Economics, Free Enterprise

How to save the Postal Service

Image Credit: Matt Spiel (Flickr) (CC BY-SA 2.0)

Image Credit: Matt Spiel (Flickr) (CC BY-SA 2.0)

Today, the US Postal Service announced that it will no longer deliver first-class mail on Saturdays. The decision highlights the dramatic need for reform in the 200+ year old institution, whose financial health has been in precipitous decline since the turn of the century.

Some background on the Postal Service’s troubles:

  • Since its 2001 peak, overall mail volume is down almost 25%.
  • During the same period, first-class letter mail (the most profitable type) has declined by 33%.
  • It lost nearly $16 billion in 2012 and loses about $25 million per day.
  • It has hit the limit of its credit line with the US Treasury–$15 billion.

The Postal Service estimates that cutting Saturday delivery will save it about $2 billion per year, so clearly more is needed. Fortunately, AEI’s R. Richard Geddes has outlined some reforms that could not only get the Postal Service back in the black, but actually allow it to expand.

First, Congress should determine what level of physical mail service is necessary for government to ensure in the 21st century and how to pay for that service level, rather than leaving this up to the Postal Service itself.

Second, Congress should free up the Postal Service to become a more commercial entity by eliminating the service’s monopolies over mail delivery and mailbox use. This will subject the USPS to the discipline of competition.

Third, Congress should reform the USPS’s organizational structure. Specifically, the agency should be corporatized, making it subject to the standard set of corporate laws and norms associated with a large commercial entity. This will provide managers with clearer incentives and help raise the capital required to pursue new lines of business.

Many other nations have embraced these types of reforms, with great success. All 27 members of the EU have eliminated their postal monopolies and have seen their postal services become more efficient and effective as a result. Germany in particular stands out: Its post was privatized in 2005 and has since become a major player in the global delivery and logistics business, operating in 220 countries. It is now the world’s largest courier company.

The US Postal Service has a huge network of sorting centers and letter carriers, meaning it has infrastructure and experienced personnel. Given the right reforms, it too could become a leader in the global delivery sector.

Be sure to check out Geddes’ full article here.

31 thoughts on “How to save the Postal Service

  1. Why not do what you are supposed to do and privatise the service? Government is not very efficient at anything. That includes mail delivery.

      • That would be another option, but would probably require a Constitutional amendment since the USPS is created directly by the Constitution.

        I am well aware of that. But there is nothing unconstitutional about private companies delivering packages so there is nothing unconstitutional if Congress allows a private company to take on USPS duties and have it compete with other private companies by taking away the monopoly privileges. All Congress is supposed to do is ensure that mail can be delivered. It does not have to run the office directly.

    • The Post office is extremely effective at everything they do. If you privitize the post office, just watch how expensive, inconvenient, and how ineffective it will become!

  2. An interesting thing is a service called SmartPost. FedEx moves the package to the next to last step then lets the Post Office deliver it.

      • it does… I’m sure Fed Ex saves money by not having to have trucks and pay drivers to deliver but at the same time – it sounds more efficient – why have two 1/2 empty trucks running deliveries than one full one?

        Of course, it does sound like FedEx is the winner.

  3. The USPS is actively prevented from any of a long list of reforms because of Congress. For example, there are simply too many small inefficient post offices, but local politicians like the idea that their town has its very own post office. Efficiency be damned.

    USPS also sold its soul to attract junk mail (there is a USPS official at HQ whose ENTIRE job is writing nasty letters to news organizations, and individuals, who call junk mail “junk mail” in public). If junk mail was charged what it actually costs to sort and deliver, it would largely disappear. Again, there are too many people who make money off producing junk mail. So it’s politically impossible to eliminate.

    And then of course there is the problem of overpriced labor. Any solution that does not include breaking the union contracts has no hope of producing any meaningful savings. Busting up a national union of government workers is also impossible.

    On the other hand, courier services like FedEx save money by simply writing off entire States. If you FedEx something to North Dakota, it will in fact be delivered by USPS. The US post office, which is required by the Constitution, is required to deliver to every single residence and business in the USA. Covering that last 1% is incredibly expensive.

    • The Postal Service is NOT losing money but for Congress’ demand that it pay billions of dollars for future postal worker retirement! Funding for the next 75 years means putting money into postal workers that haven’t even been born yet!!!

      It has been running at a profit even though letter service has dropped due to email, etc. Congress is simply trying to ‘bust’ the Post Office so that it can offer it up wholesale to the corporate vultures that fund these politicians.

      Let’s make the Defense Department ‘profitable’!

      And more talk of ‘breaking the unions’….so you think $35-50,000/year is too much for a mail carrier to make?

      • Yes, and if GM did not put money aside for its pensions it would have been very profitable too. Under proper accounting the USPS is bankrupt.

        • re: “proper accounting”

          does DOD have a 75-year horizon line for it’s retirement and health care benefits?

          how about other govt agencies?

          Do states map out their benefits on 75-year horizons?

          • does DOD have a 75-year horizon line for it’s retirement and health care benefits?

            how about other govt agencies?

            Do states map out their benefits on 75-year horizons?

            Private companies have to use the proper actuarial standards to ensure that their pension obligations are funded. The government does not do that. None of the government agencies are fully funded because most government pension plans hold no marketable assets.

          • re: ” Private companies have to use the proper actuarial standards to ensure that their pension obligations are funded. The government does not do that. None of the government agencies are fully funded because most government pension plans hold no marketable assets.”

            you’re evading the question sir. DO the private pension and health care plans use the same 75-year actuarial standards that the USPS has to use?

            You don’t think the govt (and miliary) pension plans have marketable assets? Really? Then what is the USPS having to do – actuarially?

            do you think private pensions plans have marketable assets?

          • you’re evading the question sir. DO the private pension and health care plans use the same 75-year actuarial standards that the USPS has to use?

            Yes. But let us note that this is not enough. They should use an infinite horizon because in many cases it is reasonable to assume that the company will still be around 75 years out. That is certainly true for government plans because the last time I looked there were no plans for a revolution.

            The interesting part is still being ignored by you. The public funds have no marketable assets to meet obligations. If private companies did the same as the government the management and board would be in jail.

          • re: 75 year vs infinite horizons.

            you would say that a company like Exxon or Microsoft that has no idea what their company will look like in 75 years much less beyond that – should be planning their future financials for those timeframes? How?

            how would you even know how many employees you’d have that far into the future?

            re: ” The public funds have no marketable assets to meet obligations. If private companies did the same as the government the management and board would be in jail.”

            please be more clear about what you are talking about.

            are you talking about retirement health care and annuities/pensions? If you are talking about pensions – are you talking about defined benefit or defined contributions? The Federal Govt in 1986 converted their pension system to defined contribution so what funds are you talking about?

          • you would say that a company like Exxon or Microsoft that has no idea what their company will look like in 75 years much less beyond that – should be planning their future financials for those timeframes? How?

            By funding the plans so that their employees will still be able to receive the benefits that they were promised. Keep your promises Larry.

            how would you even know how many employees you’d have that far into the future?

            You don’t. You only fund the pensions of the employees that you have. If you promised that 20-year-old in the mail room a pension you better make sure that when he is 78 years old and collecting there will be enough assets to fund that pension.

          • By funding the plans so that their employees will still be able to receive the benefits that they were promised. Keep your promises Larry.

            Van – in 75 years your current employees are all gone an you will be paying people you have not even hired yet and you don’t even know how many you’ll be hiring yet.

            You don’t. You only fund the pensions of the employees that you have. If you promised that 20-year-old in the mail room a pension you better make sure that when he is 78 years old and collecting there will be enough assets to fund that pension.

            yes… but that is only 58 years into the future – and you can – and many companies do – buy fixed annuities from the insurance market.

          • Van – in 75 years your current employees are all gone an you will be paying people you have not even hired yet and you don’t even know how many you’ll be hiring yet.

            It does not matter if the employer is gone tomorrow because the pension fund is still supposed to meet all of the obligations going forward. If you have new people you have to fund their pensions based on their employment. The rules do not expect you to have all the money in for the new employee; only that you set aside this year to pay off the obligations that this year’s employment entitles the employee to.

            As I said, there are some basic concepts that you are not understanding. I would tell you to get a better understanding but I remember when Ron spent hundreds of posts trying to educate you about the basics only for you not to pay any attention to any of them.

            yes… but that is only 58 years into the future – and you can – and many companies do – buy fixed annuities from the insurance market.

            Yes they can. But to BUY the annuities you have to have the assets in the plan. The USPS does not have enough to pay for annuities for its current employees. And if you look around you will find that most government run plans have no marketable assets. That means that they are broke and cannot meet obligations without another funding source. But as the Greek government showed, there comes a time when further borrowing is more difficult. And when the increased rates make meeting obligations possible all you wind up with is a lot of pensioners who cannot make ends meet because inflation has confiscated their purchasing power.

          • Van – in 75 years your current employees are all gone an you will be paying people you have not even hired yet and you don’t even know how many you’ll be hiring yet.

            “It does not matter if the employer is gone tomorrow because the pension fund is still supposed to meet all of the obligations going forward. If you have new people you have to fund their pensions based on their employment. The rules do not expect you to have all the money in for the new employee; only that you set aside this year to pay off the obligations that this year’s employment entitles the employee to.”

            not the employer Van, the employees. How many employees last longer than 75 years into retirement?

            “As I said, there are some basic concepts that you are not understanding. I would tell you to get a better understanding but I remember when Ron spent hundreds of posts trying to educate you about the basics only for you not to pay any attention to any of them.”

            I’m paying attention guy. I’m asking you how many EMPLOYEES are going to last longer than 75 years into retirement. that’s not – not understanding, it’s a question to you.

            yes… but that is only 58 years into the future – and you can – and many companies do – buy fixed annuities from the insurance market.

            “Yes they can. But to BUY the annuities you have to have the assets in the plan. The USPS does not have enough to pay for annuities for its current employees. And if you look around you will find that most”

            my understanding is that they are being held to a longer horizon standard than other agencies and even other private employers – more than 75 years.

            ” government run plans have no marketable assets.”

            do private plans have marketable assets?

            What is the Pension Benefit Guaranty Agency about?

            “That means that they are broke and cannot meet obligations without another funding source.”

            Van, the govt funds their retirement annuities the same way that corporations do. They have to budget the money as part of their overall obligations. Corporations use profits. The Govt uses taxes.

            ” But as the Greek government showed, there comes a time when further borrowing is more difficult. And when the increased rates make meeting obligations possible all you wind up with is a lot of pensioners who cannot make ends meet because inflation has confiscated their purchasing power.” ”

            Jesus H Keeeerist! There are 200 countries in the world including countries like Singapore and Australia and Germany. How many of them are “broke”?

            Tell me this – how many companies have had to have their pension funds taken over by govt? do you know?

          • please be more clear about what you are talking about.

            We have had this discussion many times Larry and many people tried to educate you so that you can understand the concepts if not the exact details. But since you are not capable of violating your faith-based narratives by looking at facts it makes no sense to waste my time as Ron did in furthering your education.

          • re: ” please be more clear about what you are talking about.

            We have had this discussion many times Larry and many people tried to educate you so that you can understand the concepts if not the exact details. But since you are not capable of violating your faith-based narratives by looking at facts it makes no sense to waste my time as Ron did in furthering your education.”

            nope. you ARE evading the issue guy – you’re running away….

            I asked a simple question for you to disclose what you mean by public funds and retirements… and you run away.. like Ron does except he has to name call as he runs..

            this is a dialogue guy. you don’t know all the answers nor do your partners in crime here…

            both you and Ron were totally ignorant about how SS trust funds REALLY work and it took about 100 comments in one thread before you realized it but you NEVER admitted it and even now will not even though you know now that what you believed then was wrong and based on propaganda and not facts.

            please tell me what you mean when you say ALL public money for retirements is not in marketable securities and imply that ALL private sector pensions are….

            explain that please.

          • I asked a simple question for you to disclose what you mean by public funds and retirements… and you run away.. like Ron does except he has to name call as he runs..

            We have had this discussion before. And the answer is the same. The government employee funds, military funds, SS, and countless of other funds run by the ‘public sector’ hold few marketable assets. The contributions were taken and spent and the ‘trust funds’ wound up with non-marketable IOUs. Private companies can’t do that. They have to have to fund the plans within a certain time period.

            this is a dialogue guy. you don’t know all the answers nor do your partners in crime here…

            You seem to be a fool my friend. Ron and a few others gave up trying to educate you because you refused to look at facts or learn about the topics being discussed. Asking the same questions over and over again only shows your ignorance.

  4. None of his solutions address the core issue: the post office needs to stop spending more money than it takes in. You don’t need to corporatize the post office in order to lower costs. Nor do you need Congress to determine requirements, post office management is fully capable of outlining service reductions. In fact, per an earlier comment, Congressional restrictions keep the post office from taking a number of steps to lower their costs. And opening up mail delivery to competition would only drain additional revenue away, making things worse, at least for the short term.

  5. Henrik said:

    “Germany in particular stands out: Its post was privatized in 2005 and has since become a major player in the global delivery and logistics business, operating in 220 countries. It is now the world’s largest courier company.”

    But we here in the states know about DHL and its bad service reputation here — where it doesn’t stand up well against UPS or FedEx or the USPS even.

  6. Some years ago, I worked on a project that supplied 150 automated mail handling systems to the USPS for their sorting operations. Faster, safer, and more accurate, these systems eliminated much of the repetitive manual lifting and carrying work that didn’t fall within OSHA’s safety standards. The Postal service was exempt from these worker safety standards.

    I understand that most of the systems were never used once they were installed… The workers didn’t want to use them. In any other industry, cost reduction and improved production efficiency are rather important, but evidently not at the USPS, at least in the eyes of the workers, and for some reason management couldn’t/wouldn’t force the issue.

    • “In any other industry, cost reduction and improved production efficiency are rather important, but evidently not at the USPS…”

      Getting rid of their monopoly and forcing them to compete would change their outlook on this very quickly.

  7. free delivery? should be a equal charge like the po box holders have to pay. There’s no commons sense in there thinking! I pay 44$ a year , Every body will pay , do one state as a trial. JMC

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