US Postal Sevice/The last monopoly. Their appointed rounds -- but at what price?

Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds. Herodotus. -- Inscription on the General Post Office, New York City PART 2 Outside, 40-foot tractor-trailers grind their way up to the 100 loading docks of the General Mail Facility -- a cavernous, quarter-mile-long structure perched beside the harbor in downtown Boston. There are no keys to the building: It is open day and night, seven days a week, processing some 6.4 million pieces of mail each day. Deep inside, a small group of shirt-sleeved employees sits at strange-looking keyboards. As letters fly past on the eye-level conveyor belts in front of them, they check to be sure the stamp is in place. Then they key into their machine the last three digits of the ZIP code. The whole operation takes seven-tenths of a second per letter.

Transportation, sorting, timing, and personnel: On these issues the 39,000 post offices of the United States Postal Service (USPS) stand or fall.

And underlying them all is the bugbear of costs.

On one hand, of course, the USPS is wedded to improving its customer service -- an overriding concern of Postmaster General Paul N. Carlin. But in the labor-intensive mail business, improved service often means more employees -- and higher costs.

Striking the balance can be difficult. Postal managers remember the ill-fated March 1972 hiring freeze imposed by then-Postmaster General E. T. Klassen. Although his plan cut 33,000 workers from the payroll by late summer, it was followed by such poor service during the Christmas rush that Mr. Klassen was forced to abandon the freeze, throw cost-containment out the window, and endure a 1974 deficit that was 33 times as large as the 1973 figure.

This past year, in an effort to avoid a replay of Klassen's scenario, the USPS has been hiring steadily: The total work force has risen from 702,000 last October to a current level of 746,000.

The result: serious cost overruns.

``We've given an awful lot of attention to improving our service over an extended period of time and [to] absorbing an awful lot of volume,'' says Postmaster General Carlin ruefully. ``Now the time comes to bring [our] efficiencies into order.''

It's a tactful way of saying what others put more bluntly: that USPS costs are, as postal governor Peter E. Voss frankly says, ``out of control.'' Deficit

``The $500 million deficit shocks us,'' says Richard A. Barton of the Direct Marketing Association, referring to the size of the cost overrun estimated by postal management at the close of the fiscal year in October.

Already this year, postal officials say, the USPS has posted a deficit of $385 million. The figure is especially troubling because new rates were introduced in February. Conventional wisdom holds that the system should show a surplus in the early years of the ``rate cycle,'' before inflation has eroded the value of the increase.

Also troubling is the reversal of a pattern of recent successes: The last deficit ($588 million in 1981) was followed by three years of surpluses. In fact, the overall budget for the eight-year period from 1977 through 1984 is almost precisely balanced: $164.27 billion in total income, and $164.23 billion in expenses.

So is this current deficit a blip in a generally upward curve that, in the 15 years since the 1970 reorganization, has been climbing toward fiscal balance?

Or is this a portent of greater problems -- proof that the structure is fundamentally out of kilter and that the entire system is being driven into the ground?

``That's the big question,'' says Janet D. Steiger, chairman of the Postal Rate Commission (PRC). She adds, however, that ``there are clear indications that this particular Board of Governors is extremely serious about attaining control.'' Labor costs

What drives up postal costs? The answer is almost unanimous: union labor.

``The overwhelming problem,'' says Coleman W. Hoyt, vice-president of the Reader's Digest Association, is ``the matter of wages. The postal wage-setting machinery is just totally out of control.''

Mr. Hoyt describes the wage-and-benefit package for postal workers as ``out of line'' compared with the average American teacher's wage. Salaries for elementary school teachers, according to the National Education Association, now average about $23,000. According to the most recent USPS figures (as of June 7), the 648,730 postal workers who are covered by union bargaining receive an annual median wage-and-benefit package of $29,169.

John Crutcher, one of the five PRC commissioners, calls wages the ``major issue,'' noting that ``everything else is minor compared to that.'' In speech after speech around the country, he calls attention to USPS cost overruns -- noting, for example, that private mail couriers in Washington, D.C., are paid $6 an hour (compared with a USPS letter carrier making $13 an hour), and that while privately contracted janitors sweep post office floors for $4.44 an hour, USPS janitors do the same job for $10.89 a n hour plus benefits.

The issue Mr. Crutcher touches on is ``comparability.'' Federal law requires USPS wages to be set ``on a standard of comparability to the compensation and benefits paid for comparable levels of work in the private sector.''

``Every study I've seen,'' says A. Lee Fritschler, former chairman of the Postal Rate Commission, ``shows that postal employees are making about 30 percent more than their counterparts in the private sector. They have a quit rate of about 1 percent, which is about the lowest quit rate on record in any industry. This is all a sign that we are subsidizing the Postal Service beyond what the market would accommodate.''

A major study of comparability by Michael L. Wachter, recently commissioned by the USPS, found that ``the Postal Service pays a wage that is higher than the wage paid in every major industrial sector of the American economy, with the exception of mining.''

Dr. Wachter, who is professor of economics, law, and management at the University of Pennsylvania, says he calculates that postal workers enjoy a 20 to 30 percent wage advantage (depending on the method of calculation).

The differential is especially high, he says, when comparing the wages of newly hired USPS workers with the wages they formerly earned. ``We excluded people under the age of 25, so we weren't dealing with teen-agers who [had been] working at McDonald's,'' Wachter says. ``What we found was that the wage increase for postal new hires [over their old wages] was . . . approximately 60 percent.''

``I don't believe we're overpaid by a long shot,'' says Moe Biller, president of the American Postal Workers Union -- although he adds, ``I don't think we're underpaid.'' He cites studies done for the union by Washington economic consultant Joel Popkin, showing that postal wages lagging behind inflation.

Jack L. Rutner, vice-president of Joel Popkin & Co., supplies figures to back up Mr. Biller's point. He says the postal worker median salary (in constant July 1971 dollars) stood at $9,651 in December of 1969, rose to $10,635 in November of 1977, and declined to $9,641 in May of 1984. Since the 1977 peak, he says, ``there's been a constant erosion.''

``The Postal Service pays a white male a wage that is no different from anybody else in private industry,'' Dr. Rutner asserts. And, he adds, it pays the white male wage to all its employees, driving average wage costs above those in the private sector.

``The Postal Service doesn't discriminate,'' he notes, adding that it also has an older and better-educated population than many of the private-sector mail-handling companies and that it puts a premium on stability and low turnover.

Nevertheless, postal governor Voss concedes, ``our labor costs are a problem -- and I think that we have painted an inappropriately bright picture of our situation.'' Negotiations

In the view of many observers, the latest round of labor negotiations (settled last December by arbitration) did little to resolve the situation. Management had asked for a three-year wage freeze, a rollback in cost-of-living allowances, and a ``two tier'' system that would substantially reduce pay levels for newly hired workers.

But the final contract, although it approved the two-tier plan, gave the unions three annual pay raises and partial cost-of-living adjustments. The result: During the three-year span of the present contract, the USPS will spend $3 billion more than it would have if wages and benefits had been frozen at 1984 levels. Says one post-watcher at the US General Accounting Office: ``The unions got all they wanted out of the agreement.''

``I think [the union leaders] are a little bit embarrassed about where they've gotten,'' says Mr. Hoyt of the Reader's Digest. ``If there were a postal work stoppage, the people in the United States would just be up in arms.''

Will postal labor costs continue to rise? Many observers say the problem may to be built into the system. Comparing the Postal Service with some of the public-sector industries in Britain and on the Continent, they note that employees have no real incentive to hold costs down: The company has a monopoly position, it apparently cannot go out of business, and the government stands behind it in case it stumbles.

Are unions solely to blame? No, say many observers, who also point to weak managers operating within a poorly conceived structure that provides them with no real incentives for containing costs.

In a report published in 1977 by the American Enterprise Institute, Prof. Douglas K. Adie of Wheaton College in Wheaton, Ill., put his finger on the issue. In postal management, he wrote, ``managers make decisions in a way to reduce their psychic rather than dollar costs. One important psychic cost is friction of employee relations in dealing with the postal unions. Employee unrest can result in breakdowns or slowdowns that would harm the postal managers' status and prestige. It is therefore `cheaper' f or management to be generous with wages than to stand firmly for efficiency.''

But John R. McKean, chairman of the USPS Board of Governors, puts a good face on the contract agreement. ``We do not regard the last labor negotiations to have been a disaster in any way at all,'' he says. He is particularly pleased that the two-tier system was accepted, and that the arbitrator accepted the principle of wage comparability. Both issues, Mr. McKean says, will help contain costs in the long run.

In the short run, however, most observers look for higher costs to drive up postal rates -- since each 1-cent increase in the first-class postage brings in about $1 billion in revenues.

Although last February's rate increase was intended to last three years, PRC chairman Steiger says that the Postal Service will probably ``have to file for a new rating, possibly as early as March [1986].'' Insiders look for a 25-cent stamp to appear by the summer of 1987 -- and perhaps even in time for Christmas of 1986.

Airline deregulation. When the Civil Aeronautics Board (CAB) disbanded on Jan. 1, it threw airfreight prices and route schedules onto the open market. The USPS, which transports some 25 percent of its mail by air, has set up two central computers in St. Louis to help it find the cheapest ways through the labyrinth of flights. ``Between November and December,'' says PMG Carlin, ``52 percent of all the flights were changed. And you're talking about 12,000, 13,000, 14,000 flights that move each day.'' Estimated cost to the USPS of the CAB ``sunset'': $130 million this year. Second-class merger. In the past, second-class mail was divided into two streams: ``red tag'' daily newspapers and weekly magazines (processed along with first-class mail), and a nonpreferential stream of fortnightly and monthly publications which, although they paid the same postage, were deemed to be less time-sensitive and were processed through the nation's 21 bulk mail centers. On Jan. 1 of this year, responding to complaints from the nonpreferential mailers, postal managemen t merged the two. But the result, says Charles L. Pace, a consultant on postal matters and publisher of the C. L. Pace Letter, is that nonpreferential mail ``has pulled down the red-tag service -- the volume of mail has been too great to go through the funnel.'' Result: deterioration of service (showing up as late or missing deliveries of periodicals) and increased costs in staff time to remedy the problem. Postal officials remain confident that problems with the merger result from poor forecasting of volum es and can be ironed out. Outdated facilities. ``We used to say that there are two postal services in the United States,'' says A. Lee Fritschler, former chairman of the Postal Rate Commission, ``one that serves half a dozen biggest cities, and one that services the rest of the country.'' Complaints from larger cities are rife: One major New York bank, which collects its mail 16 times a day, reports that only 53 percent of letters mailed within the ``next day'' delivery area arrive on schedule. One problem: Major post al facilities, built in the inner city to take advantage of trains, are now served almost exclusively by trucks trying to fight city-street congestion. Plans call for sale of some inner-city facilities and construction of new ones in more accessible locations. Postal rates. Moe Biller, president of the American Postal Workers Union, blames the Postal Rate Commission for approving a first-class increase only to 22 cents -- instead of the 23 cents asked for by postal management. ``Why the worker should bear [the difference] on their backs I don't know,'' he says. Inadequate long-range planning. Under pressures of competition, electronic and otherwise, the basic postal environment appears to be changing rapidly. Yet despite the recently published ``Strategic Business Plan'' for the next five years, postal governor Voss complains that ``management has only developed long-term plans that pretty much perpetuate the manner in which their operation is now [conducted].'' John F. McLaughlin, head of Harvard's Program on Information Resources Policy and a for mer postal official, notes, ``I don't know anyone in the upper ranks of the Postal Service who is interested in tinkering with the basic structure.'' Statutory limitations. Intended to be run as a business, the USPS must nevertheless make public the kind of highly detailed information on its operations that its private-sector competitors are not required to divulge. ``We operate under a very peculiar statute,'' says Postal Service lawyer Frances G. Beck. ``We are supposed to use business methods, yet we have to justify our rates [and] we can't make changes quickly.''

Next: The future of the Postal Service.