1

EXECUTIVE SUMMARY

For over 200 years, the Postal Service has 

fulfilled its mission to deliver trusted, affordable 

service to the nation. Its business model 

worked well because mail volume increased 

steadily as the nation grew. In recent years, 

however, as customer preferences have 

rapidly evolved and new technology has 

changed how Americans communicate and 

transact business, the model has faltered. 

Mail volume, instead of increasing, is declining 

dramatically, even as the cost of delivering 

mail to an expanding number of addresses 

continues to grow. As a result, the Postal 

Service’s ongoing ability to finance universal 

service is at great risk. 

In the face of these challenges, the Postal 

Service has responded aggressively, saving 

over $1 billion every year since 2001, including 

$6.1 billion savings in 2009 alone. Yet these 

savings are not sufficient to counter underlying 

shifts in the business of mail. A loss of more 

than $7 billion is projected for 2010, and with 

current trends expected to worsen over the 

decade, the Postal Service will be pushed 

more deeply into crisis. Without fundamental 

change, cumulative losses could reach more 

than $238 billion by 2020.

To avoid potential insolvency, the Postal 

Service has developed an ambitious but 

achievable plan, taking steps allowed under 

current law to reduce the projected gap 

by $123 billion. These savings would be 

unprecedented, even by the standards set 

over the last several years. And even if its plan 

was to succeed in every action that present 

legislation allows, the Postal Service would 

still face unsustainable losses of at least 

$115 billion by 2020. This remaining gap can 

be closed, and the Postal Service can continue 

to fulfill its mission at no cost to American 

taxpayers, but only with additional flexibility 

that would have to come through legislative 

changes. They include: 

1. Retiree Health Benefits Prefunding. 

Restructure retiree health benefits 

payments to “pay-as-you-go,” comparable 

to what is used by the rest of government 

and the private sector. This equates to an 

average of $5.6 billion in cash flow per year 

through 2016. Address overpayments to 

the Postal Service's Civil Service Retirement 

System pension fund.

2. Delivery Frequency. Adjust delivery days 

to better reflect current mail volumes and 

customer usage. Survey data show that 

the public favors 5-day delivery over using 

taxpayer funds and other alternatives.

3. Expand Access. Modernize customer 

access by providing services where the 

customers are. Increase and enhance 

customer access through partnerships, 

kiosks, and improved online offerings, 

while reducing costs.

4. Workforce. Establish a more flexible 

workforce that is better-positioned to 

respond to changing demand patterns as 

over 300,000 employees become eligible to 

retire in the coming decade. 

5. Pricing. Ensure that prices of Market 

Dominant products can be based on the 

demand for each individual product and its 

costs, rather than capping prices for every 

class at the rate of inflation. In addition, 

pursue a moderate exigent price increase 

effective in 2011. 

6. Expand Products and Services. Permit 

the Postal Service to evaluate and introduce 

more new products consistent with its 

mission, allowing it to better respond to 

changing customer needs. 

7. Oversight. Reinforce these changes 

with more clearly defined, appropriate, 

agile oversight roles and more streamlined 

processes.

Without question, the current situation is 

a crisis for the Postal Service, the mailing 

industry, and indeed for all postal stakeholders. 

It is also an historic opportunity — providing 

a chance to make positive and very practical 

changes that not only meet the present crisis, 

but also lay the foundation for a leaner, more 

market-responsive Postal Service that can 

thrive well into the future.

Contents

Executive Summary 1

I. An Unsustainable 

Business Model 3

II. A Rapidly Worsening 

Crisis 6

III. Actions Within 

Management Control 9

IV. A Viable Postal Service: 

The Plan to Get There 10

The Path Forward 15

Appendix 16
2

acknowledge that a fundamental change has 

taken place.

Prudent management required that the 

Postal Service make substantial adjustments 

to compensate for the decline in volume 

and revenue. To the extent that current law 

allows, it has done just that, saving over 

$1 billion every year since 2001, including 

$6.1 billion in 2009 alone. Unfortunately, its 

ability to make adjustments is limited in the 

areas where costs are highest — wages and 

benefits, its network, and the interpretation of 

the Universal Service Obligation. 

In 2006, Congress passed new legislation 

that significantly modified the postal business 

model. It provided limited pricing freedom 

in Competitive Products but offered little 

flexibility for the remainder of the business. 

The law also limited the Postal Service’s 

ability to create new products and seek new 

sources of revenue. It capped prices at the 

Consumer Price Index by class for Market 

Dominant products, which is 88 percent of 

revenue. And without providing additional 

flexibility to control its costs, the law added 

a massive new obligation: to pre-pay future 

retiree heath benefits on a schedule that 

consumes 10 percent of revenue every year. 

These changes in the law were made just as 

volume had begun to fall and the recession 

began to take hold.

The Postal Service responded with 

comprehensive actions to transform 

operations. It increased the use of 

automation and substantially reduced its 

workforce, all while improving service. 

Despite these improvements, the Postal 

INTRODUCTION

Since Benjamin Franklin was appointed the 

first Postmaster General, the agency known 

today as the United States Postal Service 

has fulfilled its mission to deliver trusted, 

affordable service to the American people. 

From the Pony Express to today’s fastchanging digital world, the Postal Service has 

dramatically improved service and efficiency, 

ensuring that consumers and businesses 

get world-class mail services at reasonable 

prices.

The Postal Service is the world’s most 

efficient post. A First-Class stamp costs just 

44 cents, while other major posts charge an 

average of 78 cents. Customer satisfaction 

and service levels have reached the highest 

levels ever reported. For five years in a row, 

the Postal Service has also been voted the 

“Most Trusted Government Agency” for 

protecting customer privacy, and rates in the 

Top 10 of all public and private entities.

The Postal Service’s business model dates 

to 1970, when it became an independent 

agency of the Executive Branch. In contrast 

to the heavily subsidized department it 

replaced, the Postal Service was designed 

to operate like a business, financing its 

operations from the sale of its products and 

services. 

This self-financing model worked well for 

many years as mail volume grew with the 

nation. In recent years, however, volume 

has declined, and it continues to fall as 

technology rapidly reshapes the market and 

changes how Americans communicate and 

conduct business. The recent economic 

downturn accelerated this trend as 

businesses cut expenses and reduced their 

investment in mail. 

For most businesses, there is nothing 

exceptional in this; they must continually 

adapt to technology and market changes. 

Unlike most businesses, however, the Postal 

Service is attempting to meet its 21st century 

challenges with a business model suited 

to the last century — one that does not 

Understanding the 

Universal Service 

Obligation 

The Universal Service 

Obligation ensures that 

every citizen can send and 

receive mail at affordable 

prices. This entails 

maintaining a delivery 

network that reaches all 

addressees, and providing 

customers with ready 

access to postal services, 

a range of products, 

uniform prices and mail 

security.

Mail is big business. The 

Postal Service is at the core 

of the trillion dollar mailing 

industry that employs more 

than 8 million people.
3

Postal Service operations are not funded by taxpayers

Throughout most of the nation’s history, its postal 

system was administered by the Post Office 

Department, a cabinet level agency. By the late 

1960s, however, years of financial neglect and 

fragmented control had impaired the ability of the 

department to respond to changing conditions 

and increasing mail volumes. 

Convinced that fundamental change was 

necessary, in 1970 Congress enacted the Postal 

Reorganization Act. This sweeping legislation 

created the Postal Service as an independent 

establishment of the Executive Branch and 

directed the new organization to bring modern 

business methods and practices to the national 

mail system. For 36 years, the Postal Service’s 

business model worked very well for customers, 

employees, and the nation. The Postal Service was 

able to charge affordable prices and use revenues 

from its products to provide mail service to all 

areas of the country, charging customers the same 

prices regardless of delivery costs. It received no 

taxpayer subsidies to fund its operations.

The Postal Accountability and Enhancement 

Act of 2006 (the Postal Act of 2006) split postal 

products into Competitive and Market Dominant. 

At the same time, the Act put the bulk of revenuegenerating products under a stringent price cap 

and gave the Postal Service limited ability to control 

its costs or increase revenue. The viability of the 

Postal Service under the Postal Act of 2006 relied 

on the underlying presumption that mail volume 

would continue to grow. It hasn’t.

Service began to suffer significant net 

losses in 2007 primarily due to a legislatively 

imposed requirement to prefund future 

retiree health benefits. 

This paper explains the current crisis and 

presents an action plan to meet it. The plan 

has two parts: the first includes aggressive 

actions that the Postal Service commits 

to making within existing law; the second 

describes additional actions, most requiring 

changes in law, that are vital to restore 

financial stability. 

This plan is the product of more than 

a year of dialogue between the Postal 

Service and members of Congress, the 

Administration, the business community, 

postal employees, and the general public. 

To gain a fresh, objective perspective, the 

Postal Service solicited papers from a 

number of independent sources, and enlisted 

three of the world’s most experienced and 

highly regarded management consulting 

organizations — Accenture, The Boston 

Consulting Group, and McKinsey & 

Company. All three were given free rein 

to talk with employees, customers, and 

anyone else whose opinions they considered 

relevant.1

 

I. AN UNSUSTAINABLE 

BUSINESS MODEL

Since 2006, the Postal Service has faced the 

financial strain of steep declines in volume 

and revenue, combined with increases in 

network costs, wages and benefits, and new 

legal requirements. It began to incur large net 

losses in 2007 (Exhibit 1). 

Volume and revenue have fallen 

sharply

From 2006 to 2009, volume declined 

17 percent, from 213 billion to 177 billion 

pieces, while prices remained capped at 

the rate of inflation — triggering a loss of 

In 2003, the President’s 

Commission on the 

U.S. Postal Service 

said, “Now is the 

time to...modernize 

the Postal Service 

to not only preserve 

its future, but also to 

ensure its service to all 

Americans.” This action 

plan is fairly consistent 

with the President’s 

Commission’s findings.
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$15.8 billion in 2009 revenues.2 First-Class 

Mail saw the largest volume decline, about 

15 percent. This had a disproportionate 

effect on the bottom line since First-Class 

Mail provides the majority of contribution 

(Exhibit 2). In total, the volume decline 

outpaced even the most pessimistic 

forecasts. 

While the recession accelerated the volume 

decline, its primary cause is a fundamental 

and permanent change in mail use by 

households and businesses. Hardcopy 

communication of all types continues to 

shift to digital alternatives. More people 

are paying bills and transacting business 

online. Advertisers are switching from print 

The volume of highcontribution First-Class Mail 

has declined sharply, and is 

expected to continue to fall.
5

to Internet and mobile channels. And while 

online purchases have increased the volume 

of packages, this part of the Postal Service’s 

revenue stream is not large enough to offset 

overall mail volume trends.

New costs and capped prices 

A key driver of the cost of delivering mail is 

the obligation to deliver to virtually every 

mailing address, regardless of volume, 

6 days per week. Fulfilling this duty requires 

an extensive network of Post Offices, 

processing plants, vehicles, and delivery 

employees. These costs are largely fixed, so 

they increase with the size of the network, 

which has grown by an average of 1.4 million 

new addresses every year. As a result of the 

growth in fixed costs and increases in other 

expenses, the total cost per piece of mail 

rose from 34 to 41 cents since 2006.

The Postal Act of 2006 was passed before 

volume had begun to fall sharply. It had the 

unintended consequence of constraining 

the Postal Service’s ability to respond to 

the challenges in a financially responsible 

manner. The Act introduced two crucial 

restrictions. 

First, it added a major new cost. It compelled 

the Postal Service to set aside money 

over 10 years to cover future retiree health 

benefits. This prefunding mandate requires 

that the Postal Service set aside, on average, 

$5.6 billion per year through 2016.3

 This 

has the effect of increasing total costs in this 

period by 9 percent a year. Prefunding is 

unique to the Postal Service within the public 

sector, and is not required in the private 

sector. 

Second, the Act capped price increases 

at the Consumer Price Index (CPI) for each 

class of mail where the Postal Service is 

perceived to dominate a market (e.g., FirstClass Mail).4

 Looking forward, the losses 

due to volume declines and retiree health 

benefits prepayments cannot be made up 

with increased prices (Exhibit 3).

The Postal Service aggressively 

cut costs while improving service

The Postal Service responded to the volume 

declines by dynamically reducing work hours 

and improving internal operations. This 

reduced 2009 costs by $6.1 billion. In 2009, 

natural attrition and early retirement offers 

allowed the Postal Service to reduce the 

workforce by the equivalent of 65,000 fulltime employees, or approximately 10 percent 

(Exhibit 4). This was the largest one-year 

reduction in postal history. The Postal 

Service also froze hiring and executive pay.

Workforce costs will 

rise at a rate greater 

than prices, which are 

capped at inflation.
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Operations were streamlined consistent with 

this smaller workforce. The Postal Service 

consolidated delivery routes, reorganized 

portions of its processing network, and 

renegotiated over 500 supplier contracts to 

obtain more favorable terms. 

To boost revenue, the Postal Service 

enhanced programs such as Parcel Select, 

which provides last-mile delivery for FedEx 

and UPS, among others. It launched an 

advertising campaign ("If it fits, it ships") 

for Flat Rate Priority Mail, which is priced 

on the size of the box, not the weight or 

zone, making the shipping process more 

convenient. The Postal Service also 

introduced innovative new programs such as 

the “Summer Sale,” which boosted volumes 

and retained customers by offering a 30 

percent discount for incremental Standard 

Mail (advertising mail) volume. Additionally, 

it invested in expanding customer access 

through improvements to its website and 

partnerships with retailers. 

II. A RAPIDLY WORSENING 

CRISIS

Even with all these actions, the Postal Service 

has, in recent years, been unable to stem 

broader financial losses. In 2007, it began 

to suffer net losses, which are expected to 

exceed $7 billion in 2010. The Postal Service 

is now in the position of having to borrow 

from the Treasury to meet its obligations to 

the Treasury. Its future borrowing capacity 

is limited by law at $15 billion, a level it could 

reach in early FY 2011.

Industry experts confirm that the 

marketplace trends challenging the Postal 

Service in recent years are expected to 

accelerate. The organization will continue 

to face declining volume, stagnant revenue, 

large fixed costs, and rising workforce 

costs. Without additional action to address 

these trends, the Postal Service would face 

annual losses as great as $33 billion by 2020 

(Exhibit 5). 

There is limited remaining 

opportunity to reduce 

part-time, temporary, and 

overtime work hours.
7

Volumes projected to steadily 

contract, and revenues to stagnate

The recession is not only reducing volume 

due to declining business activity. It is also 

pushing businesses to find less expensive 

methods of communicating with their 

customers. In coming years, this will speed 

up the more fundamental underlying trends 

that are motivating customers to switch to 

electronic alternatives. 

Total volume — which fell 17 percent from 

a high of 213 billion pieces in 2006, to 177 

billion pieces in 2009 — is expected to drop 

an additional 15 percent by 2020, to a level of 

150 billion pieces (Exhibit 6).5

 

In real terms, revenue will decline significantly 

over the next decade. In nominal terms, 

overall Postal Service revenues will be largely 

stagnant, rising from $68.1 billion in 2009, 

to just $69.3 billion by 2020. As a result, 

assuming prices by class remain capped at 

inflation, revenues per address will have fallen 

from a daily average of $1.50 in 2009 to $1.41 

in 2020. 6

First-Class Mail. Even as the economy 

rebounds, First-Class Mail volume will not 

return to past levels; it is expected to fall an 

additional 37 percent by 2020. Invoicing and 

payments will continue to move online, and 

businesses will continue to expand their use 

of electronic channels as a low-cost means 

to process payments and manage customer 

relationships. 

Without any additional 

action, negative forces result 

in increasingly large annual 

deficits, culminating in a 

$33B annual loss in 2020.

Cumulative losses 

between now and 2020 

would exceed $238B. 

The volume forecasts 

include high levels of 

uncertainty, although 

trends point downward.
8

This creates the perfect storm, eroding mail’s 

primary role as an invoice and bill payment 

medium. The consumer shift online will result 

in a projected 1.1 billion fewer letters per year 

over the next decade, while businesses are 

expected to mail 10 billion fewer bills by 2020. 

Total bill and invoice mail volume is expected 

to fall by 44 percent, and the mix of mail is 

expected to shift away from First-Class Mail 

to less expensive Standard Mail.

Advertising mail. The volume of advertising 

mail has fallen rapidly in the recession along 

with most other advertising media. A large 

share of advertising investment has moved 

to Internet and mobile channels. One top 

marketing agency observed companies 

moving one-third of direct mail acquisition 

spending online. Consequently, the 

segment of the Postal Service’s business 

that historically grew steadily with Gross 

Domestic Product (GDP) is expected to 

remain flat for the foreseeable future. 

Packages. This segment is likely to 

experience some growth, but at a rate of only 

3 percent per year. Letter volume declines 

will far outweigh package growth in both 

pieces and revenue.

Costs will continue rising 

Today, fulfilling the Universal Service 

Obligation involves more than 36,000 Post 

Offices, stations, and branches. Delivering 

mail 6 days a week involves 220,000 vehicles, 

$2.6 billion in air transportation, and 600 

processing facilities. 

As volume continues to decline and the 

number of addresses continues to increase, 

the cost to deliver each piece of mail will keep 

rising while revenue per delivery point falls. 

Each year through 2020, volume is expected 

to decline by 1.5 percent on average while 

approximately 1.2 million delivery points are 

added. 

Maintaining the Postal Service retail network 

will be increasingly costly. The average 

Post Office is far more expensive to operate 

than other means of serving customers. 

The average Post Office transaction costs 

23 cents per dollar of revenue, while the 

average transaction at a contract postal unit 

costs just 13 cents (Exhibit 7). In the past, 

Post Offices generated almost all postal 

retail revenue. Today, however, 29 percent 

is generated through usps.com and other 

alternative channels. Post Offices recorded 

Given First-Class Mail 

trends, retail revenues are 

expected to fall another 

40 percent by 2020.
9

117 million fewer transactions in 2009 than in 

2008, adding to the network’s overcapacity.

Despite this excess capacity, under current 

law Post Offices cannot be closed solely 

for economic reasons.

7

 Yet by 2020, with 

retail revenues predicted to fall by another 

40 percent, even more Post Offices will be 

pushed into the red. 

Wages and benefits account for 80 percent of 

Postal Service costs, and work hours will also 

become more costly due to rising benefits 

costs. Total workforce costs are expected to 

increase from $56.5 billion in 2009 to $77.2 

billion in 2020.

8

 Workers’ compensation is 

projected to rise by 2 to 4 percent, health 

insurance premiums by 4.7 to 5.2 percent, 

and retiree health benefits costs by 11.8 

percent. Health care in particular will grow 

at a pace well above inflation-capped price 

increases. While the Postal Service has 

collaborated with its unions to structure 

reasonable compensation options, federal 

statutes hamper its ability to craft a marketbased benefits package.9

 

Finally, the accelerated schedule requiring 

prefunding of retiree health benefits over 

the first 10 years of the 50-year liability will 

consume $5.5 billion to $5.8 billion per year 

through 2016. While these obligations will 

fall to $2.6 billion to $2.7 billion per year from 

2017 to 2020, total funding for retiree health 

benefits will continue to exceed 10 percent of 

gross revenues through 2020.

III. ACTIONS WITHIN 

MANAGEMENT CONTROL

The Postal Service will work within 

current law to close part of the 

budget gap 

The Postal Service evaluated various possible 

actions for their feasibility and impact on 

projected losses. The analysis identified four 

areas with the greatest potential to generate 

additional revenue and reduce costs under 

current law. By 2020, these actions are 

expected to reduce annual losses by $18 

billion. Cumulatively, they will narrow the 

projected $238 billion financial gap by $123 

billion. The four areas include product and 

service actions, productivity improvements, 

workforce flexibility improvements, and 

purchasing savings (Exhibit 8).
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Product and service actions. The Postal 

Service plans to expand products and 

services across targeted mail and package 

segments to increase profits by $2 billion by 

2020. For example, it will work to increase 

direct mail use among small and mediumsized businesses, and to increase volumes 

in both First-Class Mail and advertising 

mail through targeted promotions. It will 

continue to leverage its last-mile network to 

deliver packages to all households, forming 

partnerships with others serving the growing 

e-commerce industry. It will also continue to 

grow other retail services, such as passports 

and Post Office Box rentals.

Improving productivity. The Postal 

Service will continue to cut costs and capture 

additional productivity savings. Planned 

actions include further streamlining of plant 

operations, optimizing delivery routes, 

providing customer service through the most 

cost-effective channels, and consolidating 

administrative functions. Targeted efficiency 

enhancements will reduce costs by 

approximately $10 billion in 2020. 

Workforce flexibility improvements. 

Continued attrition due to retirements will 

provide opportunities to establish a more 

flexible workforce better aligned with 

changing customer demand. Over the 

next 10 years, over 300,000 employees 

— more than half the current workforce — 

will be eligible to retire. This will provide an 

opportunity to make the workforce even 

more efficient by increasing use of flexible 

and part-time employees.

Purchasing savings. The Postal Service 

has additional opportunities to trim resource 

costs in several areas. For example, it will 

lower transportation costs by using fewer 

trips at fuller truck-load levels. It will also 

continue to negotiate favorable contracts and 

improve vendor and process management.

In each of these four areas, accomplishing 

improvements will be exceedingly 

challenging. For example, the Postal Service 

has achieved 91 percent automated letter 

processing, the highest in the world. More 

than 78 percent of volume is already handled 

through workshare programs, including 

presort, destination entry, and automationcompatible mail preparation. In addition, 

roughly 55 percent of the past savings 

in work hours were due to reductions in 

overtime and the non-career workforce. 

Further opportunity to significantly reduce 

hours in these areas is very limited.

IV. A VIABLE POSTAL 

SERVICE: THE PLAN TO GET 

THERE

The Postal Service is committed to providing 

universal service to the American people, 

covering all costs and paying all debts with 

postal revenue. However, even if it achieves 

the savings in its management plan, the 

Postal Service would still face an annual loss 

of $15 billion in 2020 and cumulative losses 

of $115 between now and then (Exhibit 9). 

Further, there is considerable risk that the 

projected losses could be far greater. And 

while projections indicate that volumes are 

likely to fall to 150 billion pieces, alternate 

scenarios suggest that volumes could sink 

even lower. 

Clearly, aggressive steps are required. That 

is why the Postal Service is seeking the 

flexibility to pursue additional opportunities 

in seven critical areas: 1) retiree health 

benefits prefunding; 2) delivery frequency; 

3) access to services; 4) workforce; 5) pricing; 

6) products, and 7) oversight (Exhibit 10). 

1. Retiree health benefits prefunding

The current retiree health benefits prefunding 

requirement has a significant impact on 

postal losses. The Postal Act of 2006 

mandated a prefunding schedule of $5.5 

billion to $5.8 billion per year through 2016. 

Congress must approve any future changes 

to that schedule, as it did in 2009. 

The Postal Service seeks to restructure 

funding in a way that upholds its obligation to 

current and former employees and does not 

constrain cash flow during periods of volume 

decline. To do this, the Postal Service seeks 

As a result of collaboration 

between management 

and union leadership, 

the Postal Service has 

200,000 fewer career 

employees compared to 

2000, with the reductions 

achieved through attrition. 

Eliminating the Retiree 

Health Benefits 

prefunding requirement 

would cover only part 

of the growing financial 

gap; other changes 

would still be necessary.
11

System Fund (CSRS). The Postal Service will 

ask Congress to transfer this $75 billion to the 

Retiree Health Benefits Trust Fund. When 

it is added to the Fund’s existing $35 billion 

balance, the Postal Service’s retiree health 

benefits will be fully or nearly fully funded. 

As much as $50 billion can be saved over the 

next 10 years if the Postal Service does not 

have to prefund retiree health benefits. 

to shift to a “pay-as-you-go” system, paying 

premiums as they are billed. Other federal 

agencies and most private sector companies 

use such a system.

In addition, the Postal Service Inspector 

General recently determined that the Postal 

Service overpaid, by nearly $75 billion, its 

contributions to the Civil Service Retirement 

This crisis provides an 

historic opportunity to make 

changes that will allow the 

Postal Service to succeed 

as an independent agency 

of the Executive Branch. 

Its business model can 

work if it is recalibrated 

to 21st century realities. 
12

2. Delivery frequency

To adapt to changing mail volumes and 

consumer needs, the Postal Service must 

have the authority to reassess and adjust the 

frequency of delivery. A recent Gallup survey 

showed that two-thirds of Americans would 

rather have delivery days reduced than have 

increases in postage or have the government 

subsidize the Postal Service’s losses with 

taxpayer funds (Exhibit 11).10

The Postal Service would move to a 5-day 

per week schedule if given the legislative 

changes required to adjust delivery 

frequency, thus eliminating delivery on 

Saturday, the lowest volume day. This 

would boost 2010 daily delivery volumes per 

address to 2008 levels. This would also help 

close a substantial portion of the net income 

gap, yielding annual savings (after initial 

implementation) of approximately $3 billion in 

2009 dollars. 

3. Access 

As consumer behaviors and needs change, 

so must the Postal Service. It must better 

align its retail network and the access it 

provides, investing in new options that 

improve service while lowering costs. Access 

will be expanded by serving customers where 

they already shop, creating more automated 

and on-demand services such as standalone kiosks and additional partnerships 

with retailers. The Postal Service will expand 

options available on its website and through 

its carriers, which provide access to most 

postal services without customers leaving 

their home or office.

As customers continue to shift to these new 

services, the Postal Service will minimize 

costs by reducing redundant retail facilities. 

Current customer research shows increased 

demand for new ways to access the postal 

services. For instance, 79 percent of 

Americans surveyed were not concerned 

about closing Post Offices if postal services 

were moved to other retail locations 

(Exhibit 12). Many actually preferred to have 

postal services provided in nearby retail 

locations rather than Post Offices. 

Proposals to close facilities often lead to 

protests, and on a few occasions Congress 

has blocked changes through legislation. 

This response is not unique to situations 

involving the Postal Service. For example, 

recommendations to close or consolidate 

military installations have also met with 

resistance. However, because the Postal 

Service does not receive appropriated funds 

to maintain its network, postal customers 

are ultimately required to absorb the costs 

of political decisions that keep redundant 

facilities open.

Given the need for dramatic 

cost reductions, the 

American public is most 

in favor of eliminating 

Saturday delivery, rather 

than taxpayer subsidies or 

significant price increases.
13

4. Workforce

The Postal Service must become a 

leaner organization. The large number of 

expected retirements creates an important 

opportunity to achieve this through what 

can be an orderly process of attrition, and 

by establishing more flexible work rules 

through the collective bargaining process. 

Annually, approximately 5 percent of 

employees are eligible and expected to 

retire. It would not make sense to replace 

them with full-time employees if demand 

is moving in a direction better suited to a 

part-time workforce. Although the Postal 

Service would prefer to manage this change 

through collective bargaining, under existing 

law, arbitration is always a possibility. The 

financial health of the Postal Service and 

the affordability of postal products should 

be key considerations in any arbitration 

ruling. Therefore, the Postal Service will ask 

Congress to require arbitrators take into 

account its financial condition before making 

any decision. 

When benchmarked against other large 

posts, the Postal Service employs the most 

full-time workers as a percentage of the 

total workforce. For example, the United 

Kingdom employs 22 percent part-time 

employees and Deutsche Post employs 

40 percent part-time employees, while parttime employees represent up to 13 percent 

of this country’s postal workforce. Providing 

increased workforce flexibility will help 

maintain service levels while reducing costs.

5. Pricing

The Postal Service needs the authority to 

adjust its pricing to better reflect market 

dynamics and offset future volume and 

revenue declines. Current law does not 

provide this. Instead, prices by class remain 

tied to CPI, and not to the key drivers of postal 

inflation. Also, the Postal Service may make 

only limited price increases under exigent 

circumstances. Therefore, it will seek legal 

modifications related to pricing, and pursue 

a moderate exigent price increase effective 

in 2011. 

Single price cap. The first reform would 

apply the inflation price cap to Market 

Dominant products as a whole, rather than 

to each class of mail. This would allow 

adjustment of individual prices based on 

market demand and unit costs. Prices for 

some classes would rise above the rate of 

inflation while others would rise at a lower 

rate. This would provide flexibility over time 

Almost 80 percent of 

consumers report they 

would benefit or would 

easily adapt if Post Office 

services were moved to 

a nearby retail store. 
14

to address products that do not currently 

cover their costs.

Preferred-class pricing. Addressing 

the pricing of preferred mail — such as 

non-profit mail, Media Mail, Library Mail, 

and Periodicals — would ensure that these 

products get to a point where they cover 

costs while contributing reasonably to 

overhead costs. An alternative would be 

appropriations funding to cover the gap. 

Exigent price increase. The Postal 

Act of 2006 allows price increases 

beyond the Consumer Price Index in 

extraordinary circumstances. Such 

increases are permitted if the Postal 

Regulatory Commission finds “that such 

adjustment is reasonable and equitable and 

necessary,” and that there are “exceptional 

or extraordinary circumstances.”11 Using 

existing authority, the Postal Service will 

pursue a moderate exigent price increase 

in 2011. Larger increases will need to be 

pursued if changes are not authorized in 

connection with other issues, such as 

Retiree Health Benefits pre-payments and 

5-day delivery. Given the largest volume 

declines since the Great Depression, the 

requirement to pre-pay billions of dollars in 

retirement health benefits, and the forecast 

for increasing net losses, among other 

unfavorable realities, the current situation 

should qualify (Exhibit 13).

6. Products

As technology and customer needs change, 

so will the definition of mail. The Postal 

Service seeks additional flexibility to innovate 

its products and better meet changing 

customer demands, while tapping into new 

sources of revenue. 

Currently, every potential new product, 

including individual customer contracts, 

require before-the-fact review by both 

the Governors and the Postal Regulatory 

Commission. The existing review process 

can delay the implemention of customer 

contracts, leading to mailer frustration and 

providing an adventage for competitors. 

Amending the current regulatory framework 

to broaden the definition of postal products 

and allow for streamlined, after-the-fact 

product reviews would allow the Postal 

Service to introduce new products and 

services in a more timely and customerfriendly way. 

Although prices are 

capped by law, survey 

data show that small 

businesses would tolerate 

moderate increases.
15

7. Oversight 

Congress modified the Postal Service’s 

oversight model in 2006 at a time when 

volumes were increasing. The model 

includes Presidentially-appointed Governors 

(USPS) and Commissioners (PRC). Both 

are required to represent the public interest 

and have overlapping responsibilities to 

ensure affordable, quality, universal service 

to America. Additional oversight includes 

Congress, portions of the Executive Branch, 

the Government Accountability Office, the 

Postal Service Inspector General, and other 

federal agencies. In many situations, roles 

and responsibilities overlap and are not 

sufficiently clear. Oversight primarily involves 

changes to postal networks, products, 

prices, costing methods, service, SarbanesOxley Act Compliance, and complaints. 

The world is rapidly changing, yet the current 

oversight model constrains the flexibility 

and speed required to adapt and respond. 

It is crucial to clarify oversight roles and 

responsibilities and to streamline processes. 

Oversight changes are critical mechanisms 

to make this plan a reality. Since the Postal 

Act of 2006, the Postal Service has increased 

transparency and accountability. However, 

internal changes alone are insufficient. 

Changes in law are necessary to make 

oversight processes more responsive to 

market needs. They should include looking 

at issues such as time limits on reviews, 

and moving before-the-fact to after-the-fact 

reviews. Collectively, these changes would 

ensure continued protection of customer 

interests while providing flexibility to manage 

in the changing postal environment.

Only by balancing actions across all these 

areas will the Postal Service be able to 

eliminate the deficit projected for 2020 and 

continue to provide high quality, affordable 

service. Limited action on just a few areas 

would exacerbate the Postal Service’s 

financial situation and place an undue burden 

on postal stakeholders.

The path forward

Even with the most informed projections, 

there is no way to know exactly what the 

future holds. Therefore, it is imperative that 

improvements to the Postal Service business 

model contain sufficient flexibility to allow 

the Postal Service to respond quickly in a 

financially responsible way no matter where 

the market turns. America can continue to 

enjoy quality, universal postal service at no 

cost to the taxpayer only if aggressive internal 

improvements are made in tandem with 

regulatory and legal changes. 

The only way to close the Postal Service’s 

income gap while providing the American 

people with the service they deserve is 

though a balanced approach that does not 

overtax any single part of the business or 

place a disproportionate burden of change 

on any one group. The Postal Service asks 

for the flexibility necessary for action along all 

seven proposals: • Restructuring retiree health benefits 

payment to a pay-as-you-go system

• Adjusting delivery frequency to reflect 

volumes and customer needs 

• Modernizing access to make it more 

effective and efficient 

• Establishing a more flexible workforce • Aligning pricing with economic realities • Allowing faster introduction of a broader 

range of products

• Ensuring agile and appropriate oversight

If this plan becomes a reality, the Postal 

Service can build on its achievements 

and secure a strong future to meet the 

nation's changing needs. Delay increases 

the challenge and deepens the crisis. 

Success will require starting to work on 

solutions now. 
16

Appendix

Summary of some of the additional concepts 

that were evaluated but are not currently 

being pursued

Changing First-Class Mail service 

standards

Moving First-Class Mail service standards 

from 1-3 days to 2-5 days would reduce 

cost and system complexity. Savings 

would accrue by consolidating facilities and 

divesting unused plants, virtually eliminating 

costly air transportation, and redesigning 

the network to simplify and standardize mail 

flows and processes.

The option to lengthen the delivery window 

for First-Class Mail will not be pursued at this 

time. When presented with this prospective 

change, mailers expressed concern about 

the cash flow consequences of a longer 

delivery window for bills and payments. Only 

17—18 percent of consumers responded that 

a shift from 1- to 2-day local mail would be 

“an inconvenience I would notice for a long 

time” or a “serious problem or hardship.” 

Nevertheless, mailers said they would likely 

reduce volumes if the standards changed. 

There is already a shift from First-Class 

Mail to Standard Mail due to its improved 

service. Reducing the First-Class Mail 

service standard would no longer provide the 

same level of product differentiation, thereby 

reducing the value of First-Class Mail.

Shifting delivery to the curb or 

centralized boxes

Moving delivery from the door to a curb 

receptacle, or from the curb receptacle to 

a centralized “cluster box,” would reduce 

costs by allowing for more deliveries per 

route. This option will not be pursued at this 

time. Mailers were concerned that shifting 

delivery to curb or community mailboxes 

would undermine the convenience and 

intimacy of mail and lead to customers 

checking mail less frequently. They said they 

would reduce volumes as a result. Roughly 

15 to 20 percent of small and mid-sized 

businesses expected to reduce volume by 

more than 10 percent if delivery points were 

changed. Higher-volume mailers responded 

similarly. Shifting delivery points would also 

be expensive and slow to implement. 

Additional non-mail revenue 

generating options 

Additional revenue opportunities will continue 

to be considered in the future. Some 

product ideas were drawn from international 

posts, which take a broad-based approach 

to product diversification. Ultimately, 

five areas stood out — parcel services, 

logistics, banking, integrated marketing, and 

document management. Building a sizeable 

business in any of these areas requires time, 

resources, new capabilities (often with the 

support of acquisitions or partnerships), and 

profound alterations to the postal business 

model. Accenture research shows that while 

international posts are still building these 

businesses and implementing the necessary 

steps to make them succeed, these lines 

of business tend to generate belowaverage profitability compared to industry 

benchmarks. (Details on usps.com.) 

However, the other product areas examined 

are currently not viable for the Postal 

Service because of its net losses, high wage 

and benefits costs, and limited access to 

cash to support necessary investments. 

Opportunities to leverage the Post Office 

network to enter new markets, such as 

banking or consumer goods, are similarly 

limited by high operating costs and the 

relatively light customer traffic of Post Offices 

compared to commercial retailers.

Becoming a federal government 

agency supported by appropriations

The Postal Service examined other business 

models, including a switch from today’s 

self-funded Postal Service to a regular 

federal government agency supported by 

appropriations. This would be similar to the 

structure prior to the Postal Reorganization 
17

Act of 1970. Under this model, Congress 

would determine the level of service provided, 

including the definition of universal service, 

pricing, and facility closures.

This model eliminates the tension that exists 

between the Postal Service’s status as a 

governmental agency and its mandate to 

be self-supporting. This business model 

also ties political decisions to the funding 

responsibility for those decisions. For 

example, if Congress does not want facility 

closures, it would have to continue to fund 

those facilities.

The main disadvantage is taxpayer burden, 

especially given the deficits in the current 

economic environment.

Moving towards privatization

Another business model option evaluated 

was privatization. This would be a dramatic 

measure requiring sweeping changes. 

The Postal Service would cease to be a 

government agency, and would operate as 

a private business owned by investors. This 

new private post would have shareholders 

and would compete with other private 

businesses. The postal monopoly would 

be reduced or eliminated. The Postal 

Service would be free to enter into any other 

businesses it saw fit, and it would be allowed 

to fail.

This model allows for greater flexibility 

in both revenues and costs. The Postal 

Service would have the ability, without 

political interference, to right-size its 

networks, design pricing approaches, 

adjust delivery frequency, and determine 

which products to eliminate or add. Those 

who support privatization point to the 

economic efficiencies of allowing market 

supply and demand to determine pricing 

and services offered, and to the assumption 

that competition would likely give rise to 

innovation and a more agile customerresponsive entity.

A look at privatization in other countries 

shows prices far greater than in the 

United States. A new private post could 

lose economies of scale inherent with 

processing and delivering the entire 

nation’s mail. Presumably, other postal 

providers will quickly move in to serve 

the higher volume, profitable areas of 

the country, leaving higher cost rural 

and inner city urban locations without 

affordable service. To ensure universal 

service, subsidies would be required either 

through tax dollars or universal service 

fees charged to licensees. Nationwide 

affordable and uniform pricing would likely 

be eliminated, since private businesses 

would charge more to deliver to highercost areas. Elimination of the mailbox 

monopoly may raise concerns about the 

safety and security of the mailbox. Perhaps 

most importantly, there is the question 

of whether the Postal Service could find 

investors and equity if privatized, given 

that it has negative equity, operates in 

a declining industry, and is burdened 

with significant outstanding liabilities. 

Therefore, all the changes laid out here 

would be needed before privatization.
18

Endnotes

1. The Boston Consulting Group projected mail volumes through 2020. Accenture analyzed the 

range of businesses that foreign posts have entered to see if these could raise profitable revenue 

to support the USO. McKinsey & Company developed an independent assessment of the Postal 

Service’s current strategies and provided recommendations for future growth and cost savings 

options, over a ten year period.

2. $15.8 billion loss in revenues reflects aggregate volume decline (from 2006—2009) against 2009 

prices. 

3. Includes only the prefunding amount, not the costs of premiums for current retirees.

4. Price caps apply to Market Dominant products, including First-Class Mail, Standard Mail, 

Periodicals, Bound Printed Matter, Media Mail, Library Mail, and Special Services. In aggregate, 

they account for 88 percent of revenue and more than 99 percent of volume.

5. Volume projections based, in part, on extensive mailer interviews, consumer surveys and 

interviews, experience with other posts, and insight into other industries. Analysis developed by 

The Boston Consulting Group.

6. Daily revenue per delivery point was calculated by dividing revenue by the number of delivery points 

and annual delivery days. Revenue is not adjusted for inflation. (This endnote is revised from an 

earlier printing of this paper).

7. "The Postal Service shall provide a maximum degree of effective and regular postal services to rural 

areas, communities, and small towns where Post Offices are not self-sustaining. No small Post 

Office shall be closed solely for operating at a deficit, it being the specific intent of the Congress that 

effective postal services be insured to residents of both urban and rural communities." [39 U.S.C. 

101(b)] 

8. Assumes no action is taken to reduce workforce costs by 2020.

9. Regulations prevent the Postal Service from settling workers compensation claims (20 C.F.R. 

10.5) and, unlike in most other industries, the Postal Service gets no subsidy to cover the costs for 

Medicare Part D prescription drugs. By law, the Postal Service may not have “a program of fringe 

benefits” that “on the whole” is less favorable than on July 1, 1971. [39 U.S.C. 1005(f)] 

10. Sixty-six percent of consumers were reported to “strongly favor” or “favor” 5-day delivery over other 

options, including taxpayer subsidies, higher prices, lay-off of postal employees, and closing Post 

Offices.

11. P.L. 109-435 (Postal Act of 2006).

Trademarks

The following are among the trademarks owned by the 

United States Postal Service: ACSTM, APC®, Automated 

Postal Center®, Carrier PickupTM, CASSTM, CASS 

CertifiedTM, Certified MailTM, Click-N-Ship®, Confirm®, 

Customized MarketMail®, Delivery ConfirmationTM, 

DMM®, EPM®, Express Mail®, FAST®, FASTforward®, 

First-ClassTM, First-Class Mail®, Full-Service ACSTM, 

IMTM, IMbTM, Intelligent Mail®, LACSLinkTM, MASSTM, 

MERLIN®, Mover’s Guide®, NCOALink®, Netpost®, 

Netpost Mailing OnlineTM, OneCode ACS®, OneCode 

Confirm®, OneCode SolutionTM, OneCode Vision®, 

Parcel Post®, Parcel Select®, PC Postage®, PLANET®, 

PLANET Code®, Post OfficeTM, PostalOne!®, Postal 

ServiceTM, POSTNETTM, Priority Mail®, Quick, Easy, 

ConvenientTM, RDITM, ReadyPost®, REDRESS®, 

Registered MailTM, RIBBS®, Signature ConfirmationTM, 

Simple Formulas®, Stamps by Mail®, Standard Mail®, 

The Postal Store®, United States Postal Service®, U.S. 

MailTM, U.S. Postal Service®, USPS®, USPS Electronic 

Postmark®, USPS.COM®, www.usps.com®, ZIP+4®, 

and ZIP CodeTM. This is not a comprehensive list of all 

Postal Service trademarks.

Mail.dat®, Mail.XML® and IDEAlliance® are trademarks 

owned by the International Digital Enterprise Alliance.

Year References

All references to a specific year or “the year” refer to the 

Postal Service fiscal year ending September 30. However, 

specific month and year references pertain to the calendar 

date.

UNITED STATES POSTAL SERVICE

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www.usps.com

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