U.S. Postal Service proposes cuts that would slow mail delivery

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U.S. Postal Service proposes cuts that would slow mail delivery

A plan to save $2.1 billion a year and fend off possible bankruptcy would end almost all overnight delivery of first-class letters and postcards.

By Melanie Mason and Stuart Pfeifer, Los Angeles Times

8:06 PM PST, December 5, 2011

Reporting from Washington and Los Angeles

Snail mail may get even slower, starting this spring.

The U.S. Postal Service said a plan to save $2.1 billion a year and fend off possible bankruptcy would effectively put an end to almost all overnight delivery of first-class letters and postcards. Delivery would take at least two to three business days.

The postal service's decision to relax delivery standards for first-class mail follows its determination in September to close 252 mail processing plants, about half its total. Altogether, about 28,000 employees would lose their jobs.

David Williams, a postal service vice president, said Monday that the agency has little choice but to take drastic steps to reduce operating costs by $20 billion by 2015 in a bid to become profitable. It doesn't receive taxpayer funding, though it is subject to federal regulations and oversight.

The proposed changes to service standards would allow for "significant consolidation" of facilities, processing equipment, vehicles and the workforce, he said.

The cutbacks wouldn't affect Express Mail, which guarantees overnight delivery, or Priority Mail, which takes about two to three days. Those services are more expensive than a first-class letter, which costs 44 cents, with a 1-cent increase slated for January.

The move drew immediate criticism from some industry analysts, unions and members of Congress.

The loss of overnight service could hurt businesses that depend on the postal service to deliver their products, such as video rental company Netflix Inc. and prescription medication firm Express Scripts Inc., analysts said.

"There are certain items that are able to be shipped by first-class mail, like monthly pharmaceuticals, that will now have to be moved toward express delivery," said analyst Jim Corridore, who covers delivery companies such as FedEx and United Parcel Service for Standard & Poor's.

"There's also going to be a customer-service impact — people will feel their items will not arrive as quickly as they need them to, so they might look elsewhere," he said.

Express Scripts, a St. Louis company that processes millions of prescriptions a year through home delivery and at retail pharmacies, declined to comment. Netflix, the Los Gatos, Calif., company that has mailed rented DVDs to customers for years, did not respond to requests for comment.

Under the postal service blueprint, some companies could still count on next-day delivery if their bulk first-class mail required little processing and was dropped off within specified times. But individuals sending birthday cards or bill payments would need to build in extra time. Delivery of periodicals would take two to nine days.

"This is precisely the wrong direction for the postal service," said Sally Davidow, spokeswoman for the American Postal Workers Union. "The postal service should be modernizing and improving its service for the American people so it can remain relevant in the digital age."

Maine Sen. Susan Collins, the top Republican on the Senate committee that oversees the postal service, also denounced the move.

"Time and time again in the face of more red ink, the postal service puts forward ideas that could well accelerate its death spiral," Collins said.

Corridore agreed that consumers might turn to private delivery companies. If customers "need to get something there in less than three days, they may choose to migrate to FedEx or UPS for some of those items," he said.

UPS and FedEx said Monday that they supported a viable postal service but wouldn't comment on the plan's specifics or on the potential effect on their businesses or prices.

Over the past five years, the volume of first-class mail has dropped 25% as electronic deliveries, mainly email and, more recently, online bill payments, have cut into postal service revenue. As a result, the service faces a $14-billion budget shortfall next year.

In July, the postal service proposed closing about 3,700 post office branches. It has reduced its workforce by more than 110,000 through attrition in the last five years.

Agency officials are looking for help from Congress. They said their balance sheet was harmed by a 2006 bill that requires the service to pre-fund health benefits of future retirees, which adds an annual cost of about $5.5 billion.

Proposed legislation in the House and the Senate would ease the crunch but also would restrict the service's ability to take cost-cutting steps, such as eliminating Saturday delivery, a measure that service officials have floated in the past.

Before it commits to slowing mail delivery in the spring, the postal service is seeking an advisory opinion from its regulator, the Postal Regulatory Commission.

"The commission will be looking at just how much money will be saved by reducing service standards," said John Panzar, professor emeritus of economics at Northwestern University, who has studied the postal service for more than 25 years.

They'll ask, he said: "How much will that reduction in quality affect volume? On balance, is this going to be a good idea?"

The commission's opinion is nonbinding, but Panzar said the postal service typically hews to guidance from its overseer.

melanie.mason@latimes.com

stuart.pfeifer@latimes.com