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The Postal Service's Plan: Worse Service, Higher Prices

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Postal ServiceThe U.S. Postal Service is in crisis, which means hard decisions have to be made. So, if you could save the USPS by accepting slower service, and perhaps a few fewer days of getting mail delivered to your mailbox, would you do it? Or would you prefer to pay a few more cents for a postage stamp as a way to shore up the USPS's failing revenue stream?

Opinions may differ on which solution is best. Lucky for us, we don't have to choose. The Post Office has already made its decision for us.

Wait a Minute, Mr. Postman!

Last week, Postmaster General Patrick Donahoe submitted to Congress his five-year plan for turning around an organization in decline. With the USPS once again running in the red, and facing an $18.2 billion annual deficit as early as 2015, the Postmaster argued that "meaningful operational changes and cost reductions" are necessary to ensure the Post Office's survival.

Reading from a plan prepared with the assistance of the same restructuring adviser who helped General Motors (GM) move through its own bankruptcy, Donahoe outlined the following planned cost-cuts:

  • Reduce payroll through attrition, leaving jobs unfilled when postal workers quit or retire.
  • Halt the prefunding of its pension fund, which is obligated to pay these retirees, and tap the funds already contributed to cover current operating costs.
  • Remove older employees from the Post Office's own health plan, and dump them into the taxpayer-funded Medicare system instead.
  • Shutter as many as 3,800 rural post offices and mail processing facilities.
  • Eliminate Saturday mail delivery.

None of this is news, of course. The Post Office has been batting around these and other extreme postal service makeover ideas for months. What is new is that in addition to the tackling the cost side of the equation, Donahoe now proposes to attack the problem of declining postal revenues as well by jacking up the price you pay for a first-class postage stamp by 11%.

An Idea Fit for an Airline

So that's the USPS solution in a nutshell: Give the customers worse service, and charge them more for it. Where have we heard this before? (Hint: Delta Airlines. United Continental. and American Airlines).

It seems the USPS has more than just delivering things from Point A to Point B in common with the airline industry today. Recognizing that it has a captive audience in the form of customers who simply must deliver certain, un-email-able items in physical form, the Post Office is taking a page from the airline playbook: Rather than looking for ways to make its service more valuable to customers, and thus attract new business, it's opting to make a lousy service even lousier, and hiking prices for the privilege of using it.

Never mind that this strategy has directly contributed to a wave of mergers and bankruptcies in the airline biz (American Airlines' recent Chapter 11 filing being only the latest.) When USPS looks at the business model, it seems it likes what it sees.

Rip Off the Bandage Already

Here's the problem, though. Hardly a year goes by without one airline or another lamenting the difficulty of making a profit in its industry, or threatening to beggar its workforce as the only means of avoiding bankruptcy. Similarly, years of nickel-and-dime increases in the price of a postage stamp has the USPS continually crawling back to Congress asking for permission to cut costs and raise prices once again.

This latest round of solutions proposed by the Postmaster General won't change that a whit.

Lengthening the time it takes a letter to travel from Point A to Point B won't do anything to increase the popularity of patronizing the postal system. Snipping a day off the weekly deliveries calendar, likewise. And charging more for a service that seems to get less convenient by the day? It almost seems like the Post Office is trying to guarantee that its business will fall further into decline.

So here's an idea for you, Mr. Postman: Rather than slowly killing your business by degrees, perhaps it's time to consider a better solution: Just rip the bandage off.

You know that annual revenues are approximating $67 billion right now. You know, too, that this is $18 billion less than you need to cover your costs. It doesn't take a math wizard to see that you've got a 27% budget deficit that needs addressing. So, why not just raise the price of a stamp from $0.45 to $0.60, and fix the deficit in one fell swoop?

There. Problem solved.

Motley Fool contributor Rich Smith does not own shares of any companies named above. Motley Fool newsletter services have recommended buying shares of General Motors.







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156 Comments

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Duane Wyman

The future USPS - I sure hope not!

March 07 2012 at 10:46 PM Report abuse rate up rate down Reply
Henry ptnm

I mailed an insurance premium with a check on Feb. 8th, 2012. The insurance company never got the check. That check is lost in the mail. I had no other choice to have my bank put a hold on that check. I paid the insurance company on line. The postal service must have shred that letter or it must be lost. If they tried to use that account number on that check, I have Life Lock on all my accounts.

March 05 2012 at 12:54 PM Report abuse rate up rate down Reply
jhuge07

According to Postal Reporter.net blog the Postal Service had a 1.262 billion dfecit for Jauary 2012. The PO attributed 1.017 billion of that amount to the Postal Service Retirees Health Benefit pre-funding expense. The PO is the only US business that has to pre-fund this health benefit 10 years in advance . It is THE major factor in the deficit right now. Although the PO has been lobying to change the law that requires this, Congress has failed to pass the legislation to releive this. Although a 15 cent increase in postage would go a long way toward providing releif of the additional defecit, Congress must approve all rate changes. THe PO has asked for higher rates in the past only to have the Cong. shoot it down. Sounds to me like gov. beuracracy is crippling the PO.

February 29 2012 at 2:44 PM Report abuse -1 rate up rate down Reply
jhuge07

According to Postal Reporter.net blog the Postal Service had a 1.262 billion dfecit for Jauary 2012. The PO attributed 1.017 billion of that amount to the Postal Service Retirees Health Benefit pre-funding expense. The PO is the only US business that has to pre-fund this health benefit 10 years in advance . It is THE major factor in the deficit right now. Although the PO has been lobying to change the law that requires this, Congress has failed to pass the legislation to releive this. Although a 15 cent increase in postage would go a long way toward providing releif of the additional defecit, Congress must approve all rate changes. THe PO has asked for higher rates in the past only to have the Cong. shoot it down. Sounds to me like gov. beuracracy is crippling the PO.

February 29 2012 at 2:43 PM Report abuse -1 rate up rate down Reply
jhuge07

According to Postal Reporter.net blog the Postal Service had a 1.262 billion dfecit for Jauary 2012. The PO attributed 1.017 billion of that amount to the Postal Service Retirees Health Benefit pre-funding expense. The PO is the only US business that has to pre-fund this health benefit 10 years in advance . It is THE major factor in the deficit right now. Although the PO has been lobying to change the law that requires this, Congress has failed to pass the legislation to releive this. Although a 15 cent increase in postage would go a long way toward providing releif of the additional defecit, Congress must approve all rate changes. THe PO has asked for higher rates in the past only to have the Cong. shoot it down. Sounds to me like gov. beuracracy is crippling the PO.

February 29 2012 at 2:43 PM Report abuse -1 rate up rate down Reply
chapython

The post office mail system is actually a very good service for the money. They can save money by, closing some of the small rural post offices, eliminate Saturday mail, or as UPS and FEDX do charge a higher premium that will cover the costs. Giving a slower service will only make matters worese. Next additional thing, just as UPS and FEDX have done, use part time employees to sort the morning and evening mail, they can be paid a lower rate, and will probably do the job faster. The mail delivery drivers can come in at 800 and start delivering and finish by 600, eliminates higher overtime rates as well.

February 29 2012 at 1:37 AM Report abuse -1 rate up rate down Reply
JIMMY R GONZALES

JUST READ YOUR COMMENTS MISTERPEP I AM A RURAL CARRIER OUT OF TEXAS. AND ITS TRUE WHAT YOU SAY. GREAT COMMENT.

February 28 2012 at 10:29 AM Report abuse +1 rate up rate down Reply
1 reply to JIMMY R GONZALES's comment
bggdg

Yeah, I'm terrified that I might one day go to my mailbox on a Saturday and find it empty.

Oh, the horror of it all!

February 28 2012 at 11:01 AM Report abuse +2 rate up rate down Reply
misterpep

PLEASE READ....I am a letter carrier. When you read an article like this, you always asume that the author knows what he's talking about. In this case, he misses a lot of important facts....Fact 1...in spite of the internet, we still deliver tons of letters, advertisements, drugs, packages etc...and our business interacts with other businesses- printers, bulk mailers, trucking..thus making the USPS a vital " behind the scenes" catylist.....Fact 2...huge, huge amounts of funds still reach their destinations through USPS....delaying mail by closing post offices and eliminating Saturday delivery is not the answer....Fact 3...fixing our problems is easier than you may think...simply notify your local congressperson and demand that they repeal the Postal Re-organization act of 2006. This act requires that we take 5.5 billion dollars from our revenue and place it in a future retiree benefit fund....this fund has more than enough cash, so eliminating the yearly payment will save us. H.R bill 1351 would do the trick. This eliminates the payment requirement.....one more thing.....this is not a bailout.....as our only revenue comes from the sale of sevices and postage. I take the delivery of the mail to my customers very seriously...I have a lot of Netflix and mail order drug customers on my route. Please help us out, or you will go out to your mailbox on Saturdays and find nothing there....Postmaster General Donahoe must go....I don't see where he's doing the USPS and America any good at all.

February 27 2012 at 3:29 PM Report abuse rate up rate down Reply
S

Typical government operation.A tax payer ripp off.

February 27 2012 at 12:05 PM Report abuse rate up rate down Reply
2 replies to S's comment
sfields435

Tax dollars do not support the Postal Service. It is supported by Stamp and Postage purchases.

February 27 2012 at 2:52 PM Report abuse +2 rate up rate down Reply
1 reply to sfields435's comment
bggdg

And debt. Don't forget the deb that is needed due to their ongoing financial losses. By the way, from whom do you imgaine the USPS borrows?

February 27 2012 at 3:26 PM Report abuse rate up rate down
sfields435

Tax $ do not support the Postal Service. It is supported 100% by postage.

February 27 2012 at 2:53 PM Report abuse rate up rate down Reply
misterpep

PLEASE READ....I am a letter carrier. When you read an article like this, you always asume that the author knows what he's talking about. In this case, he misses a lot of important facts....Fact 1...in spite of the internet, we still deliver tons of letters, advertisements, drugs, packages etc...and our business interacts with other businesses- printers, bulk mailers, trucking..thus making the USPS a vital " behind the scenes" catylist.....Fact 2...huge, huge amounts of funds still reach their destinations through USPS....delaying mail by closing post offices and eliminating Saturday delivery is not the answer....Fact 3...fixing our problems is easier than you may think...simply notify your local congressperson and demand that they repeal the Postal Re-organization act of 2006. This act requires that we take 5.5 billion dollars from our revenue and place it in a future retiree benefit fund....this fund has more than enough cash, so eliminating the yearly payment will save us. H.R bill 1351 would do the trick. This eliminates the payment requirement.....one more thing.....this is not a bailout.....as our only revenue comes from the sale of sevices and postage. I take the delivery of the mail to my customers very seriously...I have a lot of Netflix and mail order drug customers on my route. Please help us out, or you will go out to your mailbox on Saturdays and find nothing there....Postmaster General Donahoe must go....I don't see where he's doing the USPS and America any good at all.

February 27 2012 at 12:02 PM Report abuse -2 rate up rate down Reply