TOPICS > Politics

U.S. Postal Service May Nix Saturday Mail to Cut Costs

March 2, 2010 at 12:00 AM EDT
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U.S. Postal Service rate hikes and service cuts, including Saturday delivery, are in the works due, in part, to competition from online services and private carriers. Jeffrey Brown asks a Washington Post reporter and a Stanford University economics professor whether the cuts will help.

JEFFREY BROWN: The U.S. Postal Service has faced mounting problems for years, squeezed by the rise of e-mail and online bill-paying, competition from private delivery companies like FedEx and UPS, and, more recently, hit hard in the recession.

In a Washington speech today, Postmaster General John Potter acknowledged the agency’s attempts to keep pace have fallen well short.

JOHN POTTER, U.S. postmaster general: Technology has made obsolete many aspects of the USPS business model that worked so well for us for so many years. In recent years, the great advances in communications technology and the Internet have changed the landscape to an extent and at a rate unimaginable a decade ago.

JEFFREY BROWN: The numbers help tell the story.

Last year, the Postal Service handled 177 billion items, down sharply from the all-time high of 213 billion in 2006. And it’s projected that the number will continue to fall to 150 billion by 2020.

Overall, Potter said today, if it takes no action, the Postal Service faces a shortfall in revenue of $238 billion over the next 10 years. To help address that, he proposed a number of steps, including an end to Saturday deliver and raising postal rates yet again next year. At the same time, he said there’s a risk of cutting too much.

JOHN POTTER: We are rapidly reaching the point of diminishing returns. There’s only so much that you can cut before you begin to seriously impact service.

JEFFREY BROWN: One possible new convenience for consumers, more postal facilities might open in supermarkets and other local stores. In the end, Congress will have to sign on before any such plan goes forward.

More now on the plight of the Postal Service from Ed O’Keefe, who has been covering the story for The Washington Post, and Frank Wolak, professor of economics at Stanford University. He has spent 20 years researching the postal service industry.

Ed O’Keefe, fill in the dire picture of it for us. Who is — who is not using the post office anymore?

ED O’KEEFE, The Washington Post: Well, mostly casual customers, younger folks who are relying on e-mail and instant-messaging, instead of sending greeting cards to grandma for her birthday, and other companies who are cutting back and using UPS and FedEx, or e-commerce, instead of sending out bills in the mail, or catalogues or other products and services.

JEFFREY BROWN: And, Frank Wolak, when the postmaster general talks as though he’s looking at a whole new business model, what are the principal challenges that you see?

FRANK WOLAK, professor of economics, Stanford University: Well, the biggest challenges are the — the issue of the what’s called universal service obligation. That is a minimal level of service that the Postal Service is required to provide to all customers.

The other is the fact of the labor relations and labor practices that the Postal Service faces. The other is the challenge of the fact that many costs that normal businesses don’t face, the Postal Service has to bear, for example, not being able to close uneconomic post offices, because few congressmen want a post office closed in their district.

JEFFREY BROWN: And — and staying with you, Professor Wolak, these kinds of things and the technological change, there’s no going back on a lot of this stuff, right?

FRANK WOLAK: No. It really is, I think, what the postmaster general said, is that the Postal Service for the 21st century is clearly going to be a dramatically different one than the one that existed in the 20th century.

It’s going to be significantly smaller, just because of the fact that there are so many, as he said, alternatives that — that achieve exactly what the Postal Service used to achieve, in many cases better than the Postal Service does. So, there’s less need for as large a Postal Service. So, it really is a case of trying to transition to a significantly smaller Postal Service. And that is a challenge.

JEFFREY BROWN: Well, so — so, Ed O’Keefe, help us look a little bit at the transition here. I — I listed just a couple of the changes in our setup piece. What — what — what were the main things that you heard today? And I think, yesterday, you had a chance to talk to the postmaster general. What are the main things that they’re proposing?

ED O’KEEFE: Well, two things, I think, that he wants to see Congress act on this year. The first is eliminating Saturday mail delivery. He sees it as a big opportunity to save millions of dollars a year, hundreds of millions of dollars a year, on what is traditionally the slowest mailing day of the week.

There are — there’s polling that suggests that a majority of Americans are OK with that cut if it helps cut costs. The other one is a little more difficult to understand, but, basically, the Postal Service has to pre-fund its retiree health benefits program, to the tune of about $5 billion a year. No other federal agency or Fortune 500 company does this, Potter points out. And he wants Congress to allow them to stop doing that.

They put it in place back in 2006 because the economic climate was much better, and they were at record volume levels. But, of course, that all came crashing down amid the recession.

Beyond that, they’re going to have to think seriously about closing post offices. As your piece said, they want to move into supermarkets and pharmacies, coffee shops and Office Depots. But they need to close down, I have heard, as many as 10,000 locations across the country, not necessarily the tradition post office that every zip code is required to have by law, but the smaller retail branches you might find in shopping plazas or in a large downtown office building.

Those are the ones that would be closed. And then products and services would be offered in the closest grocery store or other retail outlet.

JEFFREY BROWN: Well, Professor Wolak, what kind of reforms would you expect to see or want to see? We all know in the past there’s been talk about privatizing the Postal Service. There have been these partnerships with private firms.

What kind of things do you see going forward towards this 21st century Postal Service you’re talking about?

FRANK WOLAK: Well, the interesting thing is, is in — Europe is significantly further ahead in the United States in postal reform. And, there, what you see is precisely what Ed O’Keefe was talking about, is the amount of post offices that are open in, say, the U.K., where a lot of reform has taken place, is significantly smaller.

It can be quite difficult to find one. The other is, is that there is a lot of entry into the various businesses that the postal service does. And the postal service in these countries has essentially shrunk, and really focused on the core business of local delivery, local pickup of mail, and — and — and really gotten much smaller in — in the other areas that it would traditionally be in.

ED O’KEEFE: And, Jeffrey, real quick, the postmaster general really wanted the Postal Service to be able to move into offering insurance or banking services, even cell phones at post offices across the country.

But this four-month study that three-different consultants just concluded determined that they don’t have the money right now to invest in any of those services. And they wouldn’t be able to incur the short-term losses, just because their financial condition is so bad.

The postmaster general really wanted to do that. And he — he admitted he was quite disappointed that they can’t offer what so many European and Asian post offices do quite successfully.

JEFFREY BROWN: It was also interesting, Ed, if I read this right, that the — the report suggested that the whole privatization thing is off the table, because it’s not really in a position to be privatized at this point.

ED O’KEEFE: That’s right. Others would argue that the government, if they were to drop all the regulations, if the Postal Service were to change the business model, it would be much more attractive to privatization. Investors might be more interested. But, as it exists right now, consultants said there’s no way an investor would be interested.

JEFFREY BROWN: Now, Ed, you have covered this in Washington. And a lot of these things — some of these things, at least, have been put forward before. And then Congress says no. But what — what are the prospects this time for some possible — possible changes?

ED O’KEEFE: You know, having called around today to a few different lawmakers who have been out in front of this before, they’re very nervous, I think, right now, because they’re really unsure how politically sensitive or how politically popular this kind of reform would be in an election year.

Yes, there’s polling that suggests that closing or shutting down Saturday service is popular. But who is it that is really going to react to that? Is it people who are going to call their offices and say, you shouldn’t do that? And are lawmakers going to be triggered by that?

Senators are expected to take up some kind of reform measure later this spring. It’s unclear what exactly that will include. But the leading lawmakers who would lead these efforts say, look, we’re going to go with what Potter recommends. And if that means cutting Saturday delivery, if that means shutting down those retiree benefit payments, then so be it. We don’t necessarily agree with that. But if that’s what he thinks needs to happen, we will do it.

JEFFREY BROWN: All right, Ed O’Keefe and Frank Wolak, thank you both very much.

ED O’KEEFE: Thank you.

FRANK WOLAK: Thank you.