The shrinking post office

What shape is the Postal Service in?
It’s hurting. With more and more personal and business communication being conducted via e-mail and social-networking sites, mail volume peaked at 213 billion pieces in 2006 and has been declining ever since. The recession has only made a difficult situation worse. Mail volume declined by 25.6 billion pieces this year, or almost 13 percent—more than double any decline in the history of an institution founded before the American Revolution and first led by Benjamin Franklin. Volume is projected to fall by another 11 billion pieces next year. “Simply put,” says Postmaster General John Potter, “the Postal Service is in acute financial crisis.”

How much money is it losing?
Losses this year alone totaled $3.8 billion, and by the end of next year, total agency debt is expected to reach $13 billion. The Postal Service’s fiscal straits would be even more dire if not for a 2 cent hike on the first-class stamp this year and $6 billion in cost reductions. The quasi-governmental agency has cut 260 million work hours in the past decade and even eliminated 200,000 of its iconic blue mailboxes. But with $80 billion in annual expenses, cuts haven’t kept pace with the decline in revenue. “The business model, quite frankly, is broken,” says USPS Chief Financial Officer Joseph Corbett.

Why are expenses so high?
Labor, mostly. The Postal Service, the nation’s second-largest employer after the federal government itself, employs 630,000 full-time workers with generous benefits packages, as well as tens of thousands of contract and part-time employees. Compensation and benefits account for 80 percent of expenses, compared with about 50 percent at FedEx and UPS. In addition, the Postal Service runs a vast infrastructure of 32,000 post offices and thousands of other retail and processing centers—more outlets than Starbucks, McDonald’s, and Wal-Mart combined. Indeed, it has enough capacity to handle a 100 percent increase in mail. “The Postal Service urgently needs to restructure,” says Phillip Herr, a government analyst. It’s trying. The agency offered early retirement to 150,000 employees this year, but only a fraction accepted. It also targeted 700 post offices for closure, but closing offices has proved to be nearly impossible.

Why can’t it close post offices?
Politics. Although the Postal Service earned a measure of independence in 1971, when it was made a financially self-sustaining agency, many operational changes, including branch closures, require congressional approval. There are 2,000 post offices that serve fewer than 100 customers each, and the USPS would love to shut them down. But each office is located in someone’s congressional district. “Congress puts up roadblocks whenever the Postal Service even mentions that it might be time to close or consolidate some facilities,” says Delaware Sen. Tom Carper. The agency also could save as much as $3.5 billion a year by eliminating Saturday mail delivery, but that, too, would require the approval of reluctant politicians. “People depend on regular mail delivery and would be greatly inconvenienced by missing a day’s delivery,” says Rep. Jose Serrano of New York, who chairs a subcommittee that oversees the USPS. With even modest adjustments being politically fraught, prospects for far-reaching reforms, such as those enacted in other countries, seem even more remote.

What kind of reforms?
Germany’s Deutsche Post has been completely privatized, as has mail delivery in Japan. Some foreign postal services have improved their financial standing by offering additional services; Poste Italiane sells insurance and other financial services, for instance, while Japan Post operates a savings bank. In the U.S., some post offices have started selling greeting cards in an effort to raise revenue. But the Postal Service is forbidden from offering banking and insurance services, and given the political clout of those two industries, it’s doubtful that will change. As for privatization, many policymakers fear that if mail delivery were freed of any government role, rural and poor areas would be neglected and millions of Americans would lose a lifeline.

So does the Postal Service have a future?
Clearly, something has to give. The Postal Service will have to
accelerate its painful downsizing, and complete privatization can’t be ruled out. The fact is, with e-mail now ubiquitous, Americans simply don’t need the Postal Service as much as they once did, and it often seems that most of what arrives in the mail every day is junk anyway. That sense has been confirmed by a Seattle company that has carved out an unusual niche: It e-mails scanned images of unopened envelopes to its customers, who then decide which ones to open and which to have shredded. Customers shred 90 percent of their mail without reading it. Such indifference to the vast majority of mail leaves postal officials anxious about the future and desperate for solutions. “Urge the public to mail a letter to a loved one and do it weekly,” says William Burris, president of the American Postal Workers Union. “That would help.”

A demoralized force
In the 1980s and ’90s, a series of shootings by postal workers launched the phrase “going postal.” Since then, management has been keenly sensitive about worker morale, which by many accounts has taken a beating in recent months. With a long-term hiring freeze in place, employees have seen hours reduced, delivery routes consolidated, and their efficiency meticulously monitored by a management desperate to cut labor costs. “Many of our carriers hate coming into work,” says Robert McLennan, a union leader in Buffalo. Postal workers are “frenzied with worry,” says Tom Mullahey, a postal worker in Jersey City. “You have different rumors every day. It’s like a roller coaster.” The Postal Service said such reactions are not surprising, considering the circumstances. “The stress and tension are out there,” says Postal Service spokeswoman Karen Mazurkiewicz. “Everyone is under a magnifying glass.”