April 7 2011 10:23 AM

Harry Quadracci, the founder and former head of QUAD/Graphics, used to say that "the first step to making money is losing less each month." The same could be said for mail volumes. And by that standard, the Postal Service's first-quarter results for FY 2011, which showed a small increase in total mail volumes, are good news. To some degree.

When we get inside the numbers, we see that the Postal Service still faces an uphill battle to regain its financial footing. Let's put aside, for the moment, the overfunding of its retiree plans. We all know what the aggressive prefunding schedule of its retiree health benefits and its overpayment to federal pension plans have done to the Postal Service's finances. They are forcing the Postal Service to the brink of insolvency. But even a look at the operating income and volume figures paints a troubling picture.

The Postal Service saw a 700 million increase in total mail volume in the first quarter. That's good news, right? It's certainly better to have volume growth than volume loss, but the growth came almost entirely in Standard Mail. It is good to see Standard Mail tick upwards because it suggests that the economy is in full recovery mode and businesses are spending more on advertising. Standard Mail remains an important part of many companies' advertising "spend," and so it should see continued growth.

The bad news is that First Class Mail volumes continue to decline. The Postal Service predicts that First Class Mail volume will decline another 25 billion pieces or so over the next 10 years. Because it takes 2.5 pieces of Standard Mail to make up the contribution of one piece of First Class Mail, we need significant increases in Standard Mail to offset the ongoing loss in First Class Mail. That type of mail volume growth isn't going to happen.

Revenues also continue to decline. They should inch upwards after the April 17 inflation-based price increase, but again, not nearly enough to cover all the federal benefits payments, let alone to begin paying off the $12 billion in debt the Postal Service has amassed to pay its retiree health benefits.

Congress needs to fix the benefits overfunding issues. This is the only immediate solution. This is the fair and equitable thing to do. This would buy the Postal Service precious time to get its house in order. As part of the overfunding fix, Congress should demand a new detailed business plan from the Postal Service. The plan really needs to address only two things: first, a blueprint of how the Postal Service intends to right-size its network. The second part of the business plan must be the Postal Service's plan for operating in the digital age. Both parts of this plan are equally important. No more tinkering around the edges of rightsizing the infrastructure. No more worrying about "showing your hand" on the network plans for fear that Congress will attempt to thwart it. Set out a decisive, descriptive plan for optimizing the infrastructure and enact it.

The digital plan is equally important. It might be even more important because time is running out for the Postal Service to be a player in the digital world. Few of us know anything about the Postal Service's plans for operating in the digital space. Where does it see itself fitting in? What role does it believe it can play? How can it use its infrastructure, its trusted brand name to offset some of the shortcomings of digital communications? What opportunities should it pursue immediately? What partnerships should it nurture? What ideas do its customers have?

I know I heard a lot of good ideas from postal customers at an August Innovation Symposium. But that was more than six months ago - a lifetime in the digital market. If the Postal Service wants to play in this market, it needs a thoughtful and realistic plan. It also needs Congress to do its part. Fix the overfunding of pension and healthcare plans so the Postal Service can right its ship - and customers can stop overpaying for postage.