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Congress is running out of time to save the Postal Service

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Wednesday, March 10, 2010

ON THE INTERNET, friends can communicate across continents via live video hook-ups for free. Companies can exchange 100-page documents in nanoseconds. Meanwhile, at the U.S. Postal Service, 600,000 employees spend their days stamping and sorting large pieces of paper and carrying them by plane, train and truck to every home and office from Guam to Georgetown -- as federal law requires. This quaint business model was bound to be stressed by recession, and it has been. Mail volume fell from an all-time high of 213 billion pieces in 2006 to 177 billion in 2009, with more declines to come. The Postal Service is on course to lose more than $7 billion this year, despite substantial recent cost-cutting, and it could lose more than $238 billion by 2020. Approaching the limits of its federal credit line, the USPS must change drastically or go bust.

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Given that our own business also involves large pieces of paper, truck deliveries and Internet transitions, we could hardly be entirely unsympathetic to the challenge facing Postmaster General John E. Potter. He has acknowledged the scope of that challenge, and last week he proposed new product lines, efficiency improvements and workforce attrition to generate $115 billion in revenue or savings between now and 2020. But that's not even half the projected losses. To really transform, the Postal Service needs congressional action. Some 26,000 of the Postal Service's 32,000 post offices lose money. Many of them should be closed and converted to kiosks or merged with big-box retail stores. But federal law forbids closing post offices just because they operate at a deficit. That needs to change. So does the rule mandating service six days a week, though the USPS will have to find creative ways to serve those mailers for whom Saturday delivery is still a must.

Mr. Potter is less justified in seeking an end to annual prepayments of Postal Service retirees' health benefits, which Congress first required in 2006. Having reached $5 billion a year, these payments are no doubt a drain on USPS cash flow. But they also protect taxpayers against the risk of someday assuming these unfunded liabilities. At most, Congress should stretch out the payments to help the Postal Service through the short term. Abolishing them would give up what little leverage lawmakers have to force change on the Postal Service.

There is only so much that can be accomplished without tackling the item that accounts for 80 percent of the Postal Service's expenses: labor costs. To be sure, 50 percent of postal workers come up for retirement in the next decade, and that will help cut costs. But attrition has its limits. Management and labor must aggressively tackle uncompetitive wages, benefits and work rules -- including no-layoff clauses that cover most personnel. Here, too, Congress can help, by ordering labor arbitrators to take the Postal Service's financial health into account during the collective-bargaining process that begins later this year.

Given the state of technology, privatization is probably the only long-term solution for the USPS. But it is so saddled with legacy costs that no investor would touch it. If Congress gives management the tools it needs to meet the crisis, and if management uses them effectively -- two big ifs, we admit -- the Postal Service will have a chance to get its house in order and one day attract private capital, as European postal services have done. Otherwise, it may wind up as a burden on taxpayers, like another iconic business with an aging workforce, high legacy costs and an outdated product line: General Motors.


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