Ailing Postal Service Boosting Package Delivery to Cut Losses

The United States Postal Service is improving service to take on package rivals like FedEx, generating an additional $500 million annually, as part of longstanding efforts to stabilize their finances.

Effective immediately the mail carrier will be offering free online tracking and free insurance for their Priority Mail shipping, matching the standard services of UPS and FedEx. Priority Mail parcels will be offered a standard $50 insurance, which can be upgraded on request. The USPS will also tell customers the exact day on which to expect a package - up to three days from ship. Previously the carrier would only offer a range of dates.

It will not affect pricing for package delivery, which remains unchanged. The changes also include cosmetic tweaks to its shipping containers and folds the premium Express Mail offering into Priority Mail.

Postal Service officials are calling this "refresh" of their product line one of their most important changes in three decades and expect it to yield an additional $500 million in revenue annually for the troubled agency. Today's announcement comes two days after the carrier admitted it had suffered $3.9 billion in year-to-date losses by the end of the third quarter and would hold just five days worth of cash on hand in October.

"We do have, fortunately, some flexibility in our business model to innovate," Postmaster General Patrick Donahoe said in a conference call with reporters today. "Especially around the package-side of the business."

That package-delivery aspect has been experiencing marked gains - fueled by online shoppers - even as usage of regular First Class letters continues to decline. The agency expects the upward trajectory to continue until at least 2017 and credits it with contributing to a marked improvement over the $5.2 billion in losses it had racked up by the same period last year. Cuts to worker compensation, post office closures, and increased efficiencies have also been cited.

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Although the USPS does not receive taxpayer dollars for its day-to-day operations it still requires congressional approval for some actions. Donahoe called on lawmakers to approve other measures the agency wants to pursue including elimination of Saturday letter delivery and adoption of alcohol delivery, which they expect will net an additional $50 million.

Also at issue is a controversial obligation the USPS has to pre-fund retiree health benefits, a mandate imposed by Congress in 2006 that has not been placed on other government organizations. Nearly 70 percent of the agency's losses last year came from that obligation.

"I wish we had flexibility in other parts of our business to make the changes we need to make," he said, adding, "especially the cost side."

"You've got specific issues around price caps that are set by class, and we have unfortunately some of the classes of mail that we deliver today are upwards of 30 percent underwater. They don't cover their own cost and there's nothing we can do to make that difference up."

When asked by ABC News whether the current red ink affected their plan to roll out a postal-themed clothing line, the Postmaster General noted that " Rain, Heat, & Snow" was simply a small-scale licensing agreement and not a production effort.

"We're not in the clothing business," he said.

The Associated Press contributed to this report.