Postal Service renews effort to drop Saturday deliveries

The post office is renewing its effort to drop Saturday delivery - and plans a rate increase - in an effort to fend off a projected $7 billion loss this year.

Without drastic action the agency could face a cumulative loss of $238 billion over ten years, Postmaster General John Potter said in releasing a series of consultant reports on agency operations and its outlook.

"The projections going forward are not bright," Potter told reporters in advance of Tuesday's announcement. But, he added, "all is not lost ... we can right this ship."

As Americans turn more and more from paper to electronic communications, the number of items handled by the post office fell from 213 billion in 2006 to 177 billion last year. Volume is expected to shrink to 150 billion by 2020.

At the same time, the type of material sent is shifting from first-class mail to the less lucrative standard mail, such as advertising, Potter pointed out.

And as people set up new homes and businesses, the number of places mail must be delivered is constantly increasing.

The agency has asked Congress for permission to reduce delivery days and has previously discussed the need for other changes such as closing some offices.

Cutting back Saturday home delivery, however, does not mean post offices would close that day.

There seemed to be concern on the part of Congress that officials had not looked at all possible options, Potter said, adding that was part of the reason for the three consultant studies.

Potter said he would like to see mail delivery cut to five-days-a-week starting next year.

Later this month, he said, the Postal Service will ask the independent Postal Regulatory Commission to review its plans for the service reduction.

Under the law, the agency is not supposed to raise rates more than the amount of inflation, but there is a loophole allowing for higher increases in extraordinary situations such as the current recession and drop in mail volume.

"We intend to use that tool," Potter said.

He said the USPS's governing board is engaged in lively discussions of rate increases, though he declined to speculate on a new price. Currently, first-class stamps cost 44 cents. Rates for other classes vary.

"We need to walk slowly and very, very careful" in raising prices, Potter said, noting that increases can also drive business away.

A proposal before the Postal Regulatory Commission has estimated that increases of 3 percent this year and 10 percent next year would be needed to get the agency back to break-even.

While suggestions to close local post offices always draw complaints, Potter said the current system could be improved by opening more postal facilities in places like convenience stores and supermarkets. A few Office Depot stores are already doing this, he said.

The average post office has 600 patrons-a-week, Potter said, while the average supermarket brings in 20,000 people each week and is open longer hours and more days.

Only after such new facilities were available would a local post office close, he said.

Moneysaving ideas considered and dismissed by the consultants included reducing the efficiency of mail delivery, Potter said.

Currently, the standard is to deliver first-class mail in one-to-three days, depending on the distance traveled. Reducing this to two-to-five days could save money by allowing more use of ground transport, but Potter said it would also reduce the value of mail use, especially to businesses.

Another possibility would be to ask Congress for a subsidy, but noting the current financial conditions Potter said "we do not plan to pursue that." The post office has not received taxpayer subsidies for its operations since the early 1980s.

Potter said the agency is looking to new types of mail services to offer but will not seek to get into other types of business, such as banking, which are offered by many foreign postal services.

The agency has cut its work force from a peak of 800,000 career employees to currently about 600,000, and Potter said it wants to use more part-time people in the future. Over the next 10 years some 300,000 postal workers will become eligible to retire and that will offer an opportunity to make this change, he said.

A major problem for the agency is a new requirement for an annual payment of $5.5 billion to prepay expected medical benefits for retirees. Most businesses handle that cost on a pay-as-you-go basis and Potter said he is seeking congressional approval for the post office to go back to that standard.

The consultant reports, costing a total of $4.9 million, involved volume and revenue forecasts prepared by the Boston Consulting Group, revenue research by Accenture and a combined business forecast prepared by Mckinsey & Company.

The Postal Service unveiled a 10-year plan Tuesday for coping with its financially strapped future. Some questions and answers:

Q. How did the post office get in this fix?

A. Americans have been rapidly switching from the mail to the Internet for communications. The post office tried to refocus more on business mail and advertising, but the recession caused that to be cut also, and studies show little chance of mail volume getting back to former levels.

Q. How bad is it?

A. The agency faces a possible loss of $7 billion this year and total losses of $238 billion over a decade if nothing is done.

Q. Don't they get a subsidy for operations from the taxpayers?

A. No, that ended decades ago and in the current financial situation Congress is unlikely to restore it.

Q. Why is the post office so eager to eliminate Saturday delivery?

A. It's one of the most effective ways for them to save money. Right now it takes six mail carriers to cover five delivery routes - one per route to deliver five days, and one to work each route one day. Cut out that sixth day and you only need five carriers to serve five routes.

Q. Why make the changes now instead of putting them off?

A. The post office will have 300,000 people eligible to retire in next 10 years. Six-day delivery would mean hiring new carriers. Then, if there are future cutbacks, those workers might have to be laid off. The postal service wants to avoid that.

Q. Will post offices close on Saturday?

A. No, people will still be able to go there to mail items and check their post office boxes.

Q. I hear there's a problem with their retiree health-benefit payments.

A. A couple of years ago Congress required the post office to pay about $5.5 billion annually into a fund to prepay health benefits for retirees. Most agencies handle that cost on a pay-as-you-go basis and that's what the post office wants to return to. The problem is what's called "scoring"; if they stop making those payments it will be recorded as a loss to the government, making the federal deficit look bigger on paper.

Q. Can't they just cut staff?

A. They have gone from a peak of 800,000 workers to about 600,000 now, and plan further reductions, but you can only cut so much and still deliver the mail. They will be negotiating new union contracts this year and next, and hope to be able to use more part-time people.

Q. Will my local post office be closed?

A. Congress limits the closing of post offices. There is a proposal to open postal counters in places like convenience stores, supermarkets and office supply stores. If that works, then some local post offices could be closed.

Q. Why not sell the post office to a private company?

A. There isn't much demand to buy a business that is losing so much money. Plus, few private businesses would want to take on the requirement for universal service - to serve every address in the country at the same price.

Q. The Pony Express is famous for carrying the mail. Why doesn't the post office follow its example?

A. Because, while it was colorful, the Pony Express never made a profit and went bankrupt after less than two years of operation.

Facts about the Postal Service:

- The post office moves mail on planes, trains, trucks, cars, boats, ferries, helicopters, subways, hovercraft, street cars, bicycles, feet and even mules.

- Those mules carry mail to Indians living at the bottom of the Grand Canyon. Because some of that mail is food, the post office at Peach Springs, Ariz., has freezers to store it until delivery.

- Oldest post office in the same building: Hinsdale, N.H., 1816.

- Smallest post office, Ochopee, Fla., 8-feet-4-inches by 7-feet-3-inches.

- Floating post office, post boat JW Westcott delivers mail to ships passing in the Detroit River. The boat has its own ZIP code, 48222.

- Longest rural route: Route 1, Fordsville, N.D., 176.5 miles daily to serve 174 mailboxes.

- Shortest rural route, Route 42, Henderson, Nev., 1.9 miles daily, 640 mailboxes.

- Number of mail pieces handled daily in 2009, 584 million.

- Payroll every two weeks, salary and benefits, $2.1 billion.

- Vehicles operated: 218,684.

- Address changes processed last year: 43.8 million.

- Number of new delivery addresses added to the mail system last year, 923,595.