United States Postal Service

SIC 4311

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Industry report:

This industry includes all establishments of the United States Postal Service.

Industry Snapshot

The U.S. Postal Service is one of the largest organizations in the world. In 2009, it had more than 7663,000 employees and revenues of $74.9 billion. In fiscal 2009 it handled more than 203 billion pieces of mail through an extremely complicated system of carefully coordinated activities. In addition to the national headquarters in Washington, D.C., the U.S. Postal Service consisted of regional and field division offices that together supervised 36,400 post offices, branches, stations, and community post offices. Also known as USPS, the organization delivered to 150 million U.S. addresses and had a fleet of more than 218,000 vehicles. It also shipped millions of pounds of mail daily on various airlines, making it the nation's largest shipper. It was the second-largest civilian employer in the United States in the 2000s, behind Wal-Mart Stores, Inc.

The U.S. Postal Service was created as an independent establishment out of the old Post Office Department by the Postal Reorganization Act of 1970 and commenced operations on July 1, 1971. The industry is highly labor intensive, with employee wages and benefits accounting for almost 79 percent of the system's total costs. To cope with its soaring costs, the organization increased postal rates consistently, from 6 cents at the onset of the Postal Reorganization Act to 44 cents in 2009 for first-class letters. It also faced increasing competition from private mail and package delivery services as well as technologies such as facsimile services, e-mail, and online bill paying that reduced the need for postal services.

Organization and Structure

The purpose of the U.S. Postal Service is to process and deliver mail to individuals and businesses within the United States. This mission also entails handling mail efficiently and protecting it from loss or theft.

Organizational Hierarchy.
The top of the Postal Service's organizational hierarchy consists of an eight-member executive committee and a team of 33 officers. In charge of these officers is the postmaster general (PMG) and the deputy postmaster general, whose authority derived from the Postal Reorganization Act. The PMG is appointed by the nine governors of the Postal Service, who are, in turn, appointed by the U.S. president with the advice and permission of the Senate for overlapping nine-year terms. The governors and the PMG together appoint the deputy PMG, and these 11 people together form the board of governors. The remaining officers are appointed by the PMG, and the board of governors determines the nature and scope of activities of these officers. Primarily serving in the role of vice-president, these officers are in charge of such activities as regional operation, inspections, technology, finance, facilities, labor, international business, and emergency preparedness. In addition to these officers, there are approximately 780 other persons in senior management positions associated with the inspector general's office.

Geographical Distribution.
In the 2000s, the activities of the Postal Service were divided over seven postal regions: Eastern, Great Lakes, Pacific, New York Metro, Northeast, and Southwest. The reason for such field division was to reduce administrative layers and incorporate operating management expertise as near as possible to the locations where postal services are offered to the public. Each of the seven regions has a number of "field divisions" that are regarded as the Postal Service's key organizational units, with all other local offices reporting to a division. Moreover, there are 74 field divisions located in key cities throughout the country, and there is a regional chief inspector at each of the seven regions of the Postal Service. Any information or complaint with regard to postal violations is required to be presented to the closest postal inspector in authority. The seven regional postmasters general are in charge of all the postal activities in a geographical region.

Economic Structure.
The Postal Service is not considered a business but rather a governmental institution designed to serve the U.S. public. When Congress created the Postal Service as an "independent establishment" of the federal government, however, one of the main objectives was to assure financial stability and self-sufficiency for the organization. In the 1970s this seemed a highly ambitious goal. At that time, not only did the Postal Service suffer from long-standing operating problems and deficit-producing services, but it also faced a high inflation rate and rising cost of fuel. To cover its costs, the Postal Service received operating subsidies from the government, which were discontinued in 1982, and the Postal Service has been self-supporting since that time.

Background and Development

The U.S. Postal Service has a long and rich history that began in the early days of the colonial period. This historical period gave birth to the first American post office. Following repeated failures to develop a postal system in colonial America in the seventeenth century, the British government delegated this critical responsibility to Thomas Neal in 1692. Neal's mail service was a dismal failure, and by 1707 the British government acquired the rights to the mail system. Although this new system was more successful than Neal's and broke even in the 1720s, it did not produce a profit until 1761. This newfound profitability was partly due to the management skills of Benjamin Franklin, who became co-deputy postmaster general in 1753, and partly due to a reciprocal agreement between the colonies and England.

Ironically, the successful postal service increased England's control over the American colonies at a time when the relationship between the two was deteriorating. The high postal rates were considered a prime example of "taxation without representation," and some Americans started to send mail via "alternative" mail distribution sources, such as postmen not associated with the British mail system who delivered mail for far less than what the colonial post office charged.

In 1774 Maryland newspaper publisher William Goddard initiated an independent postal system called the "Constitutional Post," which eliminated the need for alternative postmen. In 1775, the Second Continental Congress acquired the Constitutional Post and successfully ran the system throughout the Revolutionary War. In 1782 the Confederate Congress wrote an innovative, first-ever postal law allowing the Post Office a monopoly in the carrying and delivering of mail, establishing the office of postmaster general, setting postal rates, and carefully detailing the operating regulations of the postal service.

In 1792, the new Constitution gave Congress the right to establish post offices and roads. Therefore, Congress created a new postal law that established a new U.S. Post Office. This new law was more an addendum to the law of 1782 than radical new legislation. The primary contribution was the establishment of the principles of the nation's postal policy, which stipulated that the Post Office was to be self-supporting (using any profits to expand the postal service), and that Congress (not the PMG) was to approve post offices and post roads. Therefore, Congress would completely control the post office and its growth. Moreover, the PMG was given the responsibility of managing the postal service, which included providing an annual budget to Congress that estimated the needs of the department.

In response to complaints by both rural and urban customers concerning high postal rates in 1851, Congress reduced the rates and stated that this would in no way reduce the postal service, even if postal deficits resulted from this action. Therefore, a customer-service policy drove the Post Office, rather than a "self-supporting" policy. This new policy eliminated distance as a factor in determining the price of a letter and led to greater use of the mail service through the modernization of the postal system, although it also produced annual postal deficits.

The next phase of the history of the U.S. Postal Service consisted of a series of significant events, including initiation of mandatory prepayment of postage and the use of stamps in the 1850s; institution of a registered letter service in 1855 and a city free-delivery system in 1863; development of the first railroad post office in 1864, which revolutionized postal service by allowing employees to sort mail as they traveled on trains; introduction of mail delivery to farm homes in 1896 and parcel service to rural areas in 1913; use of automobiles to deliver the mail, replacing horses, in the early 1900s; and initiation of the first regular airmail service between Washington, D.C., and New York in 1918. In 1964, ZIP codes were introduced to identify each postal delivery area in the United States. "ZIP" is an acronym for "zone improvement plan."

Postal Reorganization Act of 1970.
The Postal Reorganization Act of 1970, which created the current structure of the U.S. Postal Service, was the most detailed and radical reorganization in two centuries. The postal department was removed from the president's cabinet, and Congress was no longer able to set both postal employee wages and postal rates. The "new" Postal Service was able to run more like a business enterprise--for example, it could hire its own personnel.

Other specific changes resulting from the act included establishment of the board of governors to oversee operations; creation of the independent Postal Rate Commission to provide advice to the board of governors on postal rates and classifications; establishment of provisions for an independent personnel system and direct collective bargaining between postal management and unions; authorization of a general "public service" subsidy in an amount equal to 10 percent ($920 million) of the fiscal 1971 appropriations to the Post Office Department through the year 1979, and declining by 1 percent per year through 1984--by which time the Postal Service was expected to be self-sufficient; provision of a plan for gradually phasing out the preferential rates for various categories of mail, and assuring that rates covered only those costs directly applicable to the class plus some "reasonably assignable" portion of the system's institutional costs; and authorization to modernize the postal system through loans and issuing public bonds up to $10 billion.

The 1990s, and most notably the years under Postmaster General Marvin Runyon (1992-98), marked a turning point for the Postal Service. From 1995 through 1998 the Postal Service had cumulative earnings of $5.1 billion, compared to cumulative losses from 1971 to 1994 of $9.9 billion. Under Runyon's leadership, the Postal Service successfully set and communicated clear objectives and improved automation, service, and customer satisfaction. It began using private sector tools, such as accepting credit cards and adopting longer hours, to better meet its customers' needs.

During the early 1990s, the U.S. Postal Service suffered a series of highly publicized, unfortunate incidents involving disgruntled or former employees. At post offices in several cities, such an employee brought a gun to work and shot fellow workers and managers. These incidents occurred far more frequently at post offices than in other businesses, raising concerns about the working environment. Some observers attributed the violence to the fact that relations between post office workers and management had grown increasingly tense and claimed that some disturbed individuals were unable to handle the everyday stress of the job. Others blamed the strong employee unions for making it difficult for managers to discipline or terminate workers with behavioral or emotional problems. The Postal Service tried to address these concerns through reorganizations, offers of counseling, and training programs.

Independent surveys confirmed that the Postal Service was achieving higher customer satisfaction. In 1998 the Pew Research Center for the People and the Press reported that 89 percent of Americans rated the Postal Service the most favorably of any federal agency. According to a 1998 Roper Survey, 78 percent of all Americans had a highly or moderately favorable opinion of the Postal Service, the highest ranking of 15 federal agencies.

As a self-supporting organization, the Postal Service had to obtain its funds from its operating activities or through borrowing. Under this policy, its debt climbed to nearly $10 billion. From 1971 to 1994, prior years' losses accumulated to nearly $9 billion. The Postal Service began to achieve positive net income in 1995, then reported four consecutive years of positive net income through 1998, when it had an operating surplus of $550 million. From 1995 through 1998, the Postal Service had cumulative earnings of $5.1 billion. Its debt was reduced from $9.9 billion in 1992 to $6.4 billion in 1998.

By the early 2000s, the Postal Service was losing money again and was saddled with more than $11 billion in debt. In 2001, a net loss of $1.7 billion was recorded, followed by a loss of $676 million in 2002. Contributing to these poor financial reports were weak economic conditions and growing operational costs. The Postal Service also was trying to do more with less, adding some 1.7 million new addresses to its delivery base each year while scaling back its workforce by more than 34,500 career employees from 2000 to 2002.

Although postage rates held steady from 1995 to 1999, increases eventually were necessary to offset rising costs. New postage rates are reviewed and recommended by an independent body, the Postal Rate Commission, and then approved by the board of governors, a process that typically takes a year and a half.

Undertaking a strenuous cost-cutting program in 2002, by 2004 the Postal Service had reduced its debt from $11.1 billion in 2002 to just $1.8 billion in fiscal 2004--the lowest level in 20 years. As a result, interest expenses fell from over $300 million annually to $10 million. In fiscal 2004 the Postal Service reported a second consecutive year of net profits and, for the first time since organization in 1971, ended the year with positive retained earnings, totaling $897 million. Net income for fiscal 2004 was $3.1 billion.

During the early 2000s, the Postal Service faced a number of significant challenges. In addition to a net loss of $1.7 billion in 2001 and $676 million in 2002, the organization was forced to operate in an environment of heightened security, characterized by mail-related terrorist acts that increased the cost and difficulty of operations.

In the wake of terrorist attacks against the United States on September 11, 2001, mail tainted with deadly anthrax bacteria was circulated in the postal system, causing several deaths. The Postal Service responded by implementing a number of security measures, including electron-beam irradiation for sanitizing mail in select locations. The organization also purchased nearly 90 million pairs of rubber gloves, as well as 5 million facemasks, to safeguard its employee base. To protect postal customers, some 145 million postcards were sent to U.S. residents that provided explanations about what to do with suspicious items received via U.S. Mail.

Safety concerns did not stop with the anthrax scare, however. In 2002, the Postal Service was forced to contend with Luke Helder, a 21-year-old college student from Wisconsin who planted 18 pipe bombs in rural mailboxes. While no deaths resulted from the pipe bombs, a number of postal workers and residents were injured. During a time span of five days, the organization dedicated some 150 postal inspectors to the case--which covered five states including Colorado, Illinois, Iowa, Nebraska, and Texas--before it was finally resolved.

By the early 2000s, John E. Potter was serving as the Postal Service's postmaster general and CEO. At that time the organization faced stiff competition from competitors--although it had entered into limited partnerships with some of them, including an arrangement with FedEx to move first-class, express, and priority mail via air. Another source of competition came from the increasing use of e-mail. These factors were having an especially severe impact on first-class and standard mail, which dropped by more than 4 billion pieces during 2002.

In late 2002, the Postal Service also was in the process of evaluating its arrangements with commercial airlines, which it had long relied upon for the transport of mail. In the wake of September 11, commercial airlines were not able to carry packages weighing more than 16 ounces. According to Traffic World, in order to achieve economies of scale, the Postal Service planned to cut back the number of airlines it used to move mail via commercial airlines. In addition, it was planning to eliminate the use of regional airlines. This led to protest among regional carriers, who appealed to Congress for intervention.

In an aggressive attempt to control costs, by 2003 the Postal Service had cut some 45,000 jobs. At the end of fiscal 2003 the Postal Service had about as many employees as it did in 1994 but delivered 22 billion more pieces of mail to 19 million more addresses. Net income was $3.87 billion on revenues of $65.8 billion. However, due to its debt problems, actual retained earnings remained negative.

During 2003 Public Law 108-18 Postal Civil Service Retirement Funding Reform Act went into effect. The law modified the Postal Service's obligation to make payments into the its Civil Service Retirement System, which was being overfunded. These savings were directed toward debt reduction during 2003 and 2004 and greatly enhanced the Postal Service's ability to drastically reduce its overall debt burden. However, P.L. 108-18 also stipulated that beginning in 2006 the "savings" must be redirected from debt reduction and be placed in an escrow account for use as determined by Congress. The law also added the financial burden of paying the retirement benefits of military personnel employed by the Postal Service, which had been previously underwritten by Treasury Department.

In fiscal 2004 the Postal Service increased revenues by less than 1 percent to $69 billion although the number of pieces of mail delivered increased by 2 percent to 206.1 billion. The organization posted a profit for the second consecutive year with a net income of $3.07 billion. Overall debt was reduced to $1.8 billion, the lowest level in 20 years.

Despite the positive financial results of 2003 and 2004, the Postal Service faced some significant challenges during the mid-2000s, particularly the decline of first-class postage revenues. Businesses account for 95 percent of the Postal Service's revenues, and during the first half of the 2000s, the expanding use of e-mail, Web sites, and electronic communication and transactions to conduct business resulted in a loss of 1 to 2 billion pieces of first-class mail each year since 2000, the largest declines since the Great Depression.

In fiscal 2004 first-class mail revenues actually declined for the first time, falling by $617 million to $36.4 billion of the $69 billion in total revenues. Because the Postal Service traditionally depends on first-class postage revenues to cover about two-thirds of operating expenses, this decline was seen as a tell-tale sign of disaster waiting to happen--overall volume was increasing as low-rate bulk mailing continue to grow, but revenues were beginning to shrink; thus the Postal Service will have more business but less money to operate. On average a piece of bulk mail earns the Postal Service about half of what a piece of first-class mail earns. Richard Strasser, Jr., the Postal Service's chief financial officer, warned in the 2004 Annual Report: "The shift in mail mix from first-class mail to lower revenue per piece mail classes has resulted in stagnant revenue growth and shrinking contribution. Nonetheless, the costs of universal service will continue to increase."

During the first half of the 2000s the Postal Service effectively cut costs, improved efficiency, and promoted Web-based services. By 2005 the usps.com Web site was generating more $250 million in revenues annually. At usps.com, customers can purchase services, buy stamps, calculate postage, print labels with or without postage, schedule a pickup, and track packages. Click-N-Ship provides mailing options, and the NetPost CardStore allows customers to design and send cards, direct mail pieces, and gift cards. The Click-N-Ship service has been particularly popularly with small businesses. The Postal Service also expanded its operations of expedited package delivery options with its Express and Priority services, taking back a little ground previously lost to UPS and FedEx.

Concerned over the implementation of the P.L. 108-18 requirement that the Postal Service begin funneling $3.1 billion into an escrow account beginning in 2006, the Postal Service submitted a request to Congress in April 2005 to increase the cost of a first-class stamp by 2 cents to 39 cents, which was approved, and increase other postal services by 5 to 6 percent. A first-class stamp rose another 2 cents to 41 cents in 2007.

The effect of transferring $3 billion into an escrow account actually hit the Postal Service in the first quarter of fiscal 2007. The Postal Accountability and Enhancement Act of 2006 (P.L. 109-435) eliminated the escrow previously required under P.L. 108-18 and reduced USPS payments into the Civil Service Retirement System (CSRS). The $3 billion in cash that had been placed in a federally mandated escrow account in fiscal year 2006 was designated to fund retiree health benefits and was reported as an expense for fiscal year 2007, as mandated by Generally Accepted Accounting Principles (GAAP). Therefore, expenditures for fiscal year 2007 were approximately $80 billion including the $3 billion in escrow and additional $5.4 billion directed toward the Postal Service Retiree Health Benefits Fund, while total revenue was $74.9 billion. This resulted in a loss of $5.1 billion.

The USPS reported losses in the following two years as well, although they were less: $2.8 billion in 2008 and $3.7 billion in 2009. Operating expenditures totaled about $77.7 billion in 2008 and $71.8 billion in 2009, with revenues reaching $74.9 billion and $68.0 billion in those two years, respectively. In 2009 about 55 percent of revenues ($35.9 billion) came from first-class mail. Advertising accounted for $17.4 billion; shipping services, $8.1 billion; periodicals, $2 billion; and package services, $1.7 billion.

In 2010 the Postal Accountability and Enhancement Act of 2006 was amended by the Legislative Branch Appropriations Act (P.L. 111-68), which required further payments of between $1.4 billion and $5.8 billion into the Postal Service Retiree Health Benefits Fund through 2016. P.L. 109-435 also replaced the Postal Rate Commission with the Postal Regulatory Commission, granting it regulatory rights as well as oversight responsibilities.

Overall the Postal Service played a significant role in the development of the United States. Not only did it foster unity among the diverse individuals scattered across the nation, but it also contributed largely to the development of U.S. business. Over the years the U.S. Postal Service has received criticism about frequent rate increases, slow service, and lost mail. Proponents counter that the U.S. Postal Service has actually improved the performance of the U.S. mail system in many dimensions, including finances, productivity, and service delivery.

Current Conditions

The U.S. Postal Service continued to struggle with financial problems into the second decade of the twenty-first century, partly due to the increased use of electronic forms of communication. According to PC Magazine Online, physical mail shipments through the USPS dropped 20 percent between 2007 and 2010. The Postal Service reported losses of $3.5 billion in the second quarter of 2010 alone, and many were wondering how it would meet its financial obligations in 2011 and beyond. According to USPS chief financial officer Joseph Corbett in August 2010, "Despite ongoing aggressive cost reductions totaling over $10 billion in the last three years, it is clear that a liquidity problem is looming and must be addressed through fundamental changes requiring legislation and changes to contracts." Some of these proposed changes included reducing mail delivery from six days a week to five--a move that Congress had not approved as of September 2010--and a rate hike, which was yet to be approved by the Postal Regulatory Commission. In March 2010 the Postal Service recommended raising the price of a first-class stamp from 44 cents to 46 cents and the price of a postcard from 28 cents to 30 cents. Cutbacks the Postal Service had already taken included cutting 63 million work hours, or the equivalent of 36,000 employees, in the first three quarters of 2010.

Based on some reports, the Postal Service had the money it needed--it just wasn't putting it in the right place. According to a 2009 audit by the USPS Deputy Assistant Inspector General for Financial Accountability John Cihota, the Postal Service had overpaid retiree health benefits to the tune of $13.2 billion. Another report by USPS Inspector General David Williams showed that the USPS had overpaid its Civil Service Retirement System account by $75 billion. As stated by Cihota on Govexec.com, "It is important that the trend of overpayments does not continue. The Postal Service faces a challenging future and its responsibilities and the true cost of funding postal operations needs to be absolutely clear."

Workforce

As of September 30, 2009, 623,128 people were career employees of the Postal Service. Another 88,954 were considered non-career employees. These individuals worked in facilities with contingents varying in size from 1 to more than 40,000 employees. The largest category of postal employees in the late 2000s was city delivery carriers, who accounted for 33 percent of the career workforce. Clerks constituted 29 percent of the workforce, and the categories full-time rural delivery carriers and mail handlers made up 11 percent and 9 percent of the workforce, respectively.

About 85 percent of postal employees in the United States are unionized. The four major organizations that represent the postal workforce in collective bargaining with management over wages and other terms and conditions of employment are the American Postal Workers Union (APWU), National Association of Letter Carriers (NALC), National Postal Mail Handlers Union (NPMHU), and National Rural Letter Carriers' Association (NRLCA). The APWU and the NALC, representing clerks and carriers, respectively, were the two largest of these organizations.

© COPYRIGHT 2018 The Gale Group, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. For permission to reuse this article, contact the Copyright Clearance Center.

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