III-2.3: The United States Postal Service published a document on March 2, 2010, detailing the challenges it faces in maintaining a universal postal service in the United States

http://www.usps.com/strategicplanning/_pdf/Ensuring_Viable_USPS_paper.pdf)

 Introduction / I. An Unsustainable Business Model / II. A Rapidly Worsening Crisis / III. Actions Within Management Control / IV. A Viable Postal Service: The Plan to Get There / Conclusion: The Path Forward / Appendix 

This report, entitled Ensuring a Viable Postal Service for America: An Action Plan for the Future, presents the worsening budgetary context of the United States Postal Service (USPS), which it says will potentially lead to insolvency in coming years. Indeed, this report highlights the necessity of sweeping legislative reform to modify the USPS’s missions and abilities: even if the USPS were to do everything in its power to improve its situation permissible under current law, it would sustain losses of $115 billion by 2020.

In 1970, the USPS was transformed from a cabinet-level position (Post Office Department) to an independent administrative agency, designed to function as a business rather than an agency funded by general taxation.

According to this report, this model worked well for 36 years, but in 2006, the Postal Accountability and Enhancement Act (Postal Act of 2006) limited pricing flexibility and implemented the obligation for the USPS to pre-pay its pension fund.

These changes were implemented under the assumption that mail volume would continue to grow, which it has not. Therefore, the USPS is sustaining such losses that it may become insolvent in the coming years.

This report defines the nine points that would need to be addressed by the US Congress in order to allow it to restructure its activities in order to become profitable:

1. Retiree health benefits prefunding: The Postal Act of 2006 requires the USPS to provide between $5.5 and $5.8 billion in funding to its pensions fund every year until 2016. This report pleads for a change to a “pay-as-you-go” system, which would align the USPS pension system with other pension systems for private and public workers, where premiums are paid through payroll taxes each year. This alone could lead to $50 billion in savings over the next ten years.

2. Delivery Frequency: Currently, under its Universal Service Obligations, the USPS provides 6-day delivery to every address in the United States. This report requests a modification in order to allow the USPS to reduce delivery to 5 days per week in areas where 6-day delivery is too unprofitable because of low population density or low volumes of mail.

3. Expand Access: Currently, the USPS cannot close a post office for economic reasons, and it is therefore obliged to maintain a vast network of unprofitable post offices. This report highlights that the average cost of a transaction that take place in a post office is $0.23 per $1 of revenue, whereas transactions that take place in retail contractors or on the Internet cost only $0.02 to $0.13 per $1. The report suggests allowing the USPS to close unprofitable post offices, and contract postal services, collection and delivery to various independent merchants and partners.

4.  Workforce: The report stresses the need to increase flexibility of its labour conditions in order to rationalise its workforce. More than 300.000 USPS employees will retire over the next decade, and collective bargaining with its labour unions would allow non-replacement of these employees, or replacement by part-time workers. It highlights that Royal Mail in the United Kingdom employs 22% part-time employees; Deutsche Post, 40%.

5. Pricing: The Postal Act of 2006 separated the USPS products into two categories. The first category is called “Competitive” and includes services open to market competition, principally express delivery services. In this category, the USPS has a relative liberty to fix prices according to demand. The second category, called “Market Dominant” is composed of services on which the USPS benefits from a monopoly, such as first-class mail. In this category, price rises are tied to inflation, and the monopoly has therefore become unprofitable because price cannot rise with demand and costs exceed revenue. Furthermore, there are certain “market dominant” services that are extremely subsidised, such as mail for the blind, library mail, and not-for-profit mail, for which the report proposes heavy rate increases in order to make them profitable.

6. Expand Products and Services: Currently, every new product requires ex ante review by both the Governors and the Postal Regulatory Commission. According to the report, this system is slow and inefficient. The USPS should be allowed to freely introduce new products and be subject to an ex post review.

7. Oversight: The USPS is subject principally to the review of Governors appointed to direct the USPS by the President, and the Postal Regulatory Commission, a body also appointed by the President. Congress, and various other administrative agencies also supervise the USPS. The report proposes clarifying and rationalising this oversight structure, which contains overlapping and sometimes-conflicting responsibilities.

This report makes dire prophecies for the future, and it will be interesting to see the way that Congress will choose to deal with the issue of Universal Postal Service: will it choose to increase public subsidies in order to preserve the status quo, or will it prefer to reduce the scope and quality of Universal Postal Service by granting the USPS greater liberty in reducing loss-generating services?