SIC 4311
UNITED STATES POSTAL SERVICE



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

NAICS Code(s)

491110 (Postal Service)

Industry Snapshot

The U.S. Postal Service is one of the largest organizations in the world. In fiscal 2002, it had nearly 753,000 employees and handled about 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 37,683 post offices, branches, stations, and community post offices throughout the United States. The U.S. Postal Service had a fleet of more than 215,000 vehicles and shipped millions of pounds of mail daily on various airlines, making it the nation's biggest shipper. It was the second-largest civilian employer in the United States during the early 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 was highly labor intensive, with employee wages and benefits accounting for 85 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 37 cents in 2002 for first-class letters. It also faced increasing competition from private mail and package delivery services, and new technologies such as facsimile services, and electronic mail and bill paying that reduced the need for postal services.

Organization and Structure

The purpose of the U.S. Postal Service was to process and deliver mail to individuals and businesses within the United States. This mission also entailed handling mail efficiently and protecting it from loss or theft. The Postal Service handled about 203 billion pieces of mail in 2002 through its interrelated system of 37,683 post office branches.

Organizational Hierarchy. At the top of the Postal Service's organizational hierarchy is a team of 39 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 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. These officers consist of two associate postmasters general, five senior assistant postmasters general, 19 assistant postmasters general, six other headquarters functional heads, and five regional postmasters general. In addition to these officers, there are approximately 800 other persons in senior management positions in the country.

Geographical Distribution. The activities of the Postal Service are divided over five postal regions: central, eastern, northeastern, southern, and western. The reason for such field division is 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 five 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 five 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 five 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, but these were discontinued in 1982, and the Postal Service has been self-supporting since that time.

The Postal Service is not supported by taxes or government appropriations. As a self-supporting organization, it must obtain its funds from its operating activities or through borrowing. Under this policy its debt reached 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, the organization recorded a net loss of $1.7 billion, followed by a loss of $676 million in 2002. Contributing to these poor financials 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.

Revenues come from different classes of mail. In 2002, almost 86 percent of all Postal Service revenue came from three classes of mail: first-class mail (54.8 percent), standard mail (23.8 percent), and priority mail (7.1 percent). Standard mail includes advertising mail, formerly known as third class or bulk-rate mail.

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 improved 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 a 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, as opposed to a "self-supporting" policy drove the Post Office. 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 borrowing money 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.

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.

At the end of the twentieth century, the U.S. Congress was seeking ways to clarify the Postal Service's role. As Postmaster General William J. Henderson noted in the 1998 Annual Report, "The potential exists for a redefinition or perhaps even a re-regulation of our services."

Current Conditions

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 over 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 countered that the U.S. Postal Service actually improved the performance of the U.S. mail system in many dimensions, including finances, productivity, and service delivery. In 2002, President George W. Bush established a commission of nine individuals to evaluate the Postal Service and its future.

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 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.

Workforce

Nearly 753,000 people were career employees of the Postal Service in 2002, making it the second-leading civilian employer in the United States behind Wal-Mart Stores Inc. These individuals worked in facilities with contingents varying in size from one to more than 40,000 employees. The largest category of postal employees consisted of clerks and city delivery carriers, which constituted some 65 percent of the workforce, or about 490,295 individuals. The next largest categories were full-time rural delivery carriers and mail handlers, constituting 120,076 employees, or almost 16 percent of the total workforce. More than 37,800 people held supervisory and managerial positions, and more than 47,788 attended to building and vehicle maintenance. There were 25,771 postmasters in total, and the rest of the workforce filled a number of specialized jobs that ranged from nurses to the postmaster general.

The 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 National Association of Letter Carriers (NALC); the American Postal Workers Union (APWU); the National Rural Letter Carriers' Association; and the National Post Office Mail Handlers, Watchmen, Messengers, and Group Leaders Division of Laborers' International Union of North America. The APWU and the NALC, representing clerks and carriers respectively, were the two largest of these organizations.

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.

Further Reading

Kellner, Mark A. "Printing Postage by Computer." Nation's Business, March 1999.

Krause, Kristin S. "Coulda Been Worse: USPS Celebrating Despite $676 Million Loss as It Refines Role in Competitive Marketplace." Traffic World, 16 December 2002.

——. "More Mail, Fewer Airlines: USPS Plans to Abandon ASYS, ASYS-R Contracts, Move to Competitive Bidding for Commercial Airline Lift." Traffic World, 28 October 2002.

——. "USPS Loses $303 Million in 2Q: Sept. 11 Assaults, Anthrax Attacks Upped Losses $123 Million More Than Expected." Traffic World, 28 October 2002.

U.S. Postal Service. "1998 Annual Report." Available from http://www.usps.gov .

——. "Security of the Mail." January 9, 2003. Available from http://www.usps.gov .

——. "2001 Postal Facts." October 2002. Available from http://www.usps.gov .

——. "2002 Annual Report." Available from http://www.usps.gov .

"USPS Begins Direct Marketing Campaign Aimed at Small Businesses." Mail Center Management Report, September 2002.



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