The USPS is facing several challenges and competitive threats, such as electronic communication

The postal service now faces uncertainty in the form of increased
competition, lower first-class mail volume, and increased labor costs. A new report from the General Accounting Office, Major Management Challenges and Program Risks, outlines the key issue of whether the USPS is headed for financial problems as a result of these challenges and evaluates whether or not they will prevent it from fulfilling its mission of providing universal postal service while remaining self-supporting.

Why does this matter to mailers? For the most part, the fate of mail is
inexorably intertwined with the USPS. If mail volume declines, the postal
service may be in trouble; if the postal service falters, how the mail is
handled will be greatly affected.

Sizing Up the Threats

The USPS faces five main challenges, according to the report. This might
not seem like a lot, but each one is a large hurdle. They include:

Average Annual Percentage Change in First-Class Mail Volume

Legend

First-Class Mail volume Standard A mail volume
(primarily advertisements)

1972-1979 1.5 3.7
1980-1989 4.0 8.6
1990-1999 1.7 3.2
2000-2003 1.3 2.5
2004-2008 -3.6 1.6

(Source: USPS)

Note: Table made from bar graph.

* To remain self-supporting while providing affordable, high-quality
universal service;

* To control costs and improve productivity;

* To address long-term human capital issues;

* To provide complete and reliable performance information; and

* To address legal and regulatory issues.<
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One of the major threats to the USPS is electronic communications, such as
bills that are handled entirely via Web sites, e-mail, and electronic
payments instead of being sent through the mail. This is especially troublesome
when it cuts into first-class mail volume, since that class is the bread and
butter of the USPS. In fiscal year 1999, first-class mail comprised 58% of the
USPS’s revenue. Currently, the USPS forecasts an average annual decline of 3.6%
in first class volume between 2004 and 2008 (see figure).

During its fourth accounting period, first-class mail volume dropped by
2.9%, while revenue declined 4.2%, according to the USPS’s announcement in late
January. Standard Mail volume was up 0.8%, and revenue was down 0.1%.
Altogether, the USPS reported a $55.2 million loss for the fourth
accounting period.

New Products May Not Help

New products and services provide some hope, but they might not be enough
to turn things around. The report points out that new products and services
introduced in the mid-1990s were, for the most part, not very profitable.

Legal issues hinder the postal service, since it must operate in a
regulatory environment. The very nature of the post office can make it difficult for it to introduce new products and services without concerns about antitrust and unfair competition.

Likewise, some competitors–and members of Congress–question whether some
USPS alliances violate antitrust and unfair competition statutes. One
obvious example would be the teaming of the USPS and FedEx. Another example, would be PostCS, an e-commerce service that allies the USPS with the postal
services in Canada and France. UPS has lodged a formal complaint, which is still under review.

Controlling Costs Proves Elusive

Cost reductions may help control future rate increases, but only to a
certain extent. This means that future increases might be above the rate of
inflation, especially for mail categories that grow in volume–and as the USPS needs to make up lost revenue from declining amounts of first-class mail.

Increased productivity is one way to control costs, but over the last 30
years, prod