While the end of Saturday delivery will reduce costs for the U.S. Postal Service, the mail carrier must pursue more solutions if it wants to survive, according to a University of Illinois economics professor.
It even remains to be seen whether cutting Saturday delivery—due to take effect in August—will hurt or harm the USPS, says Seung-Hyun Hong, who has studied the USPS’s financial situation. He told the U of I News Bureau that it depends on how the move affects demand for its services.
In particular, he says, the reaction by business customers who send advertising via mail will determine the success of the weekend cost-cutting measure.
“As far as most consumers are concerned, this change will not matter much, since most consumers are already using email, fax, or other delivery services for more urgent mails,” Hong says. “However, five-day delivery could reduce business customers’ demand for postal services, because this change may lead some businesses to rely less on postal services for their advertisements and to switch to alternative media such as the Internet.”
Complicating the mail carrier’s financial situation is the Postal Accountability and Enhancement Act of 2006, which requires the mail carrier to make annual payments of roughly $5.5 billion per year from 2007 to 2016 to pre-fund retiree health benefits. While avoiding future termination of retiree benefits is desireable, Hong says, the pre-funding mandate might be a poor business move in the face of declining revenues.
The USPS relies on postage for operating costs and is not funded with taxes.
“Congress should re-examine the viability of the current pre-funding approach and the ultimate goal of pre-funding,” he says.
Furthermore, he adds, measures such as further increasing the postage rate—a first-class stamp now costs 46 cents—and closing more branches may not help if they also decrease demand for USPS services. The fundamental problem is that the mail carrier has not been successful in seeking new sources of revenue in the face of growing electronic communications, he adds.
“One of the challenges in addressing the problem is that the scope of the Postal Service’s business is regulated, which has further restricted new sources of revenues,” Hong says. “Therefore, unless this problem is addressed, we have to be worried about the long-term viability of our mail system.”
