24/7 Wall St.

The U.S. Postal System (USPS) is headed toward a major restructuring, caused by losses that it cannot sustain as it is currently constituted. The three primary factors in lowering costs have been part of the debate about the future of the USPS: closing offices, firing people and cutting the number of days that it delivers mail.

The USPS lost $2 billion in its most recent quarter. Management said its revenue grew 4.7% to $17.7 billion. However, what it calls “controllable income” rose to $576 million, compared to $313 million in the same quarter last year. The loss was triggered by what it calls “legally-mandated expense to prefund retiree health benefits.” A loss is a loss, regardless. And Congress has not let the USPS off the hook by changing the way that benefits are counted.

The first among the major cuts could be a drop in the number of post offices. The USPS reports that it has 35,520 retail offices. The number has changed very little since 2006. In 2011, USPS management suggested the shuttering of 3,652 locations. Since retail customer visits have dropped from 1.23 billion in 2006 to 919.5 million last year, the logic to support the plan is easy. As more people do business online, the plan makes even more sense. Unique visitors to the USPS website have risen from 190 million in 2009 to 547 million last year. Online revenue has more than doubled over 10 years to $1.05 billion.

The next set of cuts would be in workers and routes. Delivery routes numbered 244,700 in 2006 and 226,777 last year. Total vehicles operated by the USPS were 216,004 in 2006 and 214,933 last year. That is despite a drop in mail volume from 213.1 billion in 2006 to 154.3 billion last year. The argument has been repeatably made that FedEx and UPS can, and do, serve many of the same functions as the USPS. That is inarguably true. USPS has too many workers. That would be particularly true if the number of days of delivery drops.

Finally, there is the issue of cutting mail delivery from six days to five, or four or three days. The USPS Office of the Inspector General commissioned a study by the Boston Consulting Group in 2010, which forecast that the “average pieces of mail per delivery point per delivery day” would fall. The study triggered another debate of whether delivery could be cut so “Some homes could receive mail on Monday, Wednesday, and Friday, while others, on Tuesday, Thursday, and Saturday.” Some reduction in days of delivery has been on the table for years. The three-day plan would shave billions of dollars a year, according to the Boston Consulting Group. The number can be questioned, but not enough to support its primary thesis about a drop in delivery days.

A USPS restructuring is on the way. The debate will be over how it happens.