NEW YORK — It’s time to right-size, reengineer and quasi-privatize the U.S. Postal Service. Or at least those are the recommendations of the special Postal Commission President Bush appointed in January with the aim of transforming a money-losing cabinet department into something resembling a profitable business.

The recommendations are a relief to magazine publishers, who lobbied hard for them in hopes that sweeping reforms will spare the industry from another wave of the rate increases that have driven up mailing costs an average of 21 percent and punished their bottom lines since 1999, according to the Magazine Publishers of America.

This story first appeared in the July 25, 2003 issue of WWD.  Subscribe Today.

The Commission released its top-level recommendations over two sessions this week and last, and will submit its detailed final report to the President next Thursday. Some of the highlights include granting the Postal Service the ability to control costs by closing and selling low-volume facilities, staff attrition, and adopting new sorting and tracking technology. The Commission noted in the set of recommendations released Wednesday that 47 percent of the USPS workforce will have hit retirement age by 2010, creating a “unique attrition opportunity” to cut headcount without layoffs.

Taken together, these fiscal austerity measures are designed to prevent future losses like 2002’s $700 million deficit, the result of declining mail volume due to a rise in e-mail and the growth of premium carriers like FedEx. And since it couldn’t beat them, the USPS might hook up with them — another, intriguing recommendation is that for-profit third parties be allowed to handle mail until just before it reaches mailboxes. It raises the possibility that if Time Inc. doesn’t like paying the current USPS average of 33 cents a copy for a monthly or 20 cents for a weekly, it could try to cut a deal with UPS instead.

“We do believe there are other, private companies that can do part of the process better, and possibly at less expense,” said Nina Link, president of the MPA. “We think having some price flexibility, and knowing there would be some sort of maximum cap [on increases] makes a lot of sense.”

Asked about these possibilities, a UPS spokeswoman declined comment, while a FedEx spokesman said the company is always willing to explore new business opportunities.

Of paramount importance to publishers, though, is that the USPS stop its recent flurry of rate increases — four since 1999, while the previous four came between 1985 and 1995.

“If it helps control costs and rationalizes the rate structure and increases, then I think these will be very helpful,” said Chip Block, vice chairman of USAPubs, a subscription agency. “One of the big problems is that the rate increases have been very unpredictable in the past. If you go a couple of years without an increase, and then there’s a series of huge increases like there were two or three years ago, it’s a real problem in planning a business.”

But, Block added, the tension between the USPS’ public mandate and the pressure to turn a profit creates “the kind of inherent problems that I don’t think the proposals really cover. To me, they’re treating some symptoms here, and I think they’re good ideas, but they don’t get at the cause of the problem.”

After the final report lands on the President’s desk next week, he will decide which ideas to send to Congress.

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