Chain Reactions
Dave Blanchard Chain Reactions

USPS Struggles to Stay Solvent and Relevant

It’s got to be tough running the U.S. Postal Service, especially these days, when the government-agency-that’s-not-really-a-government-agency not only is having trouble making ends meet, to put it gently (so far this fiscal year, the USPS has lost $3.9 billion, and that’s with one more quarter to go), but is having even bigger trouble getting anybody in Congress to return their phone calls. The USPS certainly isn’t short of ideas that could stop the bleeding, but the trick all along has been persuading Congress—to say nothing of virtually everybody in the United States with a mailbox—that radical changes to mail delivery are not only reasonable but in fact are totally necessary.

Postmaster General Patrick Donahoe has been talking up his Five Year Plan for a while now, getting plenty of attention for his ideas, but usually the wrong kind of attention. For instance, the popular press has pretty much ignored Donahoe’s efforts to control the USPS’s healthcare and retirement costs, but they’ve certainly helped spread the word that eliminating Saturday delivery is a real possibility. We hear nary a peep about the USPS requesting a$6 billion refund for overpayments to the Federal Employees Retirement System, but we hear plenty about the phasing out of individual mailboxes in favor of neighborhood cluster boxes.

Donahoe’s somewhat quixotic quest to get Congress to go along with his plans and to initiate legislative reforms brought him last month before the House Oversight and Government Reform Committee, where he pointedly described the corner Congress has boxed him in: The USPS operates under a business model that does not allow it to adapt to changes in the marketplace because it does not have the legal authority to institute the changes Donahoe insists are needed if the USPS is to remain solvent.

“We are quickly moving down a road that leads straight to a large financial chasm. Postal reform legislation can be the bridge over that chasm. If we build the bridge properly, the Postal Service can have a bright future,” Donahoe told Congress. “However, we can’t get to that future if we don’t build that bridge. And, we need a bridge that gets us all the way to the other side. Half-measures are about as useful as half a bridge. We need legislation that, together with our planned changes, confidently enables at least $20 billion in savings by 2016. If not, we go over the edge.”

Should Congress not act, the most likely result would be the USPS eventually requiring a taxpayer bailout, an eventuality Donahoe insists could be circumvented if he is allowed to run the USPS like any other business.

While Congress continues to deliberate exactly what (if anything) to do about the situation, the USPS has borrowed a page from its chief rivals, FedEx and UPS, and rolled out some new products and services designed to at least put a fresh coat of paint on the Postal Service’s image, and potentially generate more than $500 million in new revenue over the next year.

Hoping to capitalize on consumers’ continuing interest in e-commerce, the USPS has upgraded its Priority Mail offering by providing date-specific delivery service for 1-day, 2-day and 3-day (based on the origin and destination of the package). Other new Priority Mail features include $50 or $100 of free insurance coverage (depending on the payment method), and upgraded tracking capabilities

While first-class mail volumes dropped by 4% in the third quarter, the USPS is looking to its package business for growth, as package delivery has grown by 14% over the past two years. Expect to see a major promotional blitz in coming days from the USPS as it bids to stay relevant in a marketplace shifting rapidly to online purchases.

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