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

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).

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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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