Five Ways The Postal Service Could Reinvent Itself

Enlarge this image toggle caption Karen Bleier/AFP/Getty Images Karen Bleier/AFP/Getty Images

By the end of September, the U.S. Postal Service will be on the brink of defaulting on its employee pension obligations, unable to borrow more money, and have just enough cash to cover operations for a week.

Postmaster General Patrick R. Donahoe issued the warning to a Senate committee on Tuesday as he pleaded with Congress to intervene before Sept. 30 by granting him unprecedented authority to make radical changes that could steer the agency from financial ruin. He said the Postal Service could report losses of up to $10 billion for the fiscal year ending Sept. 30.

On Tuesday, Donahoe sought to help lawmakers grasp the scale of the problem by explaining that the broader $1 trillion-a-year mailing industry — which heavily depends on the Postal Service — "makes up approximately 7 percent of the country's gross domestic product. Failure to act would be catastrophic."

For the better part of the past decade, postal officials have asked for greater authority to restructure in the face of rising labor costs, inefficient operations and the rapid decline in mail volume as more letters and documents are sent electronically.

Donahoe already has pushed through numerous changes to gain efficiencies and lower costs, and he recently began the process of determining how many post offices will be closed out of roughly 4,000 deemed to be underused.

Now he's asking for the power to change delivery schedules, raise prices and lower labor costs by laying off potentially tens of thousands of workers, among other proposals. Lawmakers haven't been receptive to Donahoe's requests, and many have balked at post office closures.

But most observers agree that the situation has never been worse, and that Congress will have to act. Over the past three years, according to the Postal Service, a 20 percent drop in mailing has contributed to net losses of $20 billion.

Here are some potential changes that could help the Postal Service reinvent itself:

1. Ending Saturday mail delivery

This is one of Donahoe's key proposals, which he began advocating more aggressively in 2010. Scaling back to five days of mail delivery could save about $3 billion a year, according to the Postal Service.

The idea has faced resistance among the biggest postal clients, direct mailers — companies that mail ads to consumers. Catalog and magazine publishers time their mailings to arrive at people's homes on Saturday, when consumers begin shopping for the weekend.

But opposition to mail-free Saturdays may be giving way. Linda Woolley, chief lobbyist for the Direct Marketing Association, says the organization hasn't taken a position on the issue, but: "We think all of [the proposals] that are out there are good, and they should do them. What we're not in favor of are any increases in postal rates."

If Saturday delivery is eliminated, experts say people can expect to receive heavier volumes of mail during the week. And people most likely will be able to pick up shipped packages at nearby postal offices on Saturdays.

2. End or lower the Postal Service's mandate to "pre-fund" retiree health benefits

Congress requires the Postal Service to fully fund health benefits for retirees, in advance of when those benefits will be used. Donahoe wants the mandate repealed and says the obligation is the biggest cause of the $20 billion in net losses from 2007 to 2010. Otherwise, he has said, the agency would have been in the black in 2010.

3. Restructure health and pension systems for postal employees

For starters, Donahoe wants the government to refund the agency nearly $7 billion in overpayments to the federal employee pension system. More broadly, he wants to move the more than 563,000 postal employees out of that system and into a new program that would provide benefits at lower costs.

Postal union leaders reiterated their opposition to this at Tuesday's Senate committee hearing. Their unions are major supporters of Democratic lawmakers and are expected to try to kill the proposal.

4. Authority to change delivery schedules and work hours

This idea is also on Donahoe's wish list. Any such changes require the approval of the labor unions, which have so far remained opposed. So Donahoe wants Congress to break the collective bargaining agreements.

Industry experts say the Postal Service could gain huge savings through workplace changes. One commonly cited change would be pre-loading postal vehicles — and making sure they are fully stocked with mail, which isn't a current requirement. That could get letter carriers out on their routes sooner in the mornings and have them delivering more mail.

5. Increase retail

The goal would be to adopt private-sector practices that can turn the Postal Service's vast delivery network of post offices and vehicles into generators of profit. The most commonly cited example is DHL, the German-based global delivery giant that began as a unit of that nation's Postal Service. Another is TNT, which has its origins partly in the Netherlands' post office.

"If you look in Europe, the postal industry has been deregulated for many years now," says Doug Caldwell, an executive at the industry consultancy Parcel Research and a former manager at the Postal Service. "When you go into a post office in Europe, they look very different than our post offices. They often sell insurance, Internet access — just a range of creative ideas to make those facilities profitable. That's the question here."