Is It Time for a Postal Service 2.0?

Calls for an overhaul of the U.S. Postal Service are getting louder. They'll only increase in volume in the runup to a 2¢ increase in the price of a first-class stamp, scheduled for May 11.

The extra postage is needed to cover the rising costs of a sprawling operation that employs 685,000 people, operates 37,000 retail locations, and in fiscal 2008 delivered 202 billion pieces of mail in every state, city, town, and village in the U.S. and its territories. The U.S. Postal Service (USPS), which relies on postage-stamp sales and not Uncle Sam for revenue, is operating at a large loss. Last year's $2.6 billion shortfall, on $75 billion in revenue, is expected to widen to $8 billion this year.

In an effort to rein in costs, Postmaster General John E. Potter last month floated before a Senate subcommittee the idea of cutting back on mail delivery to five days a week from six.

But what USPS may need most is a technological revamp. So say two startups that specialize in digital document delivery. Earth Class Mail provides mail-scanning services for consumers and small businesses. The company's CEO, Ron Wiener, says it's cheaper to deliver a document over a computer network than by hand, especially when the recipient lives in a remote area, and so much of what is delivered via mail begins its life as an electronic file.

Delivering Mail, Digitally

Wiener's plan is to get national postal services in the business of delivering documents digitally and securely using an approach he calls "trusted postal e-mail." The idea is to replace the printer with a secure e-mail server operated by the postal service that can then deliver a digital equivalent of your paper phone bill or investment statement to a personal, secure online mailbox. "Everything that gets printed and sent to you starts out electronically, even the junk mail," Wiener says. "It could be e-mailed, but e-mail is not considered legally delivered, and it's not secure." The approach has been embraced by Swiss Post, Switzerland's national carrier which operates in 16 countries.

When paper mail is delivered to an Earth Class Mail box, customers get an e-mail saying they have mail waiting for them. After reading it, they can elect to have the document stored on the postal carrier's servers, or have the original forwarded to their home mailbox where they can save it themselves, or they can ask that it be shredded. Each document is assigned a unique numeric address and so can be tracked throughout the handling process, and employees are given a thorough background check and work under constant video surveillance to ensure security of documents.

On Feb. 10, Swiss Post announced plans to license ECM's technology and to launch a service called Swiss Post Box in six countries—Switzerland, Germany, France, Austria, Italy, and Liechtenstein—beginning in the second quarter, with more countries to follow. ECM hopes to persuade postal services of other countries to embrace the approach, eventually creating an international network.

ECM's system makes sense for Swiss Post in part because one-third of the country's mail customers live in rural areas—some of them mountainous—where delivery is more expensive. It could appeal to USPS for the same reason: Rural delivery stops accounted for 27% of its network last year. "There's a lot of mail going to places in Alaska and Guam where it costs more than 42¢ to deliver," Wiener says. "We're saying why not use an Internet connection to get the job done at much lower cost?"

The Volume Problem

USPS has toyed with electronic delivery systems in the past. In the late 1990s it launched a series of electronic services, including an "electronic stamp" meant to prove when an e-mail was sent and that it arrived unaltered. The agency later proposed to Congress a way to tie street addresses to electronic mailboxes, a system not unlike what Earth Class Mail is proposing. Ultimately, the efforts were abandoned amid lack of demand, says USPS spokeswoman Sue Brenann. "There wasn't enough interest in some of these products at the time, and they weren't making back enough money to cover their costs," Brennan says. "After the e-commerce bubble burst, the decision was eventually made to go back and focus on core products."

These days, demand for some of those core products is on the wane, and once again USPS isn't making enough money to cover costs. Volume is down in first-class mail, which includes bills and letters, and "standard mail," a category that includes catalogs and sales pitches. Volume peaked at 213 billion items delivered in 2006 and decreased 5% by the end of fiscal 2008. In 1990 the average number of pieces of mail delivered per capita was more than 750. By 2007 it was 650, according to a USPS study released last year. "The Postal Service is coming up against what is a difficult business model to maintain," says Ruth Goldway, a commissioner on the Postal Regulatory Commission, the Postal Service's official watchdog. "First-class mail is supposed to pay the lion's share of overhead costs and allows you to fill the delivery network with other mail. You simply can't do that when you're losing volume."

Increased dependence on e-mail and other digital messaging systems accounts for part of the drop in demand for postal services. The recession isn't helping, either. Mortgages and the paperwork they generate used to account for a large slice of mail volume. And now more banks, phone companies, and other heavy users of the postal system are stepping up their reliance on electronic delivery methods to control costs.

Another startup looking to digitize paper mail is Zumbox, which launched a service this week that gives registered customers a free electronic mailbox that's linked to their street address. Zumbox President Glen Ward says the company plans to bill advertisers for the right to enhance documents with additional features. For instance, a power company might embed a video public service message, or a charity might add a "donate now" button to a solicitation. "Rather than paying 50¢ or a dollar on printing and postal costs to send out bulk mail, advertisers could pay us 5¢ per street address to send digital equivalents to our customers," Ward says. "It's probably something the Postal Service could have done on its own, but hasn't."

If the drumbeat for reform gets loud enough, maybe the U.S. Postal Service will consider these or other attempts to modernize more seriously.

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