U.S. Postal Service Fights for Survival

The bad economy and the shift to electronic communication could lead to the death of snail mail.

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The U.S. Postal Service is in serious financial trouble. Last year, it had a $2 billion deficit. This year, it is on track to lose $7 billion, and future predictions are equally dire as the economy, rising healthcare costs, and the shift to electronic communication take their toll on the bottom line.

The sea of red ink has lawmakers and postal officials struggling to find a way to keep the mail system operating while slashing unsustainably high costs. Job cuts are on the table, and hundreds of post offices will most likely be shuttered too. The postmaster general, meanwhile, is pushing to cut delivery from six to five days per week, a change that must be approved by Congress.

Mail volume has plunged more than 12 percent this year, meaning that the Postal Service handled some 20 billion fewer pieces of mail, the largest decline since the Great Depression. By 2010, volume is expected to fall by an additional 10 billion pieces, while the service's debt could top $13 billion. At the same time, the service is dealing with healthcare and retirement costs that postal officials insist are debilitatingly high. A law passed three years ago mandates preretirement contributions to an employee healthcare fund, payments that now amount to more than $5 billion per year.

The economic downturn is one reason for the sharp decline in mail volume. But the larger and more systemic issue is that Americans have abandoned stamps and letters in favor of online bill payments, digital advertising, and E-mail. In 2000, about 80 percent of U.S. households paid their bills through the mail. Now, 56 percent do so. The volume of advertising mail fell 20 percent in the past year. Personal letters, meanwhile, are estimated to make up only 6 percent of mail traffic.

Since 2000, the Postal Service has cut 150,000 jobs, but it's not bringing costs under control fast enough, critics charge. "The post office has to adjust, or it will go the way of the horse and buggy," Republican Sen. John McCain of Arizona said this month during a meeting of the Senate Governmental Affairs Committee's subcommittee that oversees the Postal Service. Last month, the Government Accountability Office, the auditing arm of Congress, placed the Postal Service on its high-risk list of federal offices with serious operational problems and recommended cuts in employees and capacity.

But the Postal Service is a large and sluggish ship to turn. With over 600,000 employees at more than 34,000 facilities, it is the third-largest employer in the country, behind the Defense Department and Wal-Mart. Suggested cuts from postal officials include 700 facilities that could be closed or consolidated. "We simply don't need this many facilities in this day and age," Sen. Tom Carper, a Democrat from Delaware, said during the hearing.

Salaries represent 80 percent of postal costs, so facility closures will have only a modest impact, officials say. Contracts for the four major postal unions will be up for negotiation in 2010 and 2011.

Bills moving through the House and Senate could provide temporary relief by allowing the Postal Service to delay retirement contributions, but Postmaster General John Potter insists that the country needs to have a larger discussion on the future of its mail system and accept the reforms that would result. If not, he told lawmakers, the system will continue to limp along until "enough customers abandon the system to make financial failure unavoidable." Whether that moment has already passed remains to be seen.