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For USPS, ending Saturday delivery is just the beginning

The U.S. Postal Service will do away with Saturday delivery on Aug. 1, agency officials announced Wednesday.
The Postal Service wants to drop Saturday delivery of first-class mail by August in its latest effort to cut costs after losing nearly $16 billion last fiscal year. (REUTERS/Mike Blake)
The Postal Service wants to drop Saturday delivery of first-class mail by August in its latest effort to cut costs after losing nearly $16 billion last...

The U.S. Postal Service will do away with Saturday delivery on Aug. 1, agency officials announced Wednesday. And as Joe Biden might say, it's a "big f---ing deal."

Last November, postmaster general Patrick Donahoe revealed that the agency lost $15.9 billion in 2012. That's more than triple the $5.1 billion loss of 2011. Snail mail is down 5% from the previous year, and worker-related costs--wages and benefits--eat up about 80% of the agency's operating expenses.

Add to that the predominance of digital communication, and it might seem like the Postal Service has reached an inevitable death spiral. But the severity of the situation, for USPS and its more than half a million full-time workers, is not wholly down to the march of history. As a federal agency, it has been subject to a number of uniquely burdensome stresses.

"Take the most contentious issue," wrote Jesse Lichtenstein in a sprawling piece on the USPS for Esquire, "seventy-five years' worth of future-retiree health benefits that in 2006 a lame-duck session of Congress legislated the Postal Service prepay over the following ten years as part of a broad overhaul of the way the Postal Service operates. No other government agency must do this, and most private companies would have spread those payments over forty years."

Since health benefits can be counted as general government revenue, the Postal Service unwillingly aided the Bush administration in balancing the federal budget with an extra $5.5 billion per year. As with most wages, the cost of paying postal workers has declined 3% below inflation since 1972. The cost of administering benefits, on the other hand, has risen 448%. A massive 70% of 2012's $15.9 billion loss was in future health-benefits.

That's not all Congress did. In 2006, they prevented the agency from raising prices on standard and first-class stamps by more than the Consumer Price Index. This is why it still costs less than 50 cents to send a letter from Key West to Anchorage. FedEx and UPS raised their rates 5.9% and 4.9% respectively last year. Unlike other federal agencies, post offices across the country don't get any money from Congress. It runs solely on postage.

Removing Saturday from the delivery rotation is only one change on a long list that Donahoe would implement if Congress gave him the liberty. He'd also like to cut 120,000 more jobs, reduce the number of processing centers, and shave down working hours at unprofitable local post offices across the country.

"They say that you never really understand and appreciate how things work until you try to change them," said Donahoe. "I think this is true. Change is not easy. It's comfortable to keep things the way they are. It's comfortable not to make tough decisions. But our future is not in today's comfort zone."

To get outside that comfort zone, Donahoe needs congressional support. The announcement to abolish Saturday delivery is as much a threat as anything else. As Felix Salmon explained in Reuters, "It's a bit like CitiCorp announcing that it was merging with Travelers: it’s illegal, but that’s not going to stop them, and the clear expectation is that somehow Congress will make it legal, before or shortly after it happens in reality."

The National Association of Letter Carriers (NALC), the largest postal workers' union in the country, unanimously entered a vote of no confidence in their postmaster general last July. To initiate any serious downsizing, Donahoe would have to negotiate around precious "no-layoff" clauses in union contracts. Seeking to cut jobs and reduce work hours won't make those negotiations any easier.

In the meantime, the NALC has hired their own business-reinvention expert to succeed where they think Donahoe has failed. Ron Bloom was a senior adviser on President Obama's task force to restructure GM and Chrysler, and has plenty of experience getting unions and management to sacrifice on key issues.

Bloom and Donahoe don't exactly see eye-to-eye.

"If you degrade the network and your customers leave and you get into the death spiral, you can't have it back," said Bloom, who argues against getting rid of Saturday delivery. "All the guys who think six days is important to their business strategy for using the Post Office—they're going to leave. They're going to make other arrangements."

The eventual restructuring of the Postal Service will involve a number of transformative changes. The first of these--doing away with Saturday delivery--has been tossed brazenly into Congress's lap. Is it legal? We'll find out by Aug. 1. The rest will be fought by Bloom, Donahoe, the unions, and Congress in the months and years to come.