Saturday, April 18, 2009

Privatize the USPS

Excerpts from a lengthy, but comprehesive and well worth-reading analysis of the USPS titled "Going Postal: The Imminent Death of the U.S. Postal Service?" in the May/June 2009 issue of The American Interest (thanks to Colin for the pointer):

USPS and General Motors have a lot in common these days. Both are currently generating multibillion dollar annual losses, pushing products that ever fewer people want, burdening themselves with bloated payrolls and huge fixed-cost infrastructures, continuing to roll up enormous unfunded pension obligations, and contending with some of the largest and most powerful labor unions on earth. Both, too, are expecting the American taxpayer to bail them out.

Just as General Motors has in effect subsidized Big Oil by continuing to build gas-guzzlers in recent years, so has the USPS continued to subsidize Big Mail by shaping its operations to encourage what it now calls, revealingly, “standard mail”—that is, advertising junk mail. Most American citizens are blissfully unaware of the degree to which USPS subsidizes large U.S. businesses ("Big Mail") by means of the fees it collects from ordinary postal customers. For example, if you wish to mail someone a large envelope weighing three ounces, you’ll pay $1.17 in postage. A business can bulk-mail a three-ounce catalog of the same size for as little as $0.14.

USPS management claims that “standard” mail makes lots of money, that the USPS makes a better margin delivering a “standard” mail package for $0.14 than it does a first-class one for $1.17. Why? Supposedly because of efficiencies produced by bulk-mail, machinable, zip-plus-four and zip-plus-nine standardization schemes. If you look at the revenue stream from advertising mail, it does look impressive, and it has been growing. But when you juxtapose next to that revenue stream the enormous transactional costs of maintaining a riotously complex rate structure to service it, you quickly reach a different conclusion: Standard mail, the costs of which are also generally tax-deductible for businesses, does not make money. It amounts to a corporate subsidy, which helps to explain why Congress, insofar as its members understand this, typically doesn’t object to the status quo. After all, these corporations have been known to contribute to electoral campaigns.

As with many failed and failing government organizations, the team that got you into a mess isn’t likely to be the team that gets you out. The USPS needs to be torn down to the studs and re-invented. The Obama Administration and Congress must practice what Austrian economist Joseph Schumpeter termed “creative destruction” in order to save the USPS from itself. Here is what to do, and the order in which to do it:

1. Replace the USPS senior management team with proven corporate executives who know how to run a $76 billion company with vision and accountability to stakeholders.

2. Negotiate with the unions to gain the concessions necessary to get the USPS’s labor costs in line. To be competitive with private competitors, the USPS will need to pay its workforce less than the $42 average hourly wage they receive today. Between layoffs and renegotiated compensation and benefits, drop the payroll costs from 80 percent of USPS’s expenses to 60 percent.

3. Invest in modernization of the sorting centers to gain long-term efficiencies, but tighten up the network so that unprofitable centers and unprofitable post office branches are closed.

4. Normalize the pricing differences between first-class, second-class (publications) and standard mail (advertising) to reflect actual delivery costs, and end the ratepayer and taxpayer subsidization of Big Mail.

5. Redefine the Universal Service Obligation so that it makes sense in the 21st century. Use available online technology that enables the Postal Service to know when customers don’t need delivery or would forego a default delivery option to have their mail delivered electronically, redirected elsewhere or destroyed.

6. As consumers switch to all-electronic delivery of postal mail, modify the USPS’s delivery fleet with in-vehicle dynamic routing systems like the ones that UPS and FedEx use, so that USPS vehicles don’t have to stop at every house, every day.

7. Follow the international model for liberalization. Having competitors in the marketplace will force the USPS to become more efficient and truly competitive. Customers will have a choice, just as they do today with phone-service providers. Better yet, move to privatize the USPS before the option disappears.


At 4/18/2009 11:37 AM, Anonymous Anonymous said...


Replacing the management at the post office will do little to change the situation unless we can get one of those giants from Citi (maybe we can even get Rubin to advise).

Seriously, if we let the post office set prices for profit we would begin to see a material change. Your chide on pricing is false. A for profit would price as the post office suggests.

Don't be fooled that the same talent that ran GM, Citi, etc. into the ground would do any better with the post office. Government meddling is the issue.

At 4/18/2009 1:21 PM, Anonymous Jim Glass said...

My local Post Office recently took out all its stamp machines because, they told me, the Post Office can't make its stamp machines work.

Right afterward the NY Times ran a story confirming this is indeed true nationwide -- the USPS is a abolishing stamp vending machines in total. So if you want to buy a book of stamps, or a limited number like six or seven, at the post office you now have to wait on line not only behind everyone mailing a package or registered letter or needing a passport, but now also behind everyone else newly on the line to buy stamps.

Back to my local post office: While waiting in line I asked the postal person gainfully employed directing whoever was at the front of the line to the next open window, "Why are you getting rid of the machines so I have to wait here?"

Well, because they are impossible to keep working, they can't read the new version dollar bills, etc.

"But there's a candy machine and a soda machine, and back in your sorting area there I see a coffee machine for employees. Are they all working OK?"

Sure, but we don't own them, they aren't our machines...

Meawhile the deli across the street has started selling stamps with a 35-cent mark-up per stamp.

At 4/18/2009 1:38 PM, Blogger Tom Davis said...

A alternative plan would be to simply repeal all laws giving the USPS a monopoly on first class mail.

Or just wait five more years when we won't actually use mail for anything.

At 4/18/2009 2:38 PM, Blogger misterjosh said...

Why not just spin the post office off in an IPO? Might not make much, but at least you wouldn't be subsidizing it while simultaneously making competition more difficult for competitors (DHL, UPS, FedEx)

At 4/18/2009 3:04 PM, Blogger juandos said...

"Why not just spin the post office off in an IPO?"...

Hmmm misterjosh, why not turn the U.S.P.O. to another GSE like Freddie Mac/Fannie Mae and get those crafty stalwarts Franklin Raines, Jamie Gorelick, and all the others who continually sent reports to these Congress Clowns telling them that everything was alright?

At 4/20/2009 1:57 AM, Blogger OBloodyHell said...

> Why not just spin the post office off in an IPO?

1, misterjosh, the answer to this ought to be somewhat obvious.

They Can't.

It is an unfortunate element of the Constitution which states that one of the jobs of the Fed is to deliver the Mail.

In order to get the Fed out of this business would require an actual Constitutional Amendment.

The best we could hope for is that they might be able to somehow contract out some elements of what they do.

As far as the USPS's problems, it's a simple fact that exactly two humans should touch most mail. The guy who pulls it out of the box and the guy who puts it into the box. And we might even be able to get rid of Guy #1.

If the USPS simply offered a substantial discount to anyone using a bar-coded address, and set up sorting machines which utilized these bar codes (I mean, let's face it. Supermarkets have had them for almost 40 friggin' years now. Can the USPS get any further behind?), the costs of delivering mail would go down by a pretty large margin.

And, as soon as the USPS announced such an intention along with the standard format, there would be a host of free and paid-for software produced which converted an address into its bar-code form and printed it onto a standard label (or directly onto an envelope), for the use of business and the home both.

(If a piece of mail doesn't have a bar code, the scanner kicks it out for a human to read and enter in, at which point a bar-code is added by the sorting/processing equipment).

And then, as I say, pretty quickly almost all mail would be touched by at most two hands.



Yeah, that's pretty amazingly pathetic. At the very least, the stupid bastards could just auction the right to operate the machines to local vendors, preferably with specified maximum markups at bid time. Or just allow multiple vendors to bid for space, creating competition. Either one.

> Or just wait five more years when we won't actually use mail for anything.

Speak for yourself, Mr. Davis.

I'll always use mail to protect my codpiece...



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