- The Washington Times - Wednesday, November 30, 2011

A program that began nearly 40 years ago as a way to get crucial goods to remote Alaskan communities now delivers big profits to airlines and private merchants while costing the U.S. Postal Service tens of millions of dollars, according to a postal watchdog.

Citing more than $70 million in losses last year alone, the U.S. Postal Service’s Office of Inspector General this week issued a white paper calling for major reforms to the so-called “Alaska Bypass” program.

Started in 1972, the program allows shippers to send pallets of freight by private airline at postal rates, bypassing the Postal Service entirely, with the service picking up the difference at rates it does not control, the report said.

Merchants and airlines benefit from the program because they pay only Parcel Post rates and get better service than the more expensive Priority Mail, the report said. But it’s not clear how much of those savings in turn get passed along to consumers in Alaska.

“Rural merchants seem to be among the biggest beneficiaries of the Alaska program,” the report stated. “Since these stores have little or no competition, they have little incentive to pass along the significant transportation savings they enjoy.”

The report also said Alaskan air carriers, “both mainline and bush, reap significant benefits” from the program.

However, the findings drew sharp criticism from Alaska’s U.S. Sens. Mark Begich, a Democrat, and Lisa Murkowski, a Republican.

“I am more than a little concerned about the report,” Ms. Murkowski said in a phone interview. “There are a number of statements that are either inaccurate or simply not well-considered.”

She said it’s unfair to criticize the payment of Parcel Post instead of Priority Mail rates because deliveries often have to be made by air since there are no roads connecting many communities.

The report also said that with nearly $40 billion in the Alaska Permanent Fund, which is funded by oil revenues, the state appears to be in a better position to contribute toward the development of air and road infrastructure.

Because the Postal Service bears almost all of the costs of delivering goods to rural merchants, the state government “has little incentive to increase its responsibility,” the report said.

But Ms. Murkowski said most of the land in Alaska is owned by the federal government. She said Alaskans have been fighting federal officials for years to be able to build more roads.

In an email, Mr. Begich agreed, calling the report “out of touch with the needs of Alaskans.”

The report suggests several reforms to the program, including allowing the Postal Service to negotiate rates directly with the airlines and to charge Priority Mail rates instead of Parcel Post rates. Officials also said the federal government or Alaska could reimburse the Postal Service for losses.

A spokeswoman for the Postal Service declined to comment on the report, saying officials are reviewing it.

The findings come at a time when the Postal Service reported losing more than $5 billion in fiscal 2011 and seeks permission to eliminate Saturday mail delivery to save money.

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