Postal Service ponders its future

Unless it's granted new flexibilities, the U.S. Postal Service may stop flying like an eagle and start crawling like a snail.

The 1970 Postal Reorganization Act, which transformed the agency from a subsidized bureaucracy to a businesslike entity, requires USPS to fund itself by selling mail-related products. But USPS officials and observers worry that strict oversight and lengthy approval processes are preventing the Postal Service from responding to an evolving market and increased competition.

"The issue is how we meet customers' needs," said Robert Reisner, vice president of strategic planning at USPS. "The issue is not about trying to fill a hole to sustain the life of the institution, but how we evolve as the world changes." Reisner spoke at a seminar sponsored by the Cato Institute, a libertarian think tank which recently released a new book, "Mail @ the Millennium: Will the Postal Service Go Private."

What Reisner and others see is a world where USPS goes toe-to-toe with domestic carriers such as United Parcel Service and FedEx as well as foreign postal services. The agency is also confronting the e-revolution.

As a result of some of these challenges-especially email and electronic bill paying-the agency expects First-Class mail volume to shrink by more than 2 percent annually starting in 2002. Although it sounds like a small decline, that could have a major impact on an agency required by law to break even every year.

In 1999, First-Class mail accounted for 51 percent of total mail volume and 58 percent of mail revenue. It covered 67 percent of USPS' overhead costs. If First-Class mail revenues shrink, the agency will have to find a way to fill the void.

"Over the past five years, things were looking pretty good," the General Accounting Office's Bernard Ungar said. "Unfortunately, things are not as rosy now."

This year, USPS suffered its first loss since 1994, to the tune of $150 million. It expects to be in the red again next year. The situation becomes even more dire if predictions of diversions to the Internet hold true.

Some argued that a long-term solution to USPS' woes is privatization, or at least major reform.

A privatized USPS would be more responsive to customer needs and be better able to find efficiencies, argued Ruth Goldway of the Postal Rate Commission, the entity charged with approving postal rate hikes. Additionally, she said a privatized postal service would have great flexibility to offer new products and adjust prices.

Rick Merritt, head of the watchdog group PostalWatch, said that reform is needed to level the playing field. As a government agency, USPS should not be allowed to "thrash widely" in the private market. That gives USPS an unfair advantage over private sector companies, he argued.

But Goldway is not optimistic that privatization, or even modest reform, will come anytime soon. Rep. John McHugh, R-N.Y., the most vocal advocate for USPS reform on Capitol Hill, will not chair the House Government Reform Subcommittee on the Postal Service in the next Congress. And other proponents of reform, including USPS officials themselves, have not launched a major grassroots effort, Goldway lamented.

"It will take a shock to the system" for reform to take place, she added.