The U.S. Postal Service’s board of governors has told the agency to speed up internal streamlining efforts, USPS said in a Monday statement. … USPS said the original plan would add up to about $20 billion a year in savings, though about half of the proposed changes in the roadmap – including a switch to five-day delivery – require congressional approval. The Postal Service has also already altered its plans to consolidate mail processing centers, and to reduce costs at local post offices.
Streamlining and cost cutting are necessary but hardly sufficient to save the USPS. Some scary financial facts from AEI’s Richard Geddes:
1. First-class mail – by far the Service’s most profitable – is down a third since its high in 2001.
2. Overall mail volume is down 26%.
3. The USPS lost almost $16 billion in its 2012 fiscal year, hit its $15 billion borrowing limit with the U.S. Treasury, and has only enough cash left for a few weeks of operation.
The sort of reform the USPS needs is the sort that will inject some entrepreneurship and innovation and competition into the government entity. To get that reform, Geddes recommends ending the government monopoly on the home mailbox and giving the USPS a corporate legal structure as the two key steps which will lead to privatization. And here’s how that would work:
Privatization is the final stage in converting the Postal Service into a de-monopolized firm subject to corporate law and the disciplining effect of active shareholders. A postal initial public offering of shares would reveal the value of an efficiently structured Postal Service as a going concern, and that value would likely be substantial.
Although postal revenues are declining, they are still large by most standards: the Postal Service received over $67 billion in revenue in its 2010 fiscal year. This is well over twice the annual operating revenue for McDonalds in that year, and about 7 percent more than Microsoft.
Businesses are still willing to spend large sums on direct mail advertising through the Postal Service. Additionally, a corporatized Postal Service facing market competition would have the incentive to search aggressively for new revenue sources, such as advertising on its delivery trucks and offering new delivery products. Assuming an efficient, optimized Service could earn 7 percent in terms of earnings before interest and taxes (EBIT), and purchasers of shares were willing to pay a typical multiple of 8 times earnings in an initial public offering for an industrial company, then taxpayers could realize almost $40 billion in a postal IPO.