December 8, 2009

USPS launches sweeping re-evaluation of business model

U.S. Postal Service says "bold changes" are needed to stem losses.

By Mark B. Solomon

The U.S. Postal Service, facing what it termed the most "urgent financial challenge" in its 217-year history, has launched what is expected to be a sweeping and intensive re-evaluation of its current business model. Noting that "bold changes" to its operations are needed, USPS said even those options "that have been dismissed in the past" must be put on the table for discussion.

The re-evaluation, which USPS says is at the beginning stages, comes in response to massive losses in the past three years due to escalating costs and a continued deterioration of USPS's core first-class mail revenues in the face of increasingly popular electronic mail delivery alternatives. USPS has lost over $12 billion in the last three years and expects to lose almost $8 billion in 2010, the Postal Service said in a report titled "Assessment of the U.S. Postal Service Future Business Model."

To underscore how dire the situation has become, the Government Accountability Office, which under a landmark 2006 postal reorganization law was slated to complete by 2011 a study on the future of the Postal Service, has moved up the deadline of the study's release to this spring.

In a statement on its Web site, USPS said current laws and regulations "make it nearly impossible" for it to effectively respond to the combined impact of the recession, diversion of mail to electronic alternatives, and the requirement that it pre-pay between $5.4 billion and $5.8 billion each year through 2017 into a health benefits fund for future retirees. Without this requirement, USPS said, it would have earned $4 billion from 2007 to 2009.

USPS fixed part of the blame for its current woes on the 2006 reorganization law, which was intended to give USPS more flexibility to market and manage its products, but which, according to USPS, placed stringent price caps on revenues it could generate while doing nothing to help it control its costs.

"An underlying presumption of the Postal Act of 2006 was that mail volume would continue to grow. That premise has proven false," USPS said.

USPS and the Postal Regulatory Commission, the body with jurisdiction over postal rates, have begun to reach out to stakeholders for their input. Among the issues expected to be discussed are the need for deeper closings of post office branches, reducing weekly deliveries from six days to five, and the more holistic question of redefining USPS's future role in a changing world.

Another issue that may be debated is the possibility of privatizing USPS along the lines of the European postal organizations. Most notable among the European examples is the German postal agency, Deutsche Post, which has leveraged its privatized status over the past decade to aggressively expand into non-traditional businesses like package delivery and logistics services.

However, in recent congressional testimony, former Deputy PMG Michael Coughlin said European-style postal reform would not work for USPS given the country's enormous geographic size and scope. "I think what the foreign posts are doing is interesting, but not terribly applicable to the Postal Service," he said.

About the Author

Mark B. Solomon
Executive Editor - News
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.

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