March 2, 2010 / 7:29 PM / 9 years ago

U.S. post office looks to cut costs as mail drops

* Postal service facing shortfall as mail volume drops

* Price hike and service changes seen

WASHINGTON, March 2 (Reuters) - The U.S. Postal Service, faced with a dwindling number of customers and growing shortfalls, plans to raise prices, cut costs and ask for rule changes to make the struggling service more flexible, Postmaster General John Potter said on Tuesday.

Because of email and private delivery companies, mail volume is expected to be down about 10 billion pieces in 2010 with first class mail expected to drop 37 percent by 2020, leaving the service with a cumulative shortfall that could hit $238 billion by 2020, USPS said in a press release.

“A modest exigent price increase will be proposed, effective in 2011,” it said.

USPS, which delivers nearly half of the world’s mail, has posted net losses since 2007. It faces stiff competition from email as well as FedEx (FDX.N) and United Parcel Service (UPS.N).

Potter outlined a series of efforts to save money, including restructuring retiree health benefits, changing delivery schedules, and expanding efforts to sell stamps and provide other services online and at grocery stores and other retailers.

“If given the flexibility to respond to an evolving marketplace, the postal service will continue to be an integral part of the fabric of American life,” Potter said in the release.

In February, USPS posted a loss of $297 million for the first quarter of its fiscal year, blaming the recession and the use of electronic mail.

The loss marked a slight improvement over the prior-year period due to cost cutting, but USPS warned the trend was worrisome.

Further, it warned it may not be able to meet obligations to make about $6.6 billion in cash payments in September and October to fund retiree health benefits and for its workers’ compensation liability. Last year Congress restructured similar payments, but there is no assurance that similar adjustments will be made this year, USPS said.

Reporting by Diane Bartz; Editing by Eric Walsh

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