Going Postal

The United States Postal Service (USPS) posted an improvement in its first quarter fiscal numbers this year – by posting a $354 million deficit. This number is an improvement because, a year ago, the USPS posted a $1.3 billion loss during its first quarter, which adds up to losses in 19 of the last 21 fiscal quarters.

The USPS is turning into a colossal liability that will soon translate into a government bailout if something is not done quickly. While partisan ideologies stand in the way of any meaningful reform, it is the consensus that Congress needs to take some sort of action to stop the financial hemorrhage that has become the national Postal Service.

The fall of the USPS has been a result of the decline in the use of physical “snail mail” as the primary form of correspondence, in favor of email and other web-based alternatives. The Postal Service woes are translating into higher prices for consumers. At the beginning of February, the price of first-class mail rose $.03, from $.46 to $.49.

While the rise in price may seem minimal, it actually indicates a serious problem for the Postal Service. USPS Board of Governors Chairman Mickey D. Barnett states that prices only increase due to the postal service’s “precarious financial condition.” Postal service rates usually rise in accordance with the annual raise in the consumer price index (CPI), which measures the price of the typical basket of goods that a consumer will buy in a given year. This usually results in an annual 0.1 percent hike in the price of stamps, but the raise this year was equal to almost 6.5 percent – a price change that indicates a drastic measure to remain financially solvent.

A recent NBC News article states that “[t]he USPS last increased prices for a first-class stamp by a penny in January of this year. At the time, the USPS cited losses of about $25 million per day amid declining mail volume as more people use email and social media.”

In addition to posting tremendous losses, the USPS has now asked for a bailout from Congress. Postmaster General Patrick Donahoe says the USPS will default on $5.7 billion retiree health benefit prepayments without governmental support.

“We cannot return the organization to long-term financial stability without passage of comprehensive postal reform legislation,” Donahoe said. “We appreciate the efforts of the House and Senate oversight committees to make this happen as soon as possible.”

One solution slowly gaining momentum is the movement to privatize the USPS. To this point, the Postal Service has been operating as a monopoly. Because they can always fall back on public support regardless of if they provide certain services efficiently and effectively, the Postal Service has little incentive to do just that. The lack of competition has allowed the USPS to compile losses and receive congressional help without any real efforts at improving their operating procedures or appeal to consumer tastes. While some point to congressional help as the solution to the national mail service’s woes, others believe that privatization would remove the thorn in the Postal Service’s side – namely, Congress itself.

New York Times columnist Joe Nocera makes this point, writing that “neither the management nor the workers really control the Postal Service. Even though the post office has been self-financed since the 1980s, it remains shackled by Congress, which simply can’t bring itself to allow the service to make its own decisions. And Congress won’t do so, as long as the post office remains part of the government.”

The United Kingdom just finished the process of privatizing their mail service, Royal Mail, and The Economist reports the transition thus far as a success: “A freed-up Royal Mail will compete with dozens of nifty competitors for its parcels business, as well as with a new breed of ‘lifestyle couriers,’ who trundle around goods ordered on the Web.”

In other countries, such as the Netherlands, Germany, and Austria, privatization of the mail service has resulted in lower prices across the board for consumers.

Michael Taube of the Washington Times writes, “Opening up the free market to private enterprise would ensure that real competition exists for mail delivery and postage rates. More businesses and jobs would be created in a thriving marketplace.”

In the past five years, mail volume has fallen by more than 20 percent, and USPS revenue has fallen by more than 12 percent. Partisan gridlock has stalled any meaningful reform, and workers are being released as demand for their labor decreases. Chairman of the Financial Strategy and Solutions Group at Citigroup Peter Orszag summarizes: “The U.S. Postal Service has a long and storied history. Yet it is now struggling because the world has changed and because congressional sclerosis has prevented it from adapting to the new realities. The best way to modernize it now is to move it out of the government.”

The story of the U.S. Postal Service is not just one of letters and stamps – it’s one that speaks to a greater lesson that Americans should not be quick to forget. Although there are those who propagate the necessity of more government it is often the bureaucracies created under all-expansive governments that countermine the necessity of such ideals. Such institutionalized bureaucracies are slow to respond to consumer pressures and changing tastes, and, more times than not, prevent true innovation from taking place.

10 thoughts on “Going Postal”

  1. artfully omitted was any reference the fact these deficits were created by the tea party/gop when it required the postal service to fully fund retirement benefits 15 years in advance. a move deliberately designed to bring about these deficits & create the appearance of a need to privatize which is just another way of giving their big corporate donors access to gouge the public deeply.

    1. Federal government pay and benefits are ridiculously high compared to the private sector, which is funny since their productivity is laughable compared to the private sector. If it was up to me, the USPS would be privatized, the Department of Education would be abolished, and collective bargaining rights would be dismantled nationwide. Unions are also a huge parasite for the economy….just look at LA, NYC, Detroit, etc.

  2. The Postal Service has not received taxpayer funding in decades and is not seeking any type of “bailout” now. However, it does need to be relieved from having to “bail out” the taxpayers, as it has been — to the tune of $5.5 billion per year — as the result of a 2006 Congressional mandate to prefund 75 years’ worth of future retiree health benefits within 10 years. No other entity — public or private — is under such a draconian requirement, and it has brought USPS from being debt-free and profitable to the very brink of bankruptcy. Congress is using the resulting $52+ billion slush fund for non-Postal purposes, which would otherwise have to be financed by taxpayers. This prefunding is responsible for 80% of the Postal Service’s financial losses. It was just a cheap accounting trick to transform off-budget USPS revenues into on-budget funds within the reach of Congress’ greedy mitts. If Congress would eliminate the prefunding requirement, plus allow a few other “tweaks,” the Postal Service could continue on as the World’s best postal service, indefinitely.

  3. Clearly USPS is sinking, and increasing the price of stamps is like a grain of sand; secondly it appears those charged with making business/operations decision for the organization do not know what to do because any decision they take will affect their buddies–well, its about time – they either do something now or they will all die like fools. Privatizing will be a very complicated affair for the simple reason that snail mail is a dying practice, unless of course privatizing means giving it up to the states to run their own postal services and knocking the FG out of the equation. A very sad state of affair, no amount of bailout would save USPS.
    Well researched article but Benjamin Franklin must be turning in his grave hearing all this!

    1. Privatization is not an option. There is no private entity capable of handling the job. USPS delivers 160+ billion items per year to 152+ million — and growing — addresses. FedEx and UPS — combined — only deliver 7 billion items per year to 30 million addresses, consigning a substantial, and growing, portion of those to the Postal Service for “the first and last mile.” Without USPS, the majority of Americans would totally lack access to mail service, much less at an affordable price.

      1. As you stated both Fedex and USPS both do deliver less items than the USPS and are still able to provide the lowest prices on 8/10 items available for mailing. Secondly, if the USPS has not been receiving taxpayer funding for years, then why not privatize it and make it a more efficiently run organization. You are forgetting that this is a method that has been tried in many other countries and has been successful in everyone. Thirdly, prices are not going to rise and if they do at all it would not be significant rise at all. Because of the close substitutes to snail mail in other companies such as FedEx, USPS, and email on the internet, raising prices to an unaffordable amount would make the USPS exit the market. Therefore prices would probably stay where they are…and tell me who wouldn’t pay a few more cents for better service in any government office….AH THE BEAUTY OF THE FREE MARKET

        1. Most of the countries that have attempted to privatize their postal systems are having severe second thoughts about that decision. Virtually all have experienced significant price increases and cuts in service. Many have also had serious labor problems. Canada has had so many work stoppages, everyone’s lost count. Furthermore, no other country is analogous to America. Geographically, we deliver to the largest area. We also have the most individual address points and the largest mail volume. In fact, USPS delivers 40% of the entire Planet’s mail. Not only is there no private entity capable of replacing the Postal Service, there is no private entity even interested in doing so.

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