Businessweek ran an article on the Postal Service that’s creating a lot of buzz. Basically, it’s in pretty bad shape. What else is new? In this case, it’s actually running close to complete implosion:

Since 2007 the USPS has been unable to cover its annual budget, 80 percent of which goes to salaries and benefits. In contrast, 43 percent of FedEx’s (FDX) budget and 61 percent of United Parcel Service’s (UPS) pay go to employee-related expenses. Perhaps it’s not surprising that the postal service’s two primary rivals are more nimble. According to SJ Consulting Group, the USPS has more than a 15 percent share of the American express and ground-shipping market. FedEx has 32 percent, UPS 53 percent.

The USPS has stayed afloat by borrowing $12 billion from the U.S. Treasury. This year it will reach its statutory debt limit. After that, insolvency looms.

A few years ago, when the USPS was talking about cutting out Saturday deliveries, there were howls of protest. I’m not entirely sure how many would protest that now. The USPS would actually have been better off if this had happened five years ago, when the prospect of life without the Post Office might have seemed scarier.

The right has latched on to the notion that this is a public sector unions issue. But it does deeper than that. The main issue is that the USPS is an uncomfortable mixture of independent and governmental. They are independent insofar as they are expected to fund themselves. They negotiated their own deals with the unions and such. But they’re governmental insofar as the government can prevent them from doing some of the things they would need to do in order to become solvent again. It’s not just the unions that don’t want post office locations to close, but also congress. And their relationship with the government makes it difficult for them to raise prices to the extent that they can become solvent again. There’s really no excuse for them to be losing money on junk mail, for instance, but they can’t unilaterally raise the price. (Is there a junk mail lobby that stops congress from doing this? I’m not sure. It wouldn’t surprise me if this were an issue where of concentrated benefits and dispersed costs where the concentrated beneficiaries have undue influence.)

But ultimately, this brings to light the question of what, precisely, we want from the post office. And how much we’re willing to pay for it. The Postal Service incurs costs that UPS and FedEx don’t due to statutory requirements that they delivery to everywhere and that they do so every day. There are many that are suggesting that if left to the private sector, some places wouldn’t get mail delivery or would do so only at very steep rates. As though that is what is causing all the problems. While it is true that there are some places that UPS and FedEx won’t deliver, they are actually very few. Mostly parts of Alaska and on reservations. They really aren’t the problem. And FedEx and UPS actually charge pretty competitive rates whether a package is being delivered to the city or the country. I ran some checks on Glasgow, MT (pretty much defined as the middle of nowhere) and Denver and Seattle in a package shipped from Tampa. Sometimes the delivery was more expensive. Sometimes it was cheaper. But it was never a huge difference.

So at least in theory, we could simply have a stripped down USPS that delivers to the places that UPS and FedEx won’t at a fraction of the price. That still leaves the issue of door-to-door mail. Right now, the Post Office ostensibly has a monopoly on that, though when you try to pin down what exactly the monopoly consists of. It’s illegal to use mailbox and I’ve heard from at least one person that they can’t deliver “non-urgent” envelopes. But even if they could, I doubt they would do so competitively with the USPS. Or that they would want to so long as the USPS actually exists. So if you got rid of the USPS, would either of them step up? Would both? I would imagine that at least one would, but the price increase would probably be substantial.

So I think that the answer for the Postal Service falls into one of three categories: (1) beef it up and offer services that post offices in other countries offer, such as scanned mail and bill-pay, (2) raise prices and reduce costs as necessary to be profitable, or (3) marginalize losses by scaling down and becoming the sender of last resort. I think a lot of the services they would provide in the first would give a lot of Americans the heebie-jeebies. The second is difficult or impossible between the union contracts and congressional meddling to go forward with. The third would likely involve will-call and weekly deliveries, which would also be difficult to square with the unions. So all of these are pretty problematic, leaving to the fourth option: just pay the piper. Undo the legislation that forced the Postal Service to be solvent in the first place. That, I suspect, is what is going to happen.

Regarding the unions, I have three things to add. First, I agree with the left that union wages are not the primary issue. There are reasons why the USPS would spend a higher portion of its money on people: you need them to deliver door-to-door. You spend on people what FedEx and UPS spend on planes. And salaries at USPS are not actually higher than those at UPS, from what I understand. Second, while salaries are not the issue, the inflexibility regarding hiring and firing are. The most obvious route to solvency appears to me to be a reduction in services. But the cost savings would come from personnel reductions that would be hard to negotiate. Third, I do believe that the government has to live up to the pension promises that it made. I think that there is a grace period to such things, but the grace period has passed as far as the USPS is concerned. However, and this is important, this is why we should never, ever make these promises to begin with and making alternate arrangements for new employees to whom these promises have not been made. When you find yourself in a hole, the first step is to stop digging.


Category: Market, Statehouse

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8 Responses to No Longer Going Postal?

  1. Peter says:

    There were some things I didn’t want to say online for everyone to see, so I mailed you a letter outlining my views on this subject.

    You should get it in a few weeks.

  2. Mike Hunt says:

    When you find yourself in a hole, the first step is to stop digging.

    Great advice for all situations…

    ===

    I don’t understand why the USPS is supposed to break even. After all, the post office is explicitly mentioned in the constitution. No one expects the army to pay for itself, yet the USPS is supposed to be self sufficient…

    The Postal Service incurs costs that UPS and FedEx don’t due to statutory requirements

    100 percent correct. If you try to close a local post office, people scream in horror. Heaven forbid someone doesn’t get mail six days a week at home for some reason. I once mailed a letter from the post office to the building next door. It cost 44c. If I wanted to send Trig Palin a birthday card, it would cost the same 44c.

    ===

    The actual reason the USPS is going broke is simple: no one uses it unless they have to. In the last year I have literally mailed one letter. Similarly, I have written one physical check in the same time period. If the NJMVC didn’t charge a fee to use a credit card online, those numbers would be zero.

    I will still use the USPS for cards (thank you and holiday) because I feel that email for those is impersonal.

    ===

    As for solutions? Reduce home delivery to five days per week. Each part of town will have a different off day. Also, each physical post office should have to service a minimum amount of population, say 20000 or so.

    It has been said that you can’t everyone happy, yet the USPS has a mandate of exactly that.

  3. trumwill says:

    I don’t understand why the USPS is supposed to break even. After all, the post office is explicitly mentioned in the constitution. No one expects the army to pay for itself, yet the USPS is supposed to be self sufficient…

    Which is why I think that the solution is ultimately going to involve a return to the days when the USPS was an expected loss.

    The actual reason the USPS is going broke is simple: no one uses it unless they have to.

    Except businesses! Which is what makes it so odd that they lose money on business mailings. Suspicious may be a better word than odd.

    As for solutions? Reduce home delivery to five days per week. Each part of town will have a different off day. Also, each physical post office should have to service a minimum amount of population, say 20000 or so.

    My guess is that if they go to 5, it’ll be Saturdays off for everybody.

  4. Brandon Berg says:

    That still leaves the issue of door-to-door mail.

    Not really much of an issue, is it? Delivery of regular mail is increasingly becoming irrelevant. 80% of what I get is advertisement, and the rest could easily be delivered electronically. It’s time to phase out non-parcel mail delivery. Let the hold-outs scan their letters and print out their e-mail at Kinko’s.

    When you find yourself in a hole, the first step is to stop digging.

    You know, when you think about it, a solution to the problem of being in a deep hole is likely to involve digging. Just…more from the sides and not so much from the bottom.

  5. trumwill says:

    I would say that there are two layers of questions on door-to-door.

    Are we capable of getting by without it? (Yes.)

    Are we willing to try? (Not yet.)

    But we’re a lot closer on the second question than we were a couple of years ago.

  6. web says:

    Public education (esp. higher ed) is in the same boat.

    Expected to provide more and more services at cut-rate or free (school “free lunch/breakfast” programs). Expected to provide educational services to a lot of people who don’t pay in to the system. Expected to increase and maintain building capacity for the students. Expected to provide more and more in the way of facilities.

    Expected to do it all on ever-shrinking funding levels.

    You want to know why the cost of higher education has gone up? Start by looking at all the things a college provides today that they didn’t 20 years ago. Then add in the fact that in 1990, over 50% of your standard ”
    state college” funding was from the state; that number is now down to an average of 20%.

    The USPS isn’t the only organization caught in this kind of trap.

  7. trumwill says:

    While your overall point is correct, this is subject to a little more debate:

    Expected to do it all on ever-shrinking funding levels.

    With the exception of the road bump of the last few years, K-12 spending has been going up enormously for decades.

    At the college level, while state-supported funding has decreased, budgets have increased considerably. Colleges spend a lot more than they used to (which accounts for a lot of the 50%-20% drop). In large part, of course, due to increasing expectations for the students (whose parents then turn around and complain about the increasing costs of college…).

  8. web says:

    Will,

    As far as colleges go, more money than you’d think is tied up in various research grants and not really available to the “college” or “university” as such. The actual budgets for IT, for facilities, dormitories, class supplies, actual educational labs – those have been going downhill pretty steadily.

    The shell game is that the 50% from the state used to go mostly-directly towards those needs first. The “missing 30%” that used to be state funding, and now is grant funding, is rarely seen by any students in any appreciable way. In many cases, the money isn’t even seen on campus at all, because it’s used for hiring consulting firms or survey firms or other outside entities to process the “research grant” purposes.

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