The estimated $3 billion in reductions, to be announced in broader detail today, are part of a wide-ranging effort by the cash-strapped Postal Service to quickly trim costs, seeing no immediate help from Congress.
The changes would provide short-term relief but ultimately could prove counterproductive, pushing more of America’s business onto the Internet. They could slow everything from check payments to Netflix’s DVDs-by-mail, add costs to mail-order prescription drugs and threaten the existence of time-sensitive publications delivered to far-flung suburban and rural communities.
“It’s a potentially major change, but I don’t think consumers are focused on it and it won’t register until the service goes away,” said Jim Corridore, an analyst with S&P Capital IQ who tracks the shipping industry. “Over time, to the extent the customer service experience gets worse, it will only increase the shift away from mail to alternatives. There’s almost nothing you can’t do online that you can do by mail.”
The cuts, now being finalized, would close roughly 250 of the nearly 500 mail processing centers across the country as early as March. Because the consolidations typically would lengthen the distance mail travels from post office to processing center, the agency also would lower delivery standards for first-class mail that have been in place since 1971.
Currently, first-class mail is supposed to be delivered to homes and businesses within the continental U.S. in one day to three days. That will lengthen to two days to three days, meaning mailers no longer could expect next-day delivery in surrounding communities. Periodicals could take between two days and nine days.
About 42 percent of first-class mail is now delivered the following day, with 27 percent arriving in two days, about 31 percent in three days and less than 1 percent in four days to five days.
After the change next spring, about 51 percent of all first-class mail is expected to arrive in two days, with most of the rest delivered in three days.
The consolidation of mail processing centers is in addition to the planned closing of about 3,700 local post offices. In all, roughly 100,000 workers could lose their jobs as a result of the various closures, resulting in savings of as much as $6.5 billion a year.
Expressing urgency to reduce costs, Postmaster General Patrick Donahoe said in an interview that the agency has to act while waiting for Congress to grant it authority to reduce delivery to five days a week, raise stamp prices and reduce health care and other costs.
The Postal Service, an independent agency of government, does not receive tax money but is subject to congressional control on large aspects of its operations. The changes in first-class mail delivery can go into place without permission from Congress.
After five years in the red, the post office faces imminent default this month on a $5.5 billion annual payment to the Treasury for retiree health benefits. It is projected to have a record loss of $14.1 billion next year amid steady declines in first-class mail volume. Donahoe has said the agency must make cuts of $20 billion by 2015 to be profitable.
It already has announced a 1-cent increase in first-class mail to 45 cents beginning Jan. 22.
“We have a business model that is failing. You can’t continue to run red ink and not make changes,” Donahoe said. “We know our business, and we listen to our customers. Customers are looking for affordable and consistent mail service, and they do not want us to take tax money.”
Separate bills that have passed House and Senate committees would give the Postal Service more authority and liquidity to stave off immediate bankruptcy. But prospects are somewhat dim for final congressional action on those bills anytime soon, especially if the measures are seen in an election year as promoting layoffs and cuts to neighborhood post offices.
Technically, the Postal Service must await an advisory opinion from the independent Postal Regulatory Commission before it can begin closing local post offices and processing centers. But such opinions are nonbinding, and Donahoe is making clear the agency will proceed with reductions once the opinion is released next March.
“The things I have control over here at the Postal Service, we have to do,” he said, describing the cuts as a necessary business decision. “If we do nothing, we will have a death spiral.”
The Postal Service initially announced in September it was studying the possibility of closing the processing centers and published a notice in the Federal Register seeking comments. Within 30 days, the plan elicited nearly 4,400 public comments, mostly in opposition.