How the U.S. Postal Service Works

post office in Seaside, Florida
The post office in Seaside, Florida, might be quite possibly the prettiest post office in the U.S. Dean Fikar/Getty Images

The United States Postal Service (USPS) needs help, stat. Plunging mail volume has beleaguered the USPS for years, along with a rising debt load. Don't believe us? Check out these operational statistics from 2010 to September 2019, most of which paint a dismal picture for this beloved American institution [source: USPS]:

  • Total mail volume decreased from 170.9 billion units to 142.6 billion.
  • Roughly 87,000 career employees were lost.
  • Retail customer visits dropped from 1 billion to 812 million, while total retail revenue dropped from $17.5 billion to $12.7 billion.
  • Annual operating revenue increased, but only slightly, from $67.1 billion to $71.1 billion.
  • Shipping/package volume doubled, from 3.1 billion to 6.2 billion units, one bright spot.

What's going on? The USPS exists as an independent establishment of the executive branch of the U.S. government. It receives no tax dollars for its operations. Instead, its revenue comes from the sale of stamps and other service fees. But it's not the decline in mail volume that is crippling the Postal Service, for it actually generates enough revenue to cover its operating costs. The main issue is its employees. Or, more specifically, its future retirees.

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In 2006, the Postal Accountability and Enhancement Act became law. Part of this law required the USPS to prepay its employees' future pension and health benefit costs, a huge financial burden. To wit: In fiscal year 2019, the USPS lost $8.8 billion, 83 percent of which was due to these prepayments. Just as notable, almost no other governmental entity is mandated to do the same [source: Katz].

Back in 2006, the requirement didn't seem as onerous as it would become. The George W. Bush White House insisted on adding this requirement assuming that the Postal Service would be making billions in profit and it didn't want the Treasury Dept. to be on the hook for making the pension payments, reported the Washington Post. A bipartisan Congress went along with it to get the bill (which was initially about streamlining postal rate increases) passed. This was just a couple of years before the Great Recession and the widespread availability of the smartphone, both of which helped mail volume to sprial down.

The USPS has tried marketing campaigns, selling merchandise and expanded Sunday package delivery, among other measures, to combat these steep costs. But financial problems persist. Can anything help? Let's find out how the United States Postal Service works in much more depth.

History of the USPS

statue of Benjamin Franklin
A statue of Benjamin Franklin, printer, journalist, diplomat, statesman and the father of the U.S. Postal System is seen at the U.S. National Postal Museum Sept. 27, 2013, in Washington, D.C. PAUL J. RICHARDS/Getty Images

In colonial times, mail was simply delivered by friends, merchants and Native Americans. Because colonists needed to send mail back to England, the first official postal service was established in 1639 when the General Court of Massachusetts designated Richard Fairbanks' tavern in Boston as the official mail drop for overseas parcels [source: USPS]. Using a tavern for the mail may seem odd, but it was common in England for taverns and coffeehouses to be used as mail drops. Most local authorities began establishing their own routes between the colonies, but it was not until 1683 that William Penn established an official post office in Pennsylvania. In the South, private messengers, usually slaves, relayed mail between plantations.

A more centralized postal organization came about in 1691, when the British Crown gave Thomas Neale a 21-year grant for a North American postal service. In 1707, the British government bought the rights to the North American postal service and appointed local deputy postmasters general. This continued until 1774, when the colonists' dislike for British control led to the establishment of a constitutional postal service for intercolonial mail. The people paid for this service, and all revenues went into its improvement.

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The Boston riots in 1774 led to the creation of the Continental Congress and the beginnings of an independent government. In 1775, the Continental Congress appointed Benjamin Franklin as the first postmaster general, in charge of the newly created Post Office Department. Franklin had proven his abilities when he was appointed postmaster general in Philadelphia in 1737 and had brought new organization, speed and reliability to the service.

Between 1790 and 1860, the number of post offices increased from just 75 to 24,498. By 1819, the Post Office Department served people in 22 states, and a letter went from Washington D.C., to Nashville, Tennessee, in just 11 days.

Carriers initially transported the mail by foot and on horseback, then moving to stagecoaches, rail, cars and trucks — and ultimately to airplanes. Those early days of mail delivery resulted in huge improvements to the country's system of roads. Local governments also extended and improved their existing highways to help the new mail service called rural free delivery (RFD). The most celebrated form of mail delivery was the Pony Express.

The Pony Express and Eventual Reform

Pony Express rider
A Pony Express rider crosses hostile country between St. Joseph, Missouri, and San Francisco, pursued by Native Americans. A help-wanted ad for riders at the time read "Wanted: Young, skinny, wiry fellows not over eighteen. Must be expert riders, willing to risk death daily. Orphans preferred." Universal History Archive/Getty Images

In the early 19th century, as the country's population began moving westward into the newly acquired territories of Louisiana, Oregon and California, the mail had to travel a much greater distance — particularly during the California gold rush. To meet the needs of the quarter-million people who now lived in the West, the Post Office Department awarded a contract to the Pacific Mail Steamship Company to carry mail to California. Mail traveled by ship from New York to Panama, moved across Panama by rail, then went on to San Francisco by ship. It should have taken three to four weeks for a letter from the East to travel to California, but it usually took longer.

There were also two stagecoach routes — the Southern and Central routes. The Central Route (from St. Joseph, Missouri, to Sacramento, California, via Salt Lake City) was shorter, but couldn't be used year-round because of cold weather through the Sierra Nevada Mountains. The Southern Route, from St. Joseph, Missouri, to San Diego, California, via San Antonio) took 25 days and carriers faced attacks from hostile Native Americans, as well as a lack of water. (St. Joseph was the most western point reached by the railroad and telegraph, which is why all the routes originated from there) [source: USPS].

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The Butterfield Overland Mail Company had a government contract to carry mail using a third route that was even longer. Both Northern and Southern congressmen wanted the route to go through their territories as it was believed that the route would determine the future path of the transcontinental railroad. A compromise route included both St. Louis and Memphis as starting points, but mostly went in a southern direction. It took 21 days to make that trip, the shortest yet, but people wanted something even quicker.

The Pony Express was founded in 1860 by the Central Overland California and Pikes Peak Express (COC&PP), a freight company that supplied goods to the western part of the United States. COC&PP wanted the Butterfield Overland Mail Company's million-dollar government contract, so it set out to prove that the shorter Central Route could actually be used all year long. Original Pony Express mailing rates were $5 per half-ounce, but that was later lowered to $1 per half-ounce. This was at a time when ordinary mail costed 10 cents [source: USPS].

Eighty to 100 Pony Express riders made $100 a month to cover the 1,966 miles (3,164 kilometers) from St. Joseph, Missouri, to Sacramento, California — through Kansas, Nebraska, Colorado, Wyoming, Utah, Nevada and California. They crossed the Missouri River by ferry. At any given time, two riders were traveling on the route, one in each direction. They changed horses every 10-15 miles at one of the almost 200 stations located every 5-20 miles along the route. The riders went 75 to 100 miles before stopping and handing off the mail to the next rider. They averaged 10 miles per hour and completed the route in only 10 days, proving that the Central Route was faster. Riders had to be tough and fast. A famous hiring ad noted that orphans were preferred.

Despite its high rates, the Pony Express never made money. It never got the million-dollar government contract it hoped to receive. Further, on Oct. 24, 1861, the transcontinental telegraph line was completed, allowing people to send messages in minutes rather than days. So the Pony Express was shut down after only about 18 months in service, and COC&PP eventually sold it to Wells Fargo. Most mail for the next century was sent by rail and sorted on "mail trains." This declined during the 1960s with the widespread use of air travel.

Around this time, the Post Office Department was in financial trouble. Its management had little control over operations. As part of the ensuing reform, on July 1, 1971, the Post Office Department officially became the United States Postal Service (USPS). At that time it became an independent establishment of the executive branch of the U.S. government, not part of the cabinet. It also began operating more like a corporation, in that it had to use the money it earned, thanks to the official mail monopoly that was established under the Private Express Statutes in 1792, to fund itself. (Other government agencies are simply funded from general government revenue). Package delivery and express services do not fall under this law, which is why other companies can offer these services.

Postal ZIP Codes

From the 1940s to the early 1960s, the volume of mail — particularly business mail — grew significantly, and the need for a better system became apparent. On July 1, 1963, the USPS introduced the ZIP code (Zone Improvement Plan) system. In 1967, ZIP codes became mandatory on all mail.

A ZIP code is a five-digit number representing a specific location in the United States. The extended ZIP + 4 code, created in 1983, adds a hyphen and four additional digits for an even more precise location [source: Zip-Codes]. Here is how it works:

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  • The first digit represents the state. Numbers increase as you move west. Several states share each digit — 2, for example, represents the District of Columbia, Maryland, North Carolina, South Carolina, Virginia and West Virginia.
  • The second and third digits represent regions within the state — the first three digits create the Sectional Center Facility (SCF) code. SCFs are the regional headquarters for mail sorting and distribution.
  • The fourth and fifth digits represent more specific areas, like post offices and postal delivery zones within a city or town.
  • ZIP + 4's extra four digits identify a specific segment of the five-digit delivery area — like a city block, office building or individual high-volume mail receiver. While five-digit ZIP codes are required on all mail, the extra four digits in ZIP + 4 are not.

USPS Mail Delivery

mail carrier pushes a cart out of a United States Postal Service sorting facility
A mail carrier pushes a cart out of a United States Postal Service sorting facility in El Paso, Texas. PAUL RATJE/AFP via Getty Images

So, with all of the USPS' staff and infrastructure, what actually happens when you place an outgoing letter in your mailbox or a blue community collection box? Here is a brief rundown [source: SafeCutters]:

  • A postal carrier collects your letter and takes it to your local post office. There, all of the mail is placed on a truck and taken to a mail processing plant.
  • At the mail processing plant, machines separate the mail by shape and size. They also orient the packages so their addresses are right side up and facing the same direction. Your letter gets its postmark, and machines print cancellation lines across postage stamps to prevent them from being reused.
  • A unique fluorescent bar code is imprinted on the back of each piece of mail. An optical scanner scans the address, and then a bar code representing the specific address is sprayed on the front of the envelope. If the scanner can't read the address, the letter is manually sorted.
  • Other processing machines read the bar codes and direct the letters into bins based on ZIP codes — this indicates the next processing plant in the region where the letter will ultimately be delivered. (Each post office is served by a mail processing plant.) From the bins, the letters are sorted into trays by ZIP code and flown or trucked to the next processing.
  • At the final processing plant, sorting machines read the bar codes and sort the letters by carrier and into delivery order for that carrier.
  • The letters are taken to the individual post offices, and the carriers load the trays into their individual vehicles for final delivery.

To take advantage of automation and its optical scanners, the USPS has guidelines for addressing letters. Your letter won't be thrown out if you don't follow the guidelines, but using them can speed up delivery.

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  • Print both the delivery and return addresses on the same side of your envelope or card and make sure they're running parallel to the longest side.
  • Capital letters are preferred. Don't use punctuation.
  • Use at least a 10-point type and a plain font. The address should be legible at arm's length and be able to be read by a machine.
  • Always put the attention line (e.g., "Attention: John Doe") ABOVE the delivery address. Don't put it below the city and state or in the bottom corner of your mail piece.
  • If you can't fit the suite or apartment number on the same line as the delivery address, put it on the line ABOVE the delivery address, NOT below it.
  • Be sure to include words like "east" and "west" if they are part of the address. These are called directionals and are VERY important to ensuring your mail piece is delivered.

Delivery Services

mail box
A mail box shows the times of collection. Kena Betancur/VIEWpress/Corbis via Getty Images

The USPS offers several levels of service. You choose the service based on how quickly you want the letter or package delivered and how much you're willing to pay. The terminology is sometimes confusing, so we've broken it down below. (Note that there are many additional options within each of these categories, and business mail has even more choices.)

Priority Mail Express service offers quick delivery for letters, large or thick envelopes, tubes and packages. It includes insurance up to $100 and guarantees overnight or two-day delivery. You can also purchase additional insurance up to $5,000.

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Priority Mail service offers one- to three-day service to most domestic destinations.

Both Priority Mail Express and Priority Mail have a weight limit of 70 pounds and a maximum length of 108 inches.

First-Class Mail service doesn't guarantee delivery within a specific period, although the typical delivery time is one to three days. It is most often used for personal and business correspondence and bills, but you can also send packages weighing up to 13 ounces and envelopes up to 3.5 ounces.

USPS Retail Ground service is listed as a "reliable and economical" option for mailing both large and small packages. Retail Ground rates are based on weight, mailing distance and shape. Packages are typically delivered within two to eight business days — they can weigh up to 70 pounds and measure up to 130 inches in combined length and distance around the thickest part. (As of 2016, Parcel Post is called Parcel Select Ground.)

Media Mail can be the least expensive way to mail packages and thick envelopes. Contents are limited to books, manuscripts, sound recordings, recorded videotapes and computer-readable media (not blank). Packages are usually delivered within two to eight business days. As prices are by weight only and not distance as well, it is often cheaper to ship this way rather than through retail ground. Media Mail cannot contain advertising, except for incidental announcements in books.

In 2001, the first phase of a business alliance between the USPS and FedEx Express began with the installment of FedEx drop boxes at post office facilities. With those installments, FedEx agreed to pay the USPS between $126 million and $232 million in fees over the next seven years. In the second part of the agreement, the Postal Service began paying FedEx approximately $6.3 billion over seven years for shared access to the FedEx Express national air transportation network. FedEx transports Priority Mail Express, Priority Mail, first-class mail and a portion of some international mail. This enabled the USPS to improve its service without increasing its costs.

The USPS made a similar agreement with UPS in 2003 that was expanded in 2006. UPS began transporting first-class and Priority Mail between 98 U.S. cities. UPS often delivers USPS mail to more distant outposts, and the USPS has delivered UPS packages to rural areas.

In 2020, new postmaster general Louis DeJoy is looking to slash costs for the USPS. One target he's eyeing is the USPS' air lift contract with FedEx; the USPS paid FedEx more than $2 billion in fiscal year 2019 for air services. If DeJoy finds a less-pricy competitor service to take over, that will have major ramifications on FedEx, as the USPS is its largest customer [source: Garland].

USPS Mail Rates

In 2020, you could send a 1-ounce letter traveling from Florida to Hawaii for just 55 cents. That's pretty amazing, considering that the letter is crossing an entire continent and a large section of ocean. Because the USPS is not supported by tax dollars, its revenue must completely cover the cost of operations, and postage prices must be set at a level to cover those costs. These costs are primarily based on the type of mail (letter, postcard, large envelope, package, etc.) and its weight. Here are some basic postage prices from 2020 [source: USPS]:

  • First-class letters — from 55 cents, with each additional ounce 15 cents
  • Postcards — 35 cents
  • Large envelopes (flats) up to 1 ounce — $1, with each additional ounce 20 cents
  • Priority Mail — from $7.50 at the post office (commercial rates are higher)
  • Priority Mail Express — from $26.35 at the post office
  • Media Mail — from $2.80 at the post office
  • Retail Ground — from $7.50 at the post office

Setting postage rates is an often-complicated process that involves the USPS Board of Governors (BOG) and an independent Postal Regulatory Commission (PRC). The BOG is responsible for identifying when a rate increase is needed. Once it has determined a need, the BOG files a formal request with the PRC. The PRC studies the request (sometimes for up to 10 months) and gives the BOG a recommendation.

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If the BOG (with the exception of the postmaster general and the deputy postmaster general, who don't vote on these recommendations) votes to approve the recommendation, an introductory date for the new rates will be established.

If the BOG doesn't completely agree with the PRC recommendation, it may allow the decision to take place under protest, which means the BOG can go back to the PRC for additional study and reconsideration, or they may request judicial review of the recommendation.

If the BOG receives a revised recommendation from the PRC, it can order the new rates to be placed into effect. If the BOG ultimately determines that revenue generated by the recommended rates will not meet operating costs, the request can be modified and resubmitted to the PRC.

Mail Rules

The USPS has specific size and weight requirements for each type of mail, from postcards to large packages.

Postcards (rectangular cardstock not contained in an envelope) have a minimum size requirement of 5 inches in length and 3.5 inches in height and a maximum of 6 inches in length and 4.25 inches in height.

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Envelopes (small rectangular mail pieces no thicker than 0.25 inch) must be between 5 and 11.5 inches in length and 3.5 and 6.125 inches in height to qualify for standard letter rates [source: United States Postal Service]. There is also a " large envelopes" category — aka "flats" — with a minimum size of 11.5 inches in length and 6.125 in height and a maximum size of 15 inches in length and 12 in height.

Each type of mail must also fall within specific weight limits to be mailed at the standard rates. For example, you can't write a 12-page letter and mail it at the standard letter rate even if it does fit into an envelope that meets the size requirements. It has to weigh 1 ounce or less — the accepted limit for a letter.

You can mail heavier and larger letters or postcards — you'll just have to pay more. For example, the 2020 rate for a standard 1-ounce letter is 55 cents. But if your letter weighs 3 ounces, you'll have to cough up an additional 30 cents, 15 cents for each additional ounce. The USPS offers a postal calculator to help you figure out your costs from home.

Ultimately, there are limitations to what you can mail. The largest package you can mail (retail ground) may measure 130 inches in combined length and girth but can't weigh more than 70 pounds [source: United States Postal Service].

Post Office Services

post office line
People wait in line inside a post office in New York City on Aug. 5, 2020. Spencer Platt/Getty Images

The Postal Service offers services and products beyond delivery. You can buy packaging, for example, ranging from bubble-pack envelopes to cardboard boxes. You can also buy postcards, packaging tape and, of course, stamps. At the USPS website, you can calculate your postage and print it on your own printer, or call to have a package picked up. You can also purchase greeting cards and gifts, such as toy mail trucks and themed T-shirts.

Post Office Boxes

Post office (P.O.) boxes have been around for more than 200 years. These small rectangular boxes are usually located in an area of the post office that is accessible 24 hours a day. You can rent one for a relatively small fee that is based on the size of the box. The boxes themselves are built into an interior wall of the post office so that the locked side is accessible to customers and the other side is open so that employees can insert mail.

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There are several benefits to having a P.O. box. It can be more secure, you can often get your mail earlier in the day and it can disguise the fact that your new business is really just you in your spare room at home. Also, if you change addresses within the same city, you don't have to change your mailing address. Some small towns actually require residents to have P.O. boxes.

Money Orders

Money orders are a safe and inexpensive alternative to sending cash or personal checks through the mail. You can purchase them from any post office or rural mail carrier. You pay for them with cash or traveler's checks only; no checks or credit cards. You can purchase domestic postal money orders for up to $1,000; international money-order limits vary per country, but the maximum overall is $700. The fee for a money order depends on how much is being wired, but is reasonable. For instance, sending up to $500 domestically is only $1.25. Money orders can be cashed at any post office or deposited at banks and other financial institutions. And if they're damaged, lost or stolen, they can be replaced. The USPS offers domestic and international money orders and an international money-wiring service [source: USPS].

Extra Security

The USPS offers several services for additional security, proof of delivery and recovery in the event of a loss. These services include: Certified Mail, Registered Mail, Signature Confirmation and the ability to purchase insurance coverage up to $5,000 for lost, damaged or missing items. The insurance limit for items sent Registered Mail is $50,000. These services provide many options for delivery confirmation, obtaining copies of signatures of acceptance, confirmation of shipment and tracking of high-value items [source: USPS].

The 21st-Century Post Office Landscape

Post office demonstrators
Demonstrators gather outside the Uptown post office in Chicago, to demand a fully funded United States Postal Service and an end to cuts by Postmaster General Louis DeJoy on Aug. 25, 2020. Max Herman/NurPhoto via Getty Images

The Postal Service is facing serious problems in this century — namely that it's deeply in debt and continues to lose money. The USPS lost more than $83 billion from 2007 through March 2020, plus owes $11 billion to the U.S. Treasury. It's also more than $59 billion behind in payments to its employee pension and health care funds [source: Pew Research].

One reason for these dire financial straits is that its mail volume has plunged, as communication increasingly moves online. Mail volume dropped from 207.9 billion pieces in 2000 to just 142.6 billion in 2019, and the drop was steepest among its most-profitable first-class deliveries [source: Pew Research]. And while the USPS doubled its packaging and shipping volume from 2010 to 2019, thanks to the growth in online shopping, that hasn't been nearly enough to turn things around. But the drop in mail volume doesn't explain fully why the USPS is so deeply in debt.

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The Postal Service began losing money in 2007, the year after the Postal Accountability and Enhancement Act went into law, which requires the USPS to pre-fund pension and health insurance benefits for its employees — something pretty much no other governmental entity has to do. If this one requirement was removed, the USPS could largely sustain itself.

The Postal Service also operates under a universal service obligation, which requires it to deliver mail to everyone in the U.S. This means to people living on remote islands, in the backwoods, in the Alaskan tundra, as well as in cities and suburbs. Those farflung deliveries aren't cheap. Commercial services, in contrast, can opt out of remote deliveries if they're not profitable. And they often do, hiring "last-mile delivery" services to do it for them. For years now, the USPS has been offering such last-mile service to help bolster its bottom line, delivering mail and packages to every corner of rural America for private companies such as FedEx, UPS and Amazon. Although President Trump and others have said that the USPS has lost money by charging too little to these companies for package delivery, the Postal Regulatory Commission concluded that the Postal Service does make money off doing these last-mile deliveries for Amazon, etc. [source: Naylor].

Still, this hasn't been enough to put the USPS back in the black. In addition to that onerous pre-funding requirement for employee pensions and health care, the Postal Service's labor costs are high, both in salary and health benefits, the latter of which traditionally have been more generous than those received by other government employees. The USPS has tried to combat this issue by eliminating workers through retirement incentives and attrition. Its workforce today is 30 percent smaller than its peak in 1999 [source: Pew Research].

Bills have been introduced to try and address some of these issues. There is a proposal for USPS retirees to be required to take Medicare, which would relieve the agency of having to pre-fund retiree health benefits. Another bill, the USPS Fairness Act, would repeal the requirement to pre-fund the employee benefits and allow the agency to pay-as-you-go as other government agencies and most private companies do. These bills are still pending in Congress [source: Institute for Policy Studies].

Some USPS opponents are clamoring to privatize the institution, which they believe will result in a mail service that is more efficient, effective and profitable. For another issue with today's Postal Service is that delivery has slowed. In 2020, it was taking the USPS more than a half-day longer to deliver first-class mail than in 2012. More eye-opening is that from 1971 to 2012, the USPS was delivering much of its mail in just one day. But in 2015, it eliminated the one-day standard, again to try and combat its financial problems [source: Steidler].

But talk of privatization touches on another issue — while the government expects the Postal Service to function as efficiently as a business, it's saddled with governmental requirements that traditional businesses do not face, such as the requirements to deliver mail to everyone and to pre-fund employee benefits. In addition, it can't even raise its own rates without approval by the Postal Regulatory Commission. And Congress can add any requirements it wishes to the USPS, and it must obey.

Despite all of these woes, the USPS is a beloved institution, with 91 percent of Americans reporting they viewed it favorably in 2020, the highest rating of all federal agencies [source: Pew Research]. One likely reason is that it's a lifeline for rural communities. Another is that it performs community services through programs such as Carrier Alert, which has mail carriers keeping an eye on their elderly and disabled customers.

Time will tell whether the USPS is able to evolve enough to stay in business, or whether this venerable institution will become but a beloved memory.

Originally Published: Oct 26, 2007

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More Great Links

Sources

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