Two things. First - it sounds like you're in basically the same boat as us. (Canada)
CanadaPost/Purolator (Mail/Courier) are basically the best way to move stuff around up here. There is Fedex - but they cost a fair bit.
UPS is on-par with Purolator's pricing, but offers sub-par service. Most packages look like they were drop kicked. In recent months, they've started subcontracting all deliveries to Purolator where I live. DHL is better than UPS, but that doesn't say much.
Nothing beats Purolator for delivery condition (not even Fedex), and nothing beats Fedex for tracking.
Unlike the US, UPS is really bad up here. A great example of how much private corporations can suck. A couple times they've tried to deliver 5-sided boxes with packing peanuts and items leaking out, while requesting $40+ in on-delivery handling charges, for orders that should've cost nothing extra. Fees like that make them more expensive than Fedex, so it's no surprise that CanadaPost, Purolator, and Fedex are top dogs up here.
It's interesting that I've never received a DOA hard drive via Purolator. Newegg is full of DOA comments, so I wonder how much UPS and other sub-par couriers are thrashing your equipment?
Second, wouldn't a 2-5% increase in postage costs solve all of USPS's money woes? This isn't like taxes, where if it goes up, companies get creative. USPS has to deliver service in addition to low rates - if quality service and cheap prices are at the right mix, companies use them. If either one falls or rises too far, companies find alternatives. Raising rates won't lose any customers, as long as service stays good or improves, and they're still cheaper than most couriers. Keeping rates stable but reducing service will lose customers, which starts the downward spiral of less mail volume, leading to higher prices.