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Postal Service expected to announce 'significant changes'

By Ed O'Keefe
Washington Post Staff Writer
Tuesday, March 2, 2010; A03

The U.S. Postal Service will release projections Tuesday that confirm for the first time the suspicion that mail volume will never return to pre-recession levels. In response, the agency is pushing anew for a dramatic reshaping of how Americans get and send their letters and packages.

Customers are continuing to migrate to the Internet and to cheaper standard-mail options, and away from the Postal Service's signature product -- first-class mail, Postmaster General John E. Potter will report in announcing the projections.

The Postal Service experienced a 13 percent drop in mail volume last fiscal year, more than double any previous decline, and lost $3.8 billion. The projections anticipate steeper drops in mail volume and revenue over the next 10 years, and mounting labor costs only complicate the agency's path to firm fiscal footing.

In an effort to offset some of the losses, Potter seeks more flexibility in the coming year to set delivery schedules, prices and labor costs. The changes could mean an end to Saturday deliveries, longer delivery times for letters and packages, higher postage-stamp prices that exceed the rate of inflation, and the potential for future layoffs.

"At the end of the day, I'm convinced that if we make the changes that are necessary, we can continue to provide universal service for Americans for decades to come," Potter said Monday. "We can turn back from the red to the black, but there are some significant changes we need to make."

The postmaster general called for many of these changes last year but failed to convince lawmakers. This time he's armed with $4.8 million worth of outside studies that conclude that, without drastic changes, the mail agency will face even more staggering losses.

Three studies -- by Accenture, the Boston Consulting Group and McKinsey and Co. -- reviewed the Postal Service's books and presented 50 options for cuts and new services. The agency's business model is so poor, consultants concluded, that privatizing it is untenable.

As for Postal Service plans to sell banking, insurance and cellphone services through post offices, the consultants point to the agency's lack of start-up funds and inability to afford potential short-term losses.

But the Postal Service will ask Congress to cut mail delivery to five days per week, a move backed by a June Gallup survey that found 52 percent of Americans support eliminating Saturday deliveries in order to reduce costs.

Other possible changes carry much greater risk: Officials can seek permission from the Postal Regulatory Commission to increase prices beyond the rate of inflation, but doing so could scare away more customers.

The agency also plans to explore offering "hybrid mail products" that deliver some mail to customers via e-mail, Potter said.

Officials will also seek greater flexibility in forthcoming union negotiations, including addressing ballooning health-care costs, Potter said.

He particularly wants Congress to reverse a 2006 law requiring the Postal Service to prepay its retiree health benefits, to the tune of $5 billion per year. No other federal agency or Fortune 500 company makes such payments, Potter said.

The agency's call last year to consolidate about 3,000 post offices drew a firestorm of protest from the public and lawmakers.

But the Postal Service is considering more next year, potentially closing thousands of locations and moving some products and services to nearby supermarkets, office supply stores and pharmacies.

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