WASHINGTON(Reuters) – Despite a slowing economy and growing competition from theInternet, the U.S. Postal Service aims to break even in 2008 byincreasing its package delivery business by about 10 percent, a topexecutive told Reuters on Wednesday.
The Postal Service will eventually be profitable, but that goal mustbe balanced against giving customers the best price possible, saidPatrick Donahoe, the chief operating officer and deputy postmastergeneral.
"Given that there’s a lot uncertainty in the market right now, ourgoal is to continue to grow and provide value, and at a same timeimprove quality and improve service," Donahoe said.
This year, the Service expects about 10 percent growth in PriorityMail, Express Mail and related products that compete with Fedex Corp(FDX.N: Quote, Profile, Research), United Parcel Service (UPS.N: Quote, Profile, Research)and other companies, Donahoe said. That group of products now makes upabout one-tenth of the Service’s business, with First-class mail andperiodicals accounting for the rest, he said.
"You’ve got an expanding package market, especially to homes,"Donahoe said in an interview. "Our idea is to grow with it, more thanin the past."
To attract more business from small companies, the Service beganoffering price discounts to high-volume Express Mail shippers andcommercial Priority Mail customers on Monday. The discounts were madepossible by a 2006 law giving it more freedom to customize pricing ofpackage delivery products.
As the Postal Service attempts to enhance its package business, the slumping economy has cut revenue below expectations.
With businesses sending less mail, the Service lost $707 million inits fiscal second quarter as mail and package volume fell 3.3 percent.During the first half of its fiscal year, the Service reported a netloss of $35 million while generating $39 billion in revenue.
Donahoe said the Postal Service should break even in 2008, despite the steep loss in the first half of the year.
The Service also has to contend with consumers increasingly usingthe Internet, instead of the Postal Service, to pay bills and sendcorrespondence. That has forced it to cut costs by $8 billion since2001, mostly through automation.
Despite the Service’s efforts, one former senior official said it still faces crippling payments for retiree benefits.
The 2006 law requires the Service to fund retiree health benefitsthrough a 10-year schedule of payments ranging from $5.4 to $5.8billion annually through 2016.
"There is no obvious way they can raise that money," said CharlesGuy, a senior fellow at Lexington Institute and former director ofoffice of economics in strategic planning at Postal Service for morethan 20 years.
Although the law gave the Service more flexibility in pricing andcreating competitive products, Guy said with its history of failedproducts, the Service can not realistically expect any great financialwindfall from package delivery.
"That’s just not what they do," Guy said.
With limited borrowing power and limited revenue, Guy said theService may be unable to make its annual payment to the retirement fundas soon as next year. Congress will eventually have to modify the lawor give the Service a subsidy, he said.
Donahoe acknowledged money is tight, but said the Service would meet its obligations.
"If we make a commitment that’s part of a law, we will do it,"Donahoe said. "We have been very successful with revenue generation,service improvement, and costs over past few years and I can’t see thatwe’re going to fall off course."
(Reporting by Ayesha Rascoe)
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