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Restructuring the USPS

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Introduction

The United States Postal Service (USPS) was founded in 1775 when Benjamin Franklin was named the first postmaster general. After 237 years, the USPS finds itself in a crippling financial where the future of the USPS is in doubt. There have been many suggestions on the future of the postal service in the United States, which includes privatizing parts of the USPS or letting the USPS go into receivership.

USPS Background

The USPS is the only delivery service that reaches every address in the US. That relates to 150 million residences, businesses and Post Office Boxes. Before 1971 the government provided the postal service which was heavily subsidized by the taxpayer. In 1971 Congress replaced the existing US Postal Department with the independent USPS which was tasked with funding itself through the sale of postal services. The USPS was allowed to borrow funds from the US Treasury, subject to a limitation of $3 billion per year and a total debt ceiling of $15 billion. The USPS does not receive any taxpayer money and 49 percent of its revenue comes from sale of the first class mail. For the

Current Situation

In 2006 the US Congress passed the Postal Accountability and Enhancement Act after the USPS had completed fiscal year 2006 with its largest mail volume ever and a net income of $900 million. By 2008, mail volume dropped almost 5 percent which was the largest single-year decline. The USPS undertook a $2 billion cost cutting exercise, but this failed to stop a $2.8 billion loss. By 2011 the loss had increased to $5.1 billion. However, this would have been $10.6 billion, except that the government had passed legislation that postponed a congressionally mandated payment of $5.5 billion to pre-fund retiree health benefits.

Solutions

There have been a number of proposals from inside and outside the USPS to get the organization back in the black. The Royal Mail in the UK has been held up as an example of a national organization that turned around massive year after year losses to become profitable again. The USPS has looking at the solutions used by the Royal Mail, Australia Post, New Zealand Post as well as Posten AB in Sweden, and have incorporated those and other suggestions in their latest proposals to return to profitability.

  • Saturday Delivery – The USPS has offered six day a week delivery since 1863 and to stop the Saturday service is contingent upon Congress not enacting legislation to prevent such a change in service. Despite the elimination of Saturday service, it will not affect service to PO boxes and post offices will remain open. The USPS has not detailed the savings from this proposal.
  • Slower Delivery – The USPS has announced that they will no longer offer the delivery of next-day, first-class mail. This means first-class mail could take up to three days to be delivered. Currently 42 percent of all first class mail is delivered the next day, 27 percent in two days, and almost 31 percent by day three.
  • Headcount Reduction – By reducing headcount and closing mail processing facilities the USPS expects to save significant sums on retirement and healthcare benefits, as well as the savings on the physical buildings. Many observers have stated that there are many layers of management in the USPS that simply are not needed. With a leaner workforce the possibility of a more efficient business may save even greater amounts.
  • Increase Prices – As 49 percent of the USPS revenue is obtained through first class mail the USPS could increase the price of a first class stamp by 5 cents which would raise approximately a billion dollars. The cost of sending a piece of mail from one end of the nation to the other is far greater than the 45 cents the public pays. The cost in real terms is far cheaper than many other nations and an increase in the postage would be a simple method to raise revenue.

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