- - Wednesday, October 23, 2013


Spare change is hard to find at the U.S. Postal Service nowadays. The nation’s mail service started October by defaulting on a payment due to the U.S. Treasury and is down to less than 10 days of cash on hand.

The USPS is expected to muddle through the crunch, but its financial problems won’t go away. The mail delivery business is in long-term decline. Without substantial change, the Postal Service inevitably will fail, leaving taxpayers holding the bag.

Some deny this grim reality, arguing that the financial crisis is a result of congressional requirements that the USPS pay about $5 billion annually to pre-fund retiree health care. But the USPS has not made those payments for three years. Even without counting this debt, the Postal Service is awash in red ink, losing some $15 billion over the past four years.

The problem with the USPS is not pension funding, but a fundamental shift in technology. The Internet and other communications technologies are rapidly displacing physical mail.

According to the USPS annual survey of household mail, every category of mail except for package delivery is threatened.

Personal correspondence: Letter writing is a disappearing art. The number of letters received per household has plummeted 80 percent since 1987 and 25 percent since 2010.

Online bill payment: As late as 2002, 75 percent of all bills were paid by mail and 17 percent were paid electronically. Ten years later, 56 percent of bills were paid electronically and 40 percent by mail.

Bills and statements: Postal delivery of bills and statements has decreased “only” 12 percent since 2010, but the pace will quicken. Businesses, aware of postage costs, are offering incentives such as free gift cards and discounted fees to customers for going paperless.

Advertising: Growing more than 14 percent last year, Internet advertising is coming on strong as an alternative for mailers.

Package delivery: The package market is growing, largely because of demand generated by e-commerce. But the Postal Service is a minor player in this business, capturing only 7 percent to 8 percent of the market, compared with 60 percent for UPS and 30 percent for FedEx.

It is unclear how low the total volume of USPS business will sink. In the long term, mail delivery could go the way of blacksmithing and steam engines.

For the foreseeable future, though, mail delivery will continue, albeit at significantly reduced levels. The Government Accountability Office estimates that by 2020, first-class mail volume will be barely half of the 2012 level.

To avoid insolvency, and a likely bailout by taxpayers, the Postal Service must remake itself as a lean and focused enterprise. Given that the term “post office” has long been synonymous with “appalling inefficiency,” there is good reason for skepticism about whether the USPS can pull off such a transformation. Yet USPS management has done a creditable job of reducing costs and improving productivity over the past few years.

Since 2006, it has reduced its workforce by 24 percent and reduced operating costs by a cumulative $50 billion. In a business plan adopted in April, it identified a further $20 billion in annual savings to be realized by 2017.

But many of the changes identified require congressional approval, and it’s not at all clear that Congress recognizes the gravity of the situation. Rather than acknowledge that the USPS is a failing enterprise that needs a radical, legislators still treat it as a font of federal largesse.

Time and again, Capitol Hill has blocked key reforms. In 2012, for instance, Congress blocked a Postal Service initiative to close unneeded post offices. Earlier this year, it blocked the USPS from eliminating Saturday mail delivery, forgoing an estimated $2 billion in annual savings.

To survive — and to do so without massive taxpayer subsidies — the USPS must fundamentally change the way it operates. Congress should get out of the way and allow the Postal Service — or others — to respond to the changing marketplace without politically imposed restrictions.

James Gattuso is the senior research fellow in regulatory policy at The Heritage Foundation.

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