2-Cent Stamp Increase Is Only Temporary Fix for Postal Woes
Rising Costs, Shrinking Volume and Political Impasse Cited

By Christopher Lee
Washington Post Staff Writer
Monday, January 9, 2006

The cost of a postage stamp rose yesterday for the first time in nearly four years. The next price jump may come a lot sooner than that.

The Postal Service, a $70 billion a year organization that relies on revenue from operations rather than taxpayer funding, has been struggling with recent declines in first-class mail (its most lucrative area), rising fuel prices and other costs, even as it tries to restructure and become more efficient.

The increasing popularity of e-mail and online bill paying has cut into mail volume, while the Postal Service must deliver to an ever-increasing number of addresses (up by 2 million last year). The Postal Service faces competition from United Parcel Service and FedEx, private companies that, unlike the post office, are not legally bound to deliver to every address six days a week.

"We have absorbed a lot of losses on fuel," said Gerry McKiernan, a Postal Service spokesman, citing one example of rising costs. "When the price of gasoline goes up one penny, it costs us $8 million a year. Our costs are something we're going to seriously have to begin to look at."

Although such challenges are expected to drive up postal rates in the future, officials in the Postal Service and in the mailing industry say the current increase is the product of a political impasse in Capitol Hill, not postal operations.

In 2002, Congress agreed to let the Postal Service scale back by billions of dollars its payments into an overfunded pension system, helping the agency finish fiscal 2003 in the black after years of losses. But the legislation also required the Postal Service to put more than $3 billion into an escrow account this year, with the idea that Congress eventually would release the money. A new legislative package that would help reorganize the Postal Service is stalled in a Senate dispute over how postage rates should be set -- and the fate of the $3.1 billion in escrow money is bogged down along with it.

Postal officials say the increase is needed to fund the $3.1 billion payment.

"It's not for their operating expenses at all," said Neal Denton, executive director of the Alliance of Nonprofit Mailers, an association of charitable groups. "That's a stamp tax."

Sen. Susan Collins (R-Maine), chairman of the Senate committee that is considering the bill, said in a statement Friday that failure to pass the legislation could cost consumers and businesses billions of dollars in higher postal rates over the next few years.

"If postal reform had been enacted when it should have been, the price of a first class postage stamp likely would not be rising by two cents on Sunday," said Collins, whose state is home to L.L. Bean Inc., a company that does considerable mail-order business.

Sen. Christopher S. Bond (R-Mo.), who has a hold on the bill, said it would mainly help corporate mailers. "I'm going to continue to make sure the Postal Service isn't given the ability to hike unfairly the price of a stamp on the little guy while giving away the store to the large junk mailers," said Bond, whose state is the headquarters of Hallmark Cards Inc. "It's just a sham disguised as reform."

Meanwhile, the Postal Service is studying 45 regional mail processing facilities to see whether operations can be consolidated into fewer locations. Officials say that will increase productivity through greater reliance on technology to streamline mail processing. Although no jobs will be lost, the effort is unpopular with the American Postal Workers Union, whose members may have to travel farther to get to work.

"We suspect that it's a foregone conclusion that they are going to erode service for a vast segment of the American population," said union President William Burrus. "Some communities will lose the identification of who they are because they will no longer have a postmark. Small business who rely very heavily on the mail for advertising purposes will lose the reliability of overnight [delivery] within the community."

It is not all doom and gloom for the Postal Service, though. It ended 2005 $1.3 billion in the black, marking the third consecutive year that it was able to make money. Officials also announced last month that the Postal Service -- once $11 billion in the red -- was without debt for the first time since the agency's last major reorganization, in the 1970s.

Ninety percent of the time mail reached its destination within three days, according to figures compiled for the Postal Service by IBM Business Consulting Services. Mail sent to a destination within the same metropolitan area arrived overnight about 95 percent of the time, the consultants found.

First-class mail even ticked up a bit, to 98.1 billion pieces, though it was still considerably shy of its recent peak of 103.7 billion pieces in 2001. (Postal officials attributed the increase of more than 144 million pieces of first-class mail last year to greater use of that category by business mailers in their advertising efforts.) Overall, the Postal Service handled 212 billion pieces of mail last year.

"If you go back, we are so far ahead of where we were 10 years ago," in terms of performance and customer service, McKiernan said.

"But there should be some cautionary notes for 2006." he added. "There are so many unknowns with regard to postal reform. We have contract negotiations coming up with our unions. And then there's a fairly good likelihood that we'll begin to consider another rate increase in late spring. But this will be a real rate increase, not this artificial one that we just had. This current increase will do nothing for us."

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