United States Postal Service Business Information, Profile, and History

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The Postal Service shall have as its basic function the obligation to provide postal services to bind the Nation together through the personal, educational, literary, and business correspondence of the people. It shall provide prompt, reliable and efficient services to patrons in all areas and shall render postal services to all communities.

History of United States Postal Service

The United States Postal Service (USPS) is an independent government agency that generates income through postage and other fees. With a monopoly on the delivery of noncritical mail, the USPS delivers about 40 percent of the world's mail, or more than 200 billion pieces of mail annually. Beginning in the 1990s, the USPS faced increased competition from rival package delivery and courier services, as well as the Internet. In anticipation of the widespread use of e-mail and other e-commerce services, the USPS focused on developing Internet strategies, such as computerized postage and online delivery tracking of packages.

Early History: The Birth of the United States and the Federal Post Office in the 1700s

The Post Office Department had roots in America dating back to the 17th century, when there was a need for correspondence between colonial settlements and transatlantic exchange of information with England, the native country of most eastern seaboard settlers. The earliest mail services were disorganized at best, with no uniform system in place until 1691, when Thomas Neale established a North American postal service under a British Crown grant and, in absentia, appointed Governor Andrew Hamilton of New Jersey his deputy postmaster general. Thereafter, under the control of the British government, a centralized if erratic postal service operated in the colonies. In 1737, Deputy Postmaster General Alexander Spotswood, who had served as lieutenant governor of Virginia, named Benjamin Franklin, then 31, postmaster of Philadelphia. Franklin became joint postmaster general of the colonies and undertook important reforms that led to a more efficient, regular, and quicker mail service.

Mistrust of the royal postal service led to changes on the eve of the American Revolution. In 1774, the Crown dismissed Franklin because of his activities on behalf of the rebellious colonies. The colonists responded by setting up the separate Constitutional Post under the leadership of William Goddard. At the time of the first Continental Congress in 1775, Goddard's service provided inter-colonial service through 30 post offices operating between New Hampshire and Virginia.

The Continental Congress named Franklin chairman of a committee empowered to make recommendations for the establishment of a postal service. On July 26, 1775, the Congress approved the committee's plans, establishing the organization from which the U.S. Postal Service traces its direct descent and which, after the Bureau of Indian Affairs, is the second oldest federal department. The Congress wisely appointed Franklin the first Postmaster General. Although Franklin served just a brief period, until November 7, 1776, he is generally credited with being the chief architect of the modern postal service.

It was not until after the adoption of the Constitution in 1789 that a law passed on September 22, 1789, created the federal post office under the new government of the United States. It also established the Office of the Postmaster General. President Washington named Samuel Osgood to that post four days later. At the time there were 75 post offices and approximately 2,000 miles of post roads.

Additional legislation in the 1790s strengthened the U.S. Post Office by expanding its responsibilities and codifying its regulations. It remained in Philadelphia, the seat of the federal government, until 1800, when in just two wagons it moved all of its furniture, records, and supplies to Washington, D.C., the nation's new capital.

The chief focus of the efforts of postal officials from the inception of the Post Office to the present day has been on ways to achieve a more efficient and effective mail service. Finding the best methods of transporting and directing mail have always been of primary concern. As a result, the Post Office has played a significant part in the development and subsidization of new modes of transportation. Willing to experiment in the handling and delivery of mail, the Post Office was quick to try out new inventions and policies, even some disastrous ones that led to scornful criticism and ridicule.

Rapid Expansion in the 1800s

During the 19th century, a citizenry hesitant to accept things new and different watched comparatively rapid changes transform the postal service into a remarkable public convenience. By the start of the 1800s, the Post Office Department had bought several stagecoaches for transporting both mail and passengers on the nation's post roads. Its patronage led to better stagecoach design, ensuring improved comfort and safety, and to better roads. In addition, a full ten years before waterways became official post roads in 1823, the Post Office had begun using steamboats to transport mail between river-linked towns that shared no common road. By 1831, it had begun sending mail short distances via trains--the 'iron horses' that many people denounced as demonic devices--and five years later awarded its first mail contract to a rail carrier.

Until replaced by automobiles and trucks at the beginning of the 20th century, horses remained major mail carriers, even over long distances, particularly during the period of westward expansion preceding the establishment of transcontinental telegraph and railway services. With the end of the Mexican War and the California gold rush of 1848, the need for effective communication between Atlantic and Pacific coastal cities quickly intensified. In that same year, the Post Office Department contracted a steamship company to carry mail to California. Ships from New York carried mail to Panama, where it was transported across the isthmus, then by ship again to San Francisco. The service was supposed to take between three and four weeks, a goal seldom realized in practice, and the Post Office sought alternative methods for getting the mail across North America in a more expeditious fashion.

In 1858, an overland service was contracted with a stage line, the Overland Mail Company, operating on a 2,800-mile route between Tipton, Missouri, and San Francisco. Semi-weekly stagecoaches began carrying mail in September of that year. The service was prone to problems, however, and the advertised delivery time of 24 days in practice often ran into months. A solution was attempted by the Central Overland California and Pike's Peak Express Company, which, without a contract with the Post Office, in 1860 began operating a mail carrier service between St Joseph, Missouri, and California. It was popularly known as the Pony Express. Changing mounts at established relay stations, riders could cover more than 100 miles per day. In March 1861, the Pony Express carried President Lincoln's inaugural address over the route in less than eight days, encouraging the Post Office to put the service under federal contract. It began operations under that arrangement in July 1861, but with the transcontinental telegraph hookup on October 24, 1861, the celebrated service, rendered instantly obsolete, was halted.

Some important procedural and organizational changes also marked the pre-Civil War development of the Post Office. In 1829, President Andrew Jackson invited Postmaster General William T. Barry to sit as a cabinet member, although Jackson had no formal authority for the move. Although Barry's predecessor, John McLean, had in fact begun calling the service the Post Office Department even earlier, it was not until 1872, after the Civil War, that Congress officially recognized it as such. A year after Barry took his cabinet seat under Jackson, the Office of Instructions and Mail Depredations was created as an investigative arm of the Post Office. It was headed by P.S. Loughborough, generally regarded as the first Chief Postal Inspector. In addition, by 1840 all railroads in the United States had been designated as postal routes, which quickly expanded rail service, the main means of moving large quantities of mail well into the next century.

Initially, mail was not sent in envelopes. Writers would simply fold their letters and address them, then drop them off at post offices where their correspondents would pick them up. In larger cities, there was a local delivery system that charged an extra fee for carrying mail to homes and businesses. An important innovation was the postage stamp, first issued in 1847 and followed by its mandatory prepayment use in 1855. Prepaid postage helped facilitate a new system of free city delivery, which by 1863 was available in 49 cities.

During the Civil War, the Confederacy created its own Post Office Department, with John H. Reagan serving as Postmaster General. Although Reagan was appointed on March 6, 1861, it was a full two months before the Union Postmaster General, Montgomery Blair, stopped the federal mail service to the secessionist states. The war, with Union blockades of Confederate ports and its eventual invasion, seriously impeded postal service in the South. Even at the end of the war, with the restitution of the federal post, mail delivery was irregular. As late as November 1866, less than half of the post offices in the South had been fully restored to service.

After the Civil War, 'post offices on wheels,' or mail cars, came into rapidly expanding use. They had first appeared during the war, in 1862, but it was not until August 1864 that an official Post Office route was put in operation between Chicago and Clinton, Iowa. Other routes quickly followed, providing mail sorting and handling services while trains were in transit. At first only letters were handled on the postal cars, but by 1869 all other types except parcels were being processed. The use of 'post offices on wheels' would continue to grow well into the 20th century. In 1930, when trains were still the most viable means of long-distance hauling, more than 10,000 of them were used to carry mail to every city and rural town in the country. They would still be used into the 1970s, after the reorganization of the Post Office Department as the U.S. Postal Service, but very sparingly. The Transportation Act of 1958 had earlier insured their quick decline, so that by 1965 only 190 trains still carried and processed mail. The last to do so, which ran between New York and Washington, made its final run on June 30, 1977.

Continued Growth in the Early 1900s

The invention of the horseless carriage and the airplane had much to do with declining use of mail cars and railroading in general. Both were extremely important in the changing face of the Post Office as it sought to provide service to the most isolated communities. Near the end of the 19th century, it inaugurated a system of rural free delivery (RFD) in a nation still in the process of shifting from an agrarian to an industrial society. Experiments with RFD were begun in West Virginia in 1896, despite vituperative complaints about its exorbitant cost and general impracticality. It was, however, a great boon to farm residents throughout the United States. It also stimulated the building and improvement of roads and highways, because service was provided only in places that had acceptable roads. So that local residents could qualify for RFD, town and county governments undertook these changes at public cost.

Improved roads were, of course, inevitable, thanks to the automobile. In the same year that it inaugurated RFD, the Post Office began experimenting with the 'horseless wagon' and in 1901 awarded its first contract for a horseless carrier covering a short route in Buffalo. For the next decade the Post Office contracted such services through private companies, but in 1914, fed up with excessive charges and fraudulent practices, it requested and obtained the authority to establish its own motorized fleet of carriers. Two years before that, the Post Office had won another fight with private companies when it obtained permission to put in place its parcel post service, a move that stimulated the rapid growth of mail-order merchandising.

After World War I, which provided a proving ground for the flying machine, the Post Office undertook a serious expansion into airmail service. As early as 1911 it had experimented with the airplane, sponsoring several flights at fairs and meets in more than two dozen states. In 1916, during the war, Congress even authorized a transfer of funds for the purpose, but it was not until 1918 that airmail service was begun in earnest. Using planes and pilots on loan from the Army Signal Corps, the Post Office began the first regular airmail service, between New York and Washington, D.C., on May 15 of that year. The date marked an important moment both in the history of the Post Office and commercial aviation.

The Post Office soon took complete control of the service, using its own planes and pilots, and despite reliance on primitive equipment and a lack of all navigational aids and weather data, compiled a remarkable safety record. The public was at first reluctant to pay the 24 cents charged for airmail letters, but interest picked up by 1920, when, on September 8, the last links were made to connect New York and San Francisco. By 1926, when the Post Office began contracting service with commercial airlines, it had won several awards for its pioneer work in night flying, the development of navigational aids, and the general advance of aviation in the United States. The transfer of equipment and stations to the Department of Commerce and municipalities was completed by 1927, when the Post Office put all airmail service under contract to independent carriers.

The Post Office's methods of sorting and distributing of mail were, unfortunately, considerably less innovative. Despite some earlier experimentation with canceling and sorting machines, the old 'pigeonhole' method of sorting and distributing mail remained in practice until the mid-1950s, when the Post Office began a serious effort to automate mail handling. It started issuing contracts for the development of a number of mechanical devices--from letter and parcel sorters to facer-cancelers and address readers.

Leading the way toward automation was a parcel sorting machine first used in Baltimore in 1956, but it was quickly followed by the importation and use of the Transmora, a foreign-manufactured, multi-position letter sorter. This was in turn superseded by an American machine, first tested in 1959, which remained in wide use into the 1970s. Other devices placed in service in the 1960s, when the mechanization program greatly accelerated, included Mark II facer-cancelers and a high-speed optical character reader (OCR) capable of sorting mail by the new ZIP (Zoning Improvement Plan) Codes.

The ever-increasing volume and change in the principal type of mail had made the changes mandatory. Most mail sent before World War II had been private correspondence, but by 1963, 80 percent had become business mail. The computer, an indispensable business tool, already had begun to play an important part in the rapid growth of business mail.

Reorganization and Modern Innovation: 1970s Through the 1980s

On August 12, 1970, President Richard M. Nixon signed Public Law 91-375, which reorganized the federal Post Office Department as the United States Postal Service. Under the new law, which went into effect on July 1, 1971, the Service emerged as an independent agency of the executive branch, no longer under the control of Congress. Operational authority passed to a President-appointed and Senate-approved Board of Governors and a managerial infrastructure, headed by the Postmaster General named by the Governors. No longer a cabinet member, the Postmaster General became the Service CEO. The law gave the new agency the authority to issue public bonds to finance operations and to engage in collective bargaining between management and union representatives. It also established a postal rate-setting policy and procedure regulated by the independent Postal Rate Commission.

The reorganization and partial privatization of the Post Office Department was undertaken to solve difficulties that by the 1960s had made its traditional operation an ineffective and financially disastrous albatross for the American taxpayer. Because the rates charged for services no longer bore any relationship to their actual cost, the Post Office had come to depend heavily on federal subsidies, rendering it increasingly susceptible to the vicissitudes of partisan politics. Furthermore, the managerial organization had turned into a bureaucratic maze, with a blurring of the lines of authority and fragmented control. Underfunding also had meant a continued reliance on antiquated facilities and equipment and mail-handling methods that, except for the introduction of the ZIP Code in 1963, had not changed since the turn of the century, despite a vastly expanded volume of mail. The resulting inefficiency led to long delays in service, with jams that from time to time brought it to a virtual standstill, like that at the Chicago Post Office in 1966.

Along with the need to update both equipment and procedures, there was a clear need to reorganize management. In particular, labor-management relations had badly deteriorated in the 1960s. In March 1970, during Congressional deliberations on postal reforms, poor relations led to a six-day work stoppage involving about 152,000 employees at 671 locations. For many postal workers, the proposed changes, including a salary increase, were simply not substantial enough. The workers returned to their jobs, however, when the Postmaster General agreed to give the postal workers' unions a major part in planning reforms.

The most important problem faced by the newly created USPS was the upward spiraling volume of mail and the lack of adequate physical resources and equipment for handling it. Between 1970 and 1980, the volume of mail grew from just less than 85 billion to 106.3 billion pieces, an increase of almost 20 percent. Alarmingly, it grew to 166.3 billion by 1990, and although the rate of growth abated thereafter, the problem of handling that quantity of mail remained formidable.

To deal with the increasing volumes of mail, the U.S. Postal Service updated equipment and sought new methods of improving its mail-handling efficiency. In 1978, it developed an expanded ZIP Code, which helped reduce the number of times mail had to be handled. In 1982, to exploit fully the revised ZIP Codes, the Postal Service installed its first computer-operated OCRs and barcode sorters (BCSs) and the next year introduced the ZIP+4 code to further define address sectors in any geographical area. By 1985, the new equipment and ZIP Code refinements had made it possible for each key postal center to process 24,000 pieces of mail per hour, making it approximately four times as efficient as it had been using older sorting machines. By 1992, the Service also began replacing older facer-cancelers, the Mark II and M-36 models, with a more advanced facer-canceler system (AFCS), which, processing 30,000 pieces of mail per hour, proved twice as fast as the older models. Put in use, too, were multi-line optical character readers (MLOCRs), which, in conjunction with remote bar coding systems (RBCSs), were capable of sorting even hand-addressed envelopes after they had been sprayed with an identifying barcode. These automated mail-handling machines and procedures vastly improved the ability of the Service to handle the growing volume of mail efficiently.

Increased cost was the downside of improved efficiency, however. Between 1975 and 1985, the first-class letter rate rose from ten to 22 cents, and by 1995 it had increased to 32 cents, with proportional increases in other classes and types of mail. The greater expense to customers joined with a general slowdown in the economy quickly led to a slower rate of growth in the volume of mail in the early 1990s. In fact, in 1991, it declined for the first time in 15 years.

The drop was also the result of growing competition, made possible, ironically enough, by the computer, the device that had played such an important role in the growth in the mail volume during the 1970s and 1980s. Fax machines, e-mail on the Internet, electronic money transfers, and increasingly competitive telecommunication rates offered viable and often preferred alternatives to the 'snail' mail handled by the Postal Service. Many businesses that traditionally circulated advertisements via third-class mail, unhappy with the increasing rates, sought relief in telemarketing alternatives. Many mail order shippers also turned to USPS competitors including United Parcel Service (UPS), which offered a quicker and more convenient package delivery service.

Restructuring and Meeting the Challenges of the Future: 1990s

That competition caused the USPS, led by Postmaster General Marvin Runyon, who began his tenure in 1992, to undertake some restructuring. Of focal concern were customer needs and how these might best be met. In response, the Service instituted Customer Advisory Councils, made up of groups of interested citizens who worked closely with local postal managers to identify public concerns. There were 500 such councils in place by the summer of 1993. The USPS also issued contracts with private firms to measure customer satisfaction with the mail service. Efforts to reduce bureaucracy and costs, improve customer relations, and stabilize postal rates followed. A downsizing program reduced the upper echelon personnel by one half, and, without layoffs or furloughs, cut other overhead positions by 30,000 through a policy of early retirements and other incentives. At the same time, it made strides toward its automation goals, which by 1994 were less than half realized. Estimates in that year were that 12,000 automation units would be in place and operating by 1997, a considerable increase over the 4,000 put in place between 1991 and 1994.

Downsizing and restructuring helped the Postal Service considerably, but in the mid-1990s it still faced recurring problems that related to its massive size. For example, it was straddled with retirement benefit costs that totaled more than ten percent of its sales, one of many reasons why it operated with an annual deficit. Its size, however, simply reflected the daunting nature of its task. The Postal Service handled 40 percent of the world's mail, processing about 580 million items per day. It employed the largest civilian workforce in the nation, operated a transportation network using more than 200,000 vehicles, and utilized more than 250 million square feet of owned or leased office and storage space. Moreover, despite its ungainly size, it remained doggedly efficient in its primary mission: to get mail where it was supposed to go and, usually, on time.

As the USPS headed toward the 21st century, it continued to focus on implementing its restructuring strategy and to keep pace with its competitors, which included the ever-threatening Internet. By 1998, the Postal Service acknowledged, operations were being affected by the growing popularity of computerized banking and online bill-paying services. Bills, payments, and statements accounted for 25 percent of the USPS's business, and increased usage of online services threatened to significantly hurt the Service's revenues. As the Postal Service strove to function effectively in the competitive atmosphere, it faced criticism from various business groups, particularly UPS, which contended that the USPS was a monopoly that used its revenues to finance products and projects that unfairly competed against private business.

The Postal Service also faced some internal challenges during the mid-1990s when Loren Smith, the senior vice-president of marketing for the USPS from 1994 to 1996, confirmed that he exceeded his 1995 advertising budget of $140 million by 62 percent, or $87 million. Smith was also responsible for launching a variety of new marketing programs, including offering postal paraphernalia, such as T-shirts and mugs, at post offices, redesigning post offices, and selling prepaid phone cards. Although the sale of USPS logo-emblazoned products did well, the Service chose to discontinue the business in 1998 as it strayed a bit too far from the core mission of the USPS. The USPS also faced criticism from the General Accounting Office, which reported in late 1998 that the Postal Service had spent about $234 million since 1995 to develop new business but had only recovered $149 million in new revenues.

Despite these challenges, the USPS enjoyed strong revenues and growth in operations in the late 1990s. A five-year investment program of $17 billion was implemented in 1995, and the USPS committed to investing in modernizing and automating numerous operations and acquiring new vehicles and facilities. In 1998 alone, the Service spent more than $3 billion to improve facilities, purchase vehicles, and acquire mail processing equipment. Also in 1998, the USPS reported positive net income for the fourth consecutive year, lowered debt from $9.9 billion in 1992 to $6.4 billion, and maintained steady postal rates for the fourth straight year. William J. Henderson was named Postmaster General in May when Marvin Runyon returned to the private sector. The Service attempted to update its stodgy image in 1998 as well with a $15 million advertising campaign. The campaign, which included television, print, and radio ads, used the theme, 'Fly Like an Eagle,' and television commercials employed the Steve Miller Band song of the same name. The ads were designed to position the USPS as a progressive and modern organization.

The U.S. Postal Service continued to improve operations and prepare for the future in 1999. At the beginning of the year postal rates increased by 2.9 percent, or one cent for standard letters. The rate hike was the first in four years and was also the lowest increase to date. In March the Service launched its Delivery Confirmation service, enabling customers to track packages sent via Priority Mail and Parcel Post. The new service made the USPS more competitive with companies such as UPS and FedEx, which had long offered tracking services. A month later, the USPS introduced Priority Mail Global Guaranteed, which provided two-day guaranteed service to a number of countries in western Europe. The service was available in major metropolitan markets and expansion to additional countries was planned.

Foreseeing the impact of the Internet on its business, the Postal Service explored various Internet opportunities and offered a number of services on its web site, including information about the USPS and the ability to order supplies, calculate rates, and track the location of packages. In August 1999 the USPS introduced online postage services, known as PC Postage. The Service had worked for more than three years with private businesses to develop a standard for digital postage. Companies independently developed PC Postage products, which allowed customers to buy and print postage on their computers, and sought approval by the Postal Service. Two companies, E-Stamp Corporation and Stamps.com Inc., gained approval for commercial distribution in 1999. The USPS also launched a web site--www.usprioritymail.com--designed to generate Priority Mail sales to online retailers. Generally, the majority of e-commerce companies used one delivery company, and the Postal Service hoped to increase its share. The site offered free software for online retailers to download and incorporate into their own web sites. The USPS also worked on developing PostalOne!, an information system geared toward large customers that would support the acceptance of bulk mail, postage payment, transportation, and data exchange.

The USPS enjoyed a fifth consecutive year of positive net income in 1999, reporting net income of $363 million on revenues of $62.7 billion. The Service handled a record 200 billion pieces of mail and achieved increased productivity as well. Despite the positive figures, the USPS noted that unexpected expenses arose, including an additional $100 million for health benefits and an outlay of $300 million for Y2K issues. The postponement of a postal rate increase until January 1999 reduced the Service's projected income by $800 million. The cutting of expenditures by $1 billion, however, helped offset the declines.

Although the USPS was forced to shift gears to remain viable in a rapidly changing environment, its fundamental purpose remained the same&mdashø deliver mail. Postal Service spokesperson Judy de Torok commented on the changing climate in the Boston Globe: 'Our goal is to have mail remain relevant to the American public. ... For us the challenge is, how do we continue to reach customers in the electronic world?' As the USPS entered the new millennium, the question remained unanswered, but the Service was committed to the ongoing search for solutions.

Principal Competitors: United Parcel Service, Inc.; FedEx Corporation; DHL Worldwide Express.

Chronology

• Key Dates:

• 1691: An American postal service, under control of the British government, is established.
• 1737: Benjamin Franklin becomes the postmaster general of the colonies.
• 1775: A U.S. postal service is established.
• 1789: The U.S. Constitution is adopted and the federal post office is formed.
• 1847: The first postage stamp is issued.
• 1855: Prepayment for postage becomes mandatory.
• 1872: The postal service is officially recognized by Congress as the Post Office Department.
• 1914: The Post Office Department forms its own fleet of motorized carriers.
• 1918: Formal airmail service is introduced.
• 1963: The Zip Code system is introduced.
• 1970: The Post Office Department is reorganized as the United States Postal Service (USPS) and becomes an independent agency.
• 1999: USPS introduces Delivery Confirmation service and PC Postage.