Failure forecast for USPS e-commerce

Faced with losing some of its most lucrative business to the Internet, the U.S. Postal Service has been experimenting with electronic commerce as a source of new revenue. But the strategy is unlikely to work, the General Accounting Office says.

That grim forecast comes as the Postal Service searches for ways to head off a looming deficit of $2 billion to $3 billion this year.

With e-mail and online transactions eroding the volume of first-class mail, the Postal Service has launched a number of Internet-based ventures to counter the revenue loss.

Postal Service e-commerce enterprises include an electronic bill-paying service; an online-store that peddles stamps; a greeting card service; secure delivery services for electronic documents; and a service that lets customers e-mail documents to a printing plant, where they are printed, put in an envelope and delivered.

Innovative though they may be, the new services are not moneymakers, according to GAO.

The Postal Service "has not achieved its revenue targets from its new initiatives for the first half of this fiscal year," stated an April 4 GAO report to the House Government Reform Committee. And recently, the Postal Service "made downward revisions in its projected revenues from its new revenue initiatives for the second half of fiscal year 2001."

But a Postal Service spokeswoman said it's too early to be predicting failure for the e-commerce endeavors. "It's only this week that our first one is a year old," said spokeswoman Sue Brennan. "We never anticipated making money within the first two years."

Timing has not been on the Postal Service's side. Its e-commerce ventures came online amid the collapse of many commercial e-commerce initiatives. "Consumer adoption rates for e-services has been lower than projected for everyone," not just for the Postal Service. Few e-commerce ventures have made money, Brennan said.

The GAO notes that even the Postal Service's five-year plan published last fall predicts "no significant new revenue...from new products and services during the next five years."

The "diversion" of first-class mail to electronic forms of communication is expected to cut the volume of first-class mail by about 3.6 percent a year from 2004 through 2008.

The federal government itself is responsible for a portion of the diversion. Most Social Security checks, tax refunds and other payments now are delivered electronically, and federal agencies are under orders to move as quickly as possible to reduce paperwork by adopting electronic billing and payment.

But the Internet is only a small factor in the Postal Service's fiscal woes, the GAO said. Fast-rising retirement costs, medical insurance expenses and fuel prices are major financial difficulties.

Labor costs, which account for 75 percent of Postal Service operating expenditures, are another problem, as is a Congressional ban on closing money-losing post offices. The Postal Service estimates that about half of its 38,000 post offices do not generate enough revenue to cover their operating costs.