Technology: The problem and solution for Postal Service's $238 billion shortfall

Technology is behind the significant decline in the U.S. Postal Service's mail volume -- and losses -- but mobile applications could be integral to the agency turning its fortunes around, officials and policy analysts said on Tuesday.

Advances in technology have changed consumer behavior, rendering "obsolete many aspects of the USPS business model," said Postmaster General John Potter at a Washington conference, where he released the agency's 10-year strategic plan.

The Postal Service is facing a $238 billion shortfall by 2020 unless it makes drastic changes to its business model.

At the conference, USPS announced research findings from the Boston Consulting Group and McKinsey and Co. that analyzed trends and opportunities for cutting losses and building revenue.

BCG predicts the Postal Service's mail volume will drop 15 percent drop by 2020, due in part to the increasing use of Internet transactions, said Meldon Wolfgang, partner and managing director at the firm. An increase in online presentment and payment is the largest factor in the deterioration of first-class mail volume -- which includes bills, bank statements and other business-related items -- from 84 billion pieces in 2009 to 50 billion in 2020, he said.

BCG projects that standard mail volume, which includes flyers and catalogs, will remain flat during the next 10 years. Although companies use e-mail and mobile communication to retain customers, most experts believe that sending printed material is the best way to close a deal, and they will continue to use postal services, Wolfgang said.

Tom Dohrmann, a principal at McKinsey, said the Postal Service could develop a hybrid system for electronic and physical mail in which users opt to receive one or the other, and senders could forward files to USPS, which would then print and deliver them.

USPS has been aggressively increasing access to its products and services outside of physical post office locations, and the agency estimates that in 2020, 60 percent or more of its revenue likely will come from online purchases, mobile applications and other retail outlets.

"Being locked in to brick-and-mortar is not a healthy situation," Potter said. "The more access people have, the more inclined they will be to use the product."

But expanding access means the agency must improve interactions, said Robert Bernstock, president of mailing and shipping services at USPS. He said the agency is building a comprehensive Web site that receives 30 million hits per month. It recently released a free iPhone app that allows users to track packages, and look up ZIP codes and post office locations.

Regulations forbid USPS from closing post office locations based on economic conditions, and it has asked Congress to allow it to do so, which would free up resources to expand access and build business.