USPS Warns It May Cut Back Delivery to Save Money

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Universal delivery of mail or six-day delivery may become a thing of the past if the U.S. Postal Service doesn't get more flexibility to adjust prices, a postal official warned.


"This would certainly be one of our last choices," said Deborah Willhite, the agency's senior vice president for public affairs. "But there is a reality that has to be faced -- with the continuing growth of delivery points and the inability to respond quickly to other changes in the marketplace -- that to remain financially sound, we'll have to look at things above and beyond the actions we are taking.


"The current system has run its course, and our options are not the ones that a good business would use."


Willhite declined to be more specific about her comments. Industry insiders questioned whether the statement is a ploy to get public sympathy.


"Not delivering mail six days a week is not an option right now because it would simply make it impossible to operate on Monday morning," said Bob McLean executive director of the Mailers Council, Arlington, VA. "I don't think there is anything wrong with trying to get Congress' attention, because that's difficult to do, but the agency is talking about the wrong issues. Stopping Saturday mail delivery is not going to prevent a 15 percent postal increase in June. What we need is for the postal service to cut the size of the bureaucracy, because that is the only way they will be able to keep postage increases down."


The USPS faces a potential loss of $2 billion to $3 billion in the current fiscal year because salaries and fuel costs are rising faster than the growth of mail revenue. Last year, it lost $199 million, the first loss since 1994.


The postal service has taken some action. For example, its Board of Governors asked management to take unprecedented action on additional cost-control options, including an immediate freeze on capital commitments that will affect more than 800 facility projects, as well as significant new reductions in work years and administrative staffing.


"Management has put forth actions to cut costs over the next three to five years, and we are going to be rolling those out over the next couple of months," Willhite said.


Some of these ideas will be presented at the spring National Postal Forum, scheduled for March 25-28 in Orlando, FL.


The board also said management has made progress on other actions, including the preparation of a rate case seeking an average increase of 10 percent to 15 percent. In comparison, this year's rates went up an average of 4.6 percent, though many mail categories saw increases of as much as 16 percent or more. The rate case is expected to be filed with the independent Postal Rate Commission this summer.


"We are taking the steps within our power to sustain the institution. Long-term solutions, however, require substantial changes to our regulatory framework," the governors wrote in a recent letter to Bush administration officials and congressional leaders.


Price flexibility, Willhite said, could allow the USPS to raise prices during peak-volume periods or offer discounts during the summer, when mail volume traditionally slows.


"A lot of the things that the mailing industry would like for us to do, we need reform to do," Willhite said.


The USPS will have an opportunity to make its plea during a House Government Reform Committee hearing, chaired by Rep. Dan Burton, R-IN, scheduled for April 4.


"One of the big questions on the Hill and in the postal community is how we went from a $200 million loss to projecting a $2 billion loss. It is a very good question, and we have a very good answer," Willhite said, though she would not divulge the answer. "We suspect that it will be expected of us at the hearing to make that explanation, and then we can move on to issues around postal reform."


Though some direct marketers think the action by postal governors is an attempt to coerce Congress into acting on postal reform instead of keeping rates low, other agree that reform is necessary to keep the USPS alive.


The Direct Marketing Association, for example, again declared its support for postal reform.


"Another request for increases in postage rates is only a Band-Aid on a wound that requires major surgery. Reform is needed and needed quickly," said DMA president/CEO H. Robert Wientzen. "Continued reliance on rate increases will make the USPS less competitive in the marketplace, jeopardizing its long-term health, and will send business mailers away in droves."


The DMA has repeatedly called for reform of the 31-year-old laws that continue to shackle postal officials in the face of mounting electronic communications and private sector competition.


"The postal service must be allowed to compete more effectively with new electronic and private-sector competitors if universal postal service is to be continued," said Jerry Cerasale, senior vice president of government affairs at the DMA. "The postal service cannot be handcuffed by arcane regulations that hamstring its ability to effectively manage its work force and its pricing structure."


Cerasale said the law governing postal operations was drafted when e-mail and the Internet were more science fiction than business reality. In addition, he said, the postal service should be given the freedom to set its rates in a less cumbersome manner if it is to remain competitive with competing private-sector companies. Beyond pricing, the USPS must be given the leeway to expand into new services as the communications market continues to evolve.


The DMA continues to call on congressional leaders to reintroduce the Postal Modernization Act of 1999, which did not make it to the floor in the 106th Congress. This bill would modernize the legislative and regulatory environment that surrounds the postal service. The bill also would give the USPS the business flexibility it needs to compete in the rapidly changing communications and delivery environment.


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