Direct mail marketers beware: The U.S. Postal Service (USPS) is veering desperately close to default. The question is: Is it too late to save the USPS from temporary shutdown?

The USPS is in the hole to the tune of $5.5 billion, and unless Congress can step in and right the ship, we could very well go weeks without our daily mail this winter.

The agency’s escalating debt was recently appraised at nearly $10 billion, at which point U.S. Postmaster Patrick Donahoe saw no choice but to propose some drastic measures in order to cut that figure in half.

Among his proposals:

• No Saturday mail delivery
• Closing 3,700+ postal locations nationwide, and
• Laying off 120,000+ employees — despite the fact that their union contracts strictly forbid layoffs.

It’s a catastrophe, to be sure. And with so much talk in Washington lately about the need for the Fed or other agencies to stop bailing others out, the question now arises: Will the government really allow the Postal Service to go into default?

Obviously, the meteoric rise of email — combined with other shipping outfits like FedEx and UPS — has sparked a rapid decline for the USPS over the past 10 years. And now — with the USPS labor budget accounting for 80% of its overall expenses — the postal service is running out of options.

There is only so much raising the price of stamps and/or other postage options will do in terms of offsetting the exorbitant losses. On top of which, because the USPS is a public agency, it cannot increase its rates at a pace that eclipses the national rate of inflation. This is particularly troubling, given the lagging economy.

And yet, union contracts that have been in place for decades are blocking the agency from considering pay cuts.

The final blow could be dealt as early as February of next year, as the inability of the post office to pay for fuel, vehicles and manpower may force a partial, or perhaps even full, shutdown until a more viable business model can be implemented.

Source: “Postal Service is Nearing Default as Losses Mount,” by Steven Greenhouse, The New York Times, 9/4/11.

Tags: Congress, default, direct mail, FedEx and UPS, inflation, Layoffs, Patric Donahoe, Postal Service, shutdown, U.S. Postmaster, union contracts, USPS