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What Really Keeps US Post Office From Making A Profit

Well before online bill paying was popular, the Postal Service in 2000 began operating a secure system that would have allowed it to remain the primary conduit for most Americans’ monthly payments.

Postal worker
Getty Images
Postal worker

But the Internet industry objected, and Congress successfully pressured the Postal Service to abandon it.

The same pattern has repeated several times over the last decade, with the Postal Service identifying a way to cope with the decline of traditional mail, only to have companies — and ultimately Congress — object.

The agency’s troubles, which could result in the closing of thousands of post offices and hundreds of mail processing centers as early as next month, have many sources. Some are the inevitable result of technological changes, and others are the result of missteps by the Postal Service.

But top Postal Service officials and outside experts say that another, underappreciated factor has been an insistence by Congress that the service not compete directly with private companies, even as companies like FedEx and U.P.S. have encroached on the Postal Service’s turf.

Now, with the volume of traditional mail plummeting and with the agency on the brink of running out of cash, the Senate is debating a bipartisan bill that would let it enter into several new lines of business, like shipping beer and wine. And it would create a chief innovation officer to identify new lines of electronic business. The Senate is expected to vote as early as next week on whether to advance the legislation.

The bill would also provide retirement incentives intended to cut about 20 percent of the Postal Service’s 547,000 workers, allow the service to study the elimination of Saturday deliveries, and recoup more than $11 billion that the Postal Service overpaid into one of its pension funds.

The agency’s leaders, however, say that cost-cutting alone will not improve its fortunes and that it must increase revenue.

“A lot of the decline in first-class mail is not going to come back, even if the economy improves,” said Paul Vogel, the chief marketing and sales officer at the Postal Service. “We realize that the development of new products and offering new service is going to have to be a critical part of our business model going forward. We can’t continue to be your grandfather’s post office.”

Of course, businesses have good reason to not want to compete with the giant Postal Service. But their opposition to its expansion leaves the agency in a bind: It must be financially self-sufficient like a business, but it is saddled with the burdens of a government agency, like having to deliver mail to every house in the country. Its carriers, in fact, deliver some FedEx and United Parcel Servicepackages in a partnership with those companies.

One of the sponsors of the bill, Senator Thomas R. Carper, Democrat of Delaware, said the legislation has the “potential to push the Postal Service to innovate and experiment with potentially lucrative new lines of business.”

Officials from the Postal Service declined to comment on the legislation. But the National Association of Letter Carriers, which hired a Wall Street investment bank to examine new lines of business for the Postal Service, called the bill a stopgap measure because it would allow only a handful of new revenue options.

“This bill does not give the Postal Service the freedom and flexibility to come up with new products and services that take advantage of its strengths,” said Jim Sauber, chief of staff for the letter carriers group. “It tinkers with a flawed business model that two years down the line Congress is going to have to deal with again.”

The carriers are pushing for more latitude to move into businesses that take advantage of the Postal Service’s network of mail routes, like offering banking services in rural post offices.

Since its founding in 1775 as the United States Post Office, with Benjamin Franklin as the original postmaster general, the Postal Service has focused mainly on one thing: delivering the mail. But mail volume, particularly fist-class mail, has dropped sharply, to 168 billion pieces last year from a peak of 213 billion in 2006, because of vast changes in the way Americans communicate, move money and even buy books and music.

The stagnant economy also has not helped. Pessimistic projections put the volume at 118 billion by 2020.

As a result, the service is losing a staggering $36 million a day, after having generated an annual profit as recently as 2006. Because of a Congressional mandate, the service has to pay $5.5 billion annually into a fund for its future retirees, which has added $20 billion in debt since 2007.

The Postal Service is the only federal agency that pre-finances its future retiree health obligations, though the bill would restructure the benefit plan by stretching out the payments over 40 years.

Faced with declining revenue, the Postal Service is asking Congress to allow it to close more than 3,700 post offices and 250 processing centers, and to eliminate Saturday delivery of mail.

In other countries, post offices double as banks or sell insurance or cellphones. In the United States, Congress has barred the Postal Service from entering many of these areas. In the 1990s, forecasting a decline in first-class mail, the Postal Service tried several nonmail products, like phone cards, money transfers and e-mail accounts. But Congress said the ventures created unfair competition for the private sector and did not seem to make much money.

Companies like U.P.S. also objected. According to a 2000 report on the Postal Service’s e-commerce activities by the Government Accountability Office, U.P.S.’s position was that “a government monopoly should not be allowed to use the benefits of its government standing to attack the private sector.” In 2006, Congress restricted nonpostal activities and told the agency to stick with delivering the mail.

Even so, in 2008, the agency tried to raise additional revenue by selling postal meter cartridges to corporations, branded with its logo. But the plan was shelved after Pitney Bowes, a major supplier of ink cartridges, appealed to postal regulators who answer to Congress, saying that the service would cause “immediate harm” to its business.

The Postal Service said that such restrictions might have cost the agency billions. A 2010 report from the Postal Service’s inspector general said introducing 10 new products like secure e-mail, electronic bill payment and even some banking services could add $9.7 billion annually to Postal Service revenue, which was $66 billion in 2011. But over half of those products would require a change in legislation.

Lawmakers like Senator Susan Collins, Republican of Maine, a co-sponsor of the postal reform bill, support limited changes that would allow the agency to increase revenue, like allowing it to sell hunting and fishing licenses and to lease space in its offices to businesses.

Ms. Collins does not support the Postal Service offering a broader array of services like banking. The agency did offer banking services between 1911 and 1967, aimed at immigrants who were used to using post offices to deposit money and at people who had lost confidence in the banks.

Missteps by the agency have also harmed its ability to enter new areas of business. Audits by the Government Accountability Office show that the agency lost millions in offering electronic commerce services, like money transfers, because the products were poorly marketed.

Art Sackler, chairman of the Coalition for a 21st Century Postal Service, a mailing industry group that includes companies like FedEx, said the Postal Service should stick to its core mission. “They haven’t had a good track record when it comes to developing new lines of business,” he said.

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