Charging More and Delivering Less

By Janice Castro

Any enterprise that regularly raises its prices while letting its service slip is almost sure to drive away customers. Unless, of course, that enterprise happens to be a monopoly like the U.S. Postal Service, which is still the only organization legally allowed to deliver first- and third-class mail. The Postal Service is cutting back on operations and capital spending even as its volume of mail -- 500 million letters, publications and packages every day -- grows by about 6% a year. Many customers are frustrated: complaints about delayed mail rose by 18% in 1987.

Yet the Postal Service is preparing to raise its rates next month by an average of 17.5%, the first increase since 1985. The cost of sending a first- class letter will jump from 22 cents to 25 cents, which means consumers will be buying stamps marked only by the letter E until the higher price can be printed on new ones. Businesses that rely on third-class mail will be hit harder, by increases of up to 25%.

The service reductions and rate hikes have brought new calls for reform. Last week President Reagan's Commission on Privatization recommended that the Postal Service be stripped of its letter-mail monopoly so that it would be forced to do a better job. Says James Miller, director of the Office of Management and Budget and a longtime proponent of privatization: "The Postal Service is a monstrosity. It is overstaffed, overpriced and inefficient. Postal patrons are paying more and more and getting less and less in return."

That may be true, but not all the fault lies with the Postal Service. Though it was reorganized in 1970 as an independent federal agency that operates as a break-even business, the Postal Service has not escaped Government meddling in its operations. The service's fiscal crunch is largely a creature of the budget compromise forged by Congress and the Administration in the wake of last October's stock-market crash. As part of the deal, Congress required the Postal Service to trim $1.2 billion from its estimated $35 billion annual operating budget over the next two years. Making matters worse, the legislators ordered the service to slash capital expenditures by 74% this year.

To meet those targets, the Postal Service in January ordered sweeping cuts in service. It eliminated all Sunday pickups from mailboxes and trimmed window-service hours at 34,000 post offices across the U.S. by an average of half a day a week. The Postal Service canceled or postponed billions of dollars' worth of new construction and equipment purchases, most of which were intended to modernize mail handling and speed up delivery by replacing outmoded facilities.

Postal performance is likely to deteriorate as a result. Employees at the Decatur, Ga., post office, now close down the service windows every Wednesday afternoon to catch up with their sorting duties. In Florida, where the population is growing by some 1,000 people every day, 56 of 59 facilities that the Postal Service planned to build in the southern part of the state have been postponed indefinitely. Says Miami Postmaster Woodrow Conner: "No business can take the cuts we have taken and not have problems. We cannot tell customers there will be business as usual."

Dealing with the postal crunch will be a formidable job for Anthony Frank, 56, who became Postmaster General this month. He replaced Preston Tisch, who returned to the management of Loews Corp. Frank, a former chairman of San Francisco's First Nationwide Financial Corp., has already jumped to the defense of the Postal Service, pointing out that the "magnitude of the task is just beyond belief." As for the higher rates, even critics concede that U.S. postal service is cheap compared with that of other countries. Mailing a letter in West Germany, for example, costs 48 cents, while the price is 45 cents in Japan and 33 cents in Britain. Postal officials point out that the price of a first-class stamp, after inflation is taken into account, is about the same as it was in 1971. "The 25 cents stamp is still a bargain," says Frank, "but only if service is good."

Stamp prices are being driven up by the Postal Service's labor costs, which account for 85% of its spending. Critics fault Tisch for not driving a tough enough bargain in negotiations last year with the unions representing 634,000 postal employees. Under the new contract, the average salary of those workers who are covered -- about $25,200 last year -- will rise some 7% by November 1990, not including cost-of-living adjustments. Tisch could have insisted that more of the work force consist of lower-paid, part-time employees. Instead, the Postal Service left in place guarantees that 90% of the employees will be permanent full-time workers.

Public dissatisfaction with the Postal Service has encouraged private firms to compete wherever the law permits. Mail Boxes Etc., the largest franchise chain of private postal outlets, with some 600 locations in 40 states, sells stamps, wraps packages, rents mailboxes and transmits copies of documents over telephone lines with facsimile machines. In the lucrative overnight-delivery market, United Parcel Service, Federal Express, Purolator Courier and other companies have claimed about 90% of the business.

Postmaster General Frank opposes any move to end the Postal Service's monopoly on first-class and third-class mail. Private firms, he argues, are no substitute for a universal postal service, since they tend to skim the cream off the market, serving well-to-do customers in urban areas but ignoring people in thinly populated regions. Frank admits that the Postal Service could do a better job. One way to help it do so, he says, is increased capital spending to expand facilities and modernize antiquated equipment. If Congress makes that investment possible, Frank is convinced, postal workers can deliver better service at reasonable prices, not only through snow, rain and gloom of night but in a tougher, more competitive marketplace.

With reporting by Gisela Bolte/Washington and Joseph J. Kane/Atlanta