, the Postal Service has been adding 24-hour service to many locations, an effort to be more convenient for consumers and more competitive with the traditional business hours of competing services.

While greater automation seems to be an important part of ongoing moves, it is not likely supporters of increasing staffed hours will prevail. In fact, visiting the local post office beyond the business day is likely to get more difficult. With plans afoot to end Saturday mail delivery -- a move endorsed recently by the Obama administration -- it is likely local post offices will find their hours reduced.

If, however, more public-private partnerships move forward, deals with convenience stores and other retailers -- similar to the package delivery partnership recently announced by Amazon and 7-11 -- could make around-the-clock service a reality.

Conserve fuel
Being environmentally friendly isn't just a feel-good notion for the Postal Service. It could save a lot of money.

The USPS has the largest civilian fleet in the world: 215,625 vehicles.

Each year, its trucks and cars travel 1.25 billion miles; last year they consumed 399 million gallons of fuel. According to postal officials, every penny difference in the price per gallon of fuel can cost, or save, roughly $8 million.

Moves have already been under way to add hybrid vehicles into the mix. Over time the savings will prove substantial.

Cyber Cafe
A proposal raised over the years is to turn local post office locations into a sort of cyber cafe.

As the government looks to increase broadband access in rural and low-income areas, post offices could prove to be an important partner with local libraries in offering such access. Given the co-dependent nature of Internet retailers and the postal service, it might even be possible to find a corporate benefactor in Amazon ( AMZN), Google ( GOOG) or eBay.

Community Centers
Just as broadband access could better integrate post offices with their local community, a whole range of other services could position them as an adjunct to town halls and community centers.

Especially in rural areas, the post office is often a gathering place and a focal point of neighborhood activity. Using locations for such municipal tasks as voting, license renewals and fee collection would drive traffic to its doors and ease the burden on cash-strapped municipalities.

To go in a more capitalistic approach, post offices could also make money by selling goods and services that are not necessarily postal in nature.

Over the years, due to successful lobbying by concerned businesses, regulations have stripped the Postal Service of engaging in any business that wasn't mail related. Lifting the ban could open up opportunities for revenue.

Longer delivery times
Among the proposals under review by the postal service is increasing delivery times for first-class and priority mail by at least one day.

Officials estimate savings of upward of $1.5 billion a year by shifting more volume from air to ground delivery. Express mail, a competitor to services provided by UPS and Fedex, would not see any changes.

-- Written by Joe Mont in Boston.

>To contact the writer of this article, click here: Joe Mont.

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