Zapping The Post Office

By John Greenwald

Once dependable only as an endless source of jokes, the U.S. Postal Service has just delivered its third straight year of billion-dollar profits. The service, shorn of government subsidies in 1982 to make it more competitive, hauls 630 million pieces of mail a day through snow, rain, heat and gloom of night with a savvy that has raised its on-time rate for first-class letters to a reliable 92%. Polls show that the Postal Service is rising steadily in the public's esteem. "The more a federal agency has to compete in the market, the more likely it is to behave in a responsive and customer-friendly manner," says David King, a professor at Harvard's Kennedy School of Government who has been studying popular attitudes toward Washington.

Yet the very forces that compelled the Postal Service (fiscal 1997 revenues: $58.3 billion) to get market religion are threatening to bury it. Electronic mail is zapping first-class deliveries, the system's most profitable service, and could replace 25% of "snail mail" by 2000. At the same time, post office technology continues to lag far behind that of document and parcel movers like Federal Express and United Parcel Service, which can electronically track items through every stage of their journey. UPS alone delivers more than 80% of all packages shipped in the U.S.

In fighting back, U.S. Postmaster General Marvin Runyon has gone to war with everyone from FedEx to members of Congress to some of the postal service's nearly 800,000 employees. Runyon has to improve technology--he envisions robots sorting the mail in the service's 360 mail-processing plants--cut costs more, expand service and somehow make peace with the country's largest work force. It will not be easy. Rivals say Runyon can use revenues from first-class service, in which he has a monopoly, to underprice competitors in such areas as parcel delivery. Sympathetic lawmakers have responded by proposing laws that would limit the range of postal services. Runyon is certain to raise some hackles this summer when the price of a first-class stamp rises a penny, to 33[cents]. It will be the first such increase since 1995. The price of a stamp has quadrupled since 1971 in virtual lockstep with inflation.

One group of Americans is still mad as hell at the Postal Service--its workers. The number of employee grievances awaiting arbitration rose 44% last year, a sign of mounting labor tension. The premium on efficiency has, according to the Washington Post, driven a few desperate workers in West Virginia to rig the independent audits of their on-time delivery. And in another burst of ghastly work-related violence, a Milwaukee, Wis., mail handler killed himself and a co-worker last month. Union leaders are becoming bellicose over what they call management's failure to share bonuses with workers. "The labor-relations climate hasn't improved one iota," says crusty Moe Biller, 71, president of the American Postal Workers Union, which has threatened labor disruptions if it cannot settle its current contract negotiations by fall.

For Runyon, 73, who cut nearly 50,000 jobs after taking charge in 1993, the stakes in the battle to deliver mail in one form or another could hardly be higher. At issue, he says, is the survival of the Postal Service and its commitment to "universal service" for everyone from AT&T executives to Alaskan homesteaders. "We deliver to every house in America" six days a week, says the white-thatched veteran executive of Ford, Nissan USA and the Tennessee Valley Authority. "No competitor can touch that." None want to, in fact, because of the high costs of delivering to all those remote mailboxes. Yet Runyon has to keep the total volume of postal business growing 2.3% a year to maintain the economies of scale that keep the service competitive.

Electronic delivery is already a huge threat. Faxes and E-mail have taken a $6 billion bite out of postal revenues in recent years. The damage could spread as software makers perfect electronic signatures that senders can use to authenticate their E-mail messages, thereby reducing the need for hard copies of such documents as wills and contracts. The post office is fighting back with some wizardry of its own in the form of an "electronic postmark"--a digital time stamp that, for a fee, can be used to certify that E-mail has been transmitted.

The Postal Service has a huge sideline business, its No. 2 money earner: selling information about you to marketers. The USPS compiles and sells the country's most complete demographic data on consumer tastes and interests. "We know who skis, who fly-fishes, who goes to the movies," says chief operating officer William Henderson. Such detailed information can serve as the basis for targeted advertising, as opposed to plain old junk mail. Henderson says this advertising is "the fastest-growing segment of first-class mail." Internet services can play the same game, of course, and have been compiling their own data banks to lure advertisers online.

Changes are on view at your now friendly post office, or should we say postal retail outlet. Some 700 of the system's 33,000 post offices have morphed from bank-vault blandness into boutiques that sell such items as hats, neckties and Bugs Bunny trinkets while still providing a full line of postal services. The truly postally obsessed can choose a Pony Express sweatshirt or infant gear emblazoned with the words JUST DELIVERED. And customers are buying. "When a store replaces a post office, there is more than a 10% increase in revenues," says Nancy Wood, a postal-marketing specialist.

But the most far-reaching transformations have taken place where consumers rarely see them, in vast processing centers such as a computerized Manhattan facility that has room for 43 football fields. There a pair of operators using optical scanners can sort 35,000 envelopes an hour, including those with handwritten addresses. The entire windowless center--part of a five-year, $14 billion USPS overhaul--handles an average of 2 million pieces a day and has slashed processing costs by two-thirds.

The sheer size of such facilities dwarfs the capabilities of private competitors and makes it tempting to take these rivals lightly. Postal managers boast that the U.S. system delivers as much mail daily as FedEx handles in a year. "We are at the extremes in everything," says New York Postmaster Sylvester Black. "We talk about the evolution of the mail, but the overwhelming majority of people get their bills by mail, pay their bills by mail and get their magazine subscriptions by mail. The old standby is still the old standby."

The hottest battle right now is in two-day package delivery, where the USPS has picked a nasty fight with the parcel-delivery services. In TV spots for its Priority Mail, the postal service touts its prices as far below those for the comparable service by FedEx or UPS. Yet the post office can't match their delivery record or track a piece of priority mail from shipper to receiver. An advertising review board rejected a FedEx challenge to the spots last year, but the two rivals remain in litigation. Says UPS chairman and ceo Jim Kelly: "I can hardly imagine that the goal of government should be to put the private entrepreneur out of business."

It's not. The goal of the USPS is simply to stay in business. And just the idea that his competitors are complaining must mean Runyon has made some progress toward achieving it.

--Reported by William Dowell/ New York, Chandrani Ghosh/Merrifield and Bruce van Voorst/Washington

With reporting by William Dowell/ New York, Chandrani Ghosh/ Merrifield and Bruce van Voorst/Washington