April 15, 2002
U.S. Postal Service looks to put stamp on new business plan
by Jeanette Knutson
"The U.S. Postal Service, as it exists now and in the future, wants nothing more than to continue universal service," said Woodinville Postmaster Jim Walters. By universal service, Walters means "delivery service to all Americans regardless of where they live or conduct their business."
The hitch is, living up to that mission statement - the continuance of universal service - is easier said than done.
"Imagine you have a retail operation," said Walters. "The forces of supply and demand are in play. One day you notice you are unable to meet your overhead. What do you do? You go to the shelves and change the prices. Now imagine what it would do to your business if it took 18 months to change those prices."
That's how long it can take for the U.S. Postal Service to undergo a rate change. By the time a rate increase is approved, the crisis upon which the request was based can be long past. In fact, 18 months after a rate-increase request is made, the postal service can be knee-deep in yet another crisis.
"Take the Seattle Mariner situation we had last year," said Walters. "(The Mariner organization considered) using our Express Mail service for the delivery of their playoff tickets. That way they'd have a 99 percent assurance their patrons would receive their tickets on time. FedEx came in and undercut us; they underbid us (and we, being linked to this rate- change process, were unable to alter our bid). UPS can do the same thing.
"That was a substantial chunk of change (the Seattle Mariner transaction represented)," said Walters.
Indeed, the U.S. Postal Service is operating under a 30-year-old business model. It was the Postal Reorganization Act of 1970 that brought the then-Post Office Department back from the brink of disaster. This Act created the postal service we know today. It shifted the ratemaking authority from Congress to two presidential appointed bodies, the Postal Service Governors and the Postal Rate Commission. It allowed the commissioners up to 10 months to conduct in-depth hearings before they made their rate-change recommendations to the governors, who acted on the recommendations.
It also tasked the postal service with "breaking even," said Walters.
And though this business model may have worked well 30 years ago, it leaves the postal service with its hands tied, so to speak, unable to react to market forces, unable to control its fuel costs or its heating costs or it electrical costs, said Walters.
It must, despite the fact that it is a governmental entity, deal with decreased mail volume, a sluggish economy, and increased health benefit costs. And the postal service doesn't receive tax dollars for operations. It relies solely on the sale of postage, products and services to cover operating costs.
"We're losing money because we cannot control our costs," he said. We're unable to beat inflation."
But they have a plan, a Transformation Plan.
A step in the right direction is the postal rate increase recently approved and set to kick in on June 30. Customers can expect to pay more for first-class mail, for packages, for Priority Mail, Express Mail, registered mail and other post office services. But the post office officials know that periodic rate increases are not a long-term solution for the organization's money woes.
Hence they have presented Congress with a blueprint for the future.
"If we continue to operate like the post office that we grew up with," said Postmaster General Jack Potter when he spoke to the National Press Club in Washington, D.C., on April 5, "the only post offices our children will know will be the ones they'll see in museums. We are at a point in our history when it's time for the next phase of postal evolution."
The Transformation Plan outlined three alternative business models: government agency, privatized corporation and the commercial government enterprise. Each would require structural legislative reform.
According to a press release unveiling the plan, the Postmaster General said the U.S. Postal Service believes a commercial government agency would best allow integration of the postal system into the modern economy. At the same time it would preserve the ability of the postal service to fulfill its mission of universal service.
The press release went on to say that under the commercial government agency plan the postal service could enjoy some of the operational and financial flexibility found in the private sector, whilst still remaining a government-owned entity. It would set rates more predictably, be able to retain earnings, work under private sector labor laws and, depending on future legislation, could even pay taxes or dividends to the government.
The fact of the matter is the postal service has already cut 30,000 jobs and $2.5 billion in costs over the past two years. Moreover, over the next five years, it plans to cut costs by an additional $5 billion - through job attrition, outsourcing, plant consolidation, lifting the moratorium on post office closings and other measures.
"Mail volume is going down, while at the same time 1.7 million new addresses are added every year," said Postmaster General Potter. "Our revenue cannot cover the increase in costs and it shows in our bottom line. We lost $1.68 billion in fiscal year 2001 and could lose as much again this fiscal year. But we have solutions to these challenges in the form of this Transformation Plan ... ."