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Fixing the Mail: Neither Snow nor Rain nor…Red Ink?

The U.S. Postal Service, long beset by financial woes, has recently felt the pinch even more acutely. On Aug. 5, the agency reported a $2.4 billion loss for its most recent quarter, a gush of red ink that is expected to total some $7.1 billion for the fiscal year, which ends Sept. 30. The Government Accountability Office recently placed the Postal Service on its "high risk" list as "an organization vulnerable to fraud, waste, abuse, and mismanagement," needing broad reforms.

Aggravating matters is that even when the U.S. economy turns around and mail volume rebounds, deep structural problems make it likely that the Postal Service won't benefit much. That's because even though the recession has curtailed second-class business mailings—the so-called junk mail Americans toss daily—much of the trouble stems from the agency's inability to change as mail has decreased, industry analysts say.

"The Postal Service needs to get out a blank sheet of paper and think about a new business model," says Steve Goodrich, president of the Center for Organizational Excellence, a consulting firm in Washington, D.C.

A Plan to Reform Health-Care Benefits Now, however, there's some indication that Congress and agency leaders are beginning to contemplate innovations. First on the agenda is an effort by U.S. Postmaster General John E. Potter to have Congress pass the Postal Service Retiree Health Funding Reform Act, introduced in July by Senator Tom Carper (D-Del.) and Senator Joseph Lieberman (I-Conn.).

The legislation would "restructure the aggressive retiree health pre-funding schedule that was imposed on it in 2006," Carper said in a statement at an Aug. 4 hearing on the agency. Since 2006, the Postal Service has been required to pay more than $5 billion annually to pre-fund retirees' future health-care obligations. That mandate, coupled with a decline of roughly 38 billion pieces of mail since 2007, has left the Postal Service struggling. "A number of factors—including the economic downturn and competition from Internet communications—have left the U.S. Postal Service financially crippled," Lieberman said in a July news release.

Goodrich and other business-practice experts suggest a number of ways for the Postal Service to dig out of its hole, apart from the traditional practice of raising stamp prices to bolster revenues. Some of the ideas: selling cell phones and other nontraditional products and services in post offices, further reducing the agency's 625,000-employee head count; trimming retiree health benefits; allowing competition from private enterprise, as many European postal systems do; and exploiting the electronic-mail revolution as e-mails continue to replace physical first-class mail.

Potter strongly favors the idea that USPS retail outlets follow the example of many countries around the world by branching into new products—as well as restoring banking services, which were offered in U.S. post offices until the 1960s. "In Australia if you want to renew a driver's license, more than likely you can go to a post office. In Japan, you go to a post office to get life insurance. In Italy, you do banking at post offices. In France you can buy prepaid cell phones in [the] post office," says Potter. "We haven't spent a nickel to research what you can sell in our post offices. We need to. Any business that faces substitution must diversify to generate revenue. Phone companies went from landlines to cell phones, and now they're into cable."

Ron Wiener, who heads Seattle-based Venture Mechanics, which funds and advises technology startups, agrees that the current mix of retail products at the post office represents a huge lost opportunity. The Postal Service—which sells little beyond stamps and padded envelopes—has no method to consider which merchandise is best suited to different areas. Compare that, says Wiener, who founded Earth Class Mail, a Seattle-based provider of online postal boxes and mail-forwarding services, "to Wal-Mart Stores (WMT), for example, where you have merchandising experts analyzing everything every day."

Rethinking Basic Services Indeed, the Postal Service needs to run itself like a business, according to Brian Clancy, managing director of MergeGlobal, a financial advisory firm in Arlington, Va., that specializes in transportation and logistics. "Right now, it's operating like a corporation with one hand tied behind its back," he says. Unlike other government agencies, the Postal Service is expected to fund itself, through products and services it sells the public, instead of asking Congress for money. At the same time, however, it cannot eliminate thousands of jobs as in the private sector, because of strong union and political protections for its workers.

A simpler feat, endorsed by Potter and many others, of cutting mail service to five days a week, instead of six, seems to be almost inevitable. Potter has asked Congress for permission to eliminate Saturday mail service since so many businesses are closed that day. Others, such as Clancy, believe Saturday isn't the best day to axe, as it would mean two consecutive days without mail service. "Tuesday is typically the slowest day in the freight and shipping business anyway," Clancy says.

A move toward printing fewer physical stamps and offering more electronic ones seems certain, too. "Even though stamps are small, there's still the expense of selling them, printing them, etc.," Goodrich says. "And I would do away with special commemorative stamps." Switzerland's postal service, cited as one of the most efficient and financially healthy mail systems in the world, charges extra for traditional physical stamps with glue.

Other companies, such as Microsoft (MSFT) and Earth Class Mail, wonder why mail even needs to be a paper affair with a delivery person in the first place. Both companies are already pitching postal services around the world on Internet-based mail delivery service. Businesses or individuals would e-mail letters or documents to a secure server the postal service would maintain, which would then route them to secure—spam free—online mailboxes provided to the recipients. "Utilizing technology is the key for the Postal Service," says Prashant Malaviya, associate professor of marketing at Georgetown University's McDonough School of Business. "They need to use technlogy to differentiate themselves from the e-mail that has surpassed them."

Exploring Partnerships Potter says that while he doesn't object to expanding the Postal Service's use of Internet technology, he generally does not believe e-mail growth has caused the USPS's current deficit. "We've been managing—and managing well—the reduction in mail due to the growth of e-mail," says Potter, pointing out that the USPS has been slowly reducing its workforce since 1999, when it employed upward of 800,000 workers. In the past decade, the USPS says it has eliminated 175,000 positions.

Finally, the biggest change the U.S. Postal Service needs, say Wiener and Clancy, is opening its mail service to private enterprise delivery as a way to foster competition. "Europe has progressively allowed private companies to jump into the mail business," Clancy says. Goodrich believes partnerships with delivery services like United Parcel Service (UPS) and FedEx (FDX) for first-class and standard-mail letters are worth exploring.

Whatever reforms may come, the Postal Service has one competitive advantage no other business can claim: near-daily access to virtually every U.S. home and business. That kind of contact, and the commercial opportunities it creates beyond mail delivery, could be a lucrative attribute in the marketplace. "There's no business that goes everywhere every day like the Postal Service does," says a spokesman for Carper, "and it can be leveraged to make money."
Rebecca Reisner is an editor at

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