The Cato Journal | September 22, 2007 | Carbaugh, Robert | 

 

Published by AccessMyLibrary – link to original post

 

 

Structural, legal, and financial constraints have brought the U.S. Postal Service (USPS) to the brink of breakdown in the past decade. Faced by declining business brought about by the e-mail revolution and competition from private express companies, the Postal Service has repeatedly requested assistance from the federal government. This culminated in December 2006 with the passage of the Postal Accountability and Enhancement Act, which introduces modest revisions in the pricing and service policies of the Postal Service so as to make it a self-sustaining government corporation. But will it?

Although the new legislation addresses some of the problems of the Postal Service, more radical changes may be necessary in the future. One possibility is the complete privatization of the Postal Service including the removal of the legal monopoly that it has on the delivery of letter mail, so as to foster competition in the mail delivery. Because these remedies are currently too controversial for Congress to implement, their chances of being enacted in the near future are dim. Instead, what is emerging is a partial approach to privatization in which the Postal Service forms worksharing agreements with private-sector firms to take advantage of their efficiencies. Whether such partial privatization will significantly improve the efficiency of mail delivery remains to be seen. This article discusses the nature and operation of the Postal Service and assesses the merits of its possible reforms.

The U.S. Postal Service

According to critics, it’s time to force the U.S. Postal Service to compete. They note that even with a statutory monopoly, the Postal Service can’t make ends meet. For fiscal year 2006, the agency lost about $2 billion and these losses are likely to continue (U.S. Postal Service 2006). The President’s Commission on the U.S. Postal Service forecasted that, even after assuming that postal rates continue to increase with inflation and considering the cost-saving measures currently in effect, the Postal Service will realize an annual deficit of $4.5 billion by 2012, increasing to a deficit of $8.5 billion by 2017 (President’s Commission on the U.S. Postal Service 2003).

Also, the Postal Service has accumulated about $75 billion in unfunded liabilities, mostly money promised to employees in retirement and health benefits as the result of generous contract settlements. This is similar to General Motors, Ford Motor Company, and Chrysler, whose legacy costs have pushed them toward bankruptcy. The May 2007 rate hike for mailing a one-ounce letter, to 41 cents, was intended to generate additional revenues to fund these liabilities and the rising operating costs of the Postal Service.

To understand the financial difficulties of the Postal Service, we must first consider its structure and method of operation. The Postal Service is an independent agency of the federal government. According to its 2006 annual report, as the government’s largest civilian employer, with a nationwide network that delivers more than 200 billion pieces of mail each year, the Postal Service is a vital part of the nation’s communication network. To fulfill its mission, the Postal Service has a massive infrastructure that includes about 735,000 fulltime workers and 115,000 part-time workers. Also, the Postal Service’s physical network is massive, with about 38,000 retail postal outlets, 446 mail processing facilities, and 215,000 vehicles. The Postal Service handles a wide variety of mail items ranging from correspondence to packages. Almost 90 percent of domestic mail is generated by businesses, with households accounting for the remaining 10 percent (U.S. Postal Service 2006).

Postage rates vary widely, depending on the mail’s content, weight, size, destination, and how it is prepared and presented by mailers to the Postal Service. Mail is organized into groupings called classes. The four main classifications of mail consist of (1) First-Class Mail, which includes items such as business and personal correspondence, bills, payments, and advertisements; (2) Standard Mail, which is mainly advertising mail such as catalogs, coupons, and solicitations; (3) Periodicals, which include mailed newspapers and magazines; and (4) Package Service, which is mainly small packages. The authority to set postage rates is granted to the Postal Service’s Board of Governors, which announces proposed rates. The federal Postal Bate Commission must review the proposal, but its approval is not required to implement a hike. Thus, the Postal Service is in a good position to pass higher costs along to taxpayers via its requests for additional revenue.

The U.S. Postal Service is currently a `disaster’ and is fighting to stay afloat with cost-saving measures.

BY MATT CAMPBELL

MCCLATCHY NEWS SERVICE

 

Miami Herald 8/23/08 – link to original article

 

KANSAS CITY, Mo. — The familiar U.S. mail that we’ve all known for years — the one that visits your mailbox in person six days a week — is officially “at risk.”

The Government Accountability Office recently slapped that label on the U.S. Postal Service, which is struggling to stay solvent.

Blame the recession or the rise of the Internet, but the volume of mail is plummeting and taking revenue with it. The Postal Service is on track to close fiscal 2009 in a few weeks with a staggering loss of $7 billion or more. It is expected to run out of cash by the end of next month.

“It’s a disaster,” said Richard Watkins, postal spokesman for the Mid-America District.

And that could mean significant changes in the way we get the mail.

The Postal Service has been trying to cope by slashing payroll, closing post offices and consolidating routes. That is saving billions of dollars but is not enough.

Options being discussed within the Postal Service and in hearings this year on Capitol Hill include cutting mail deliveries back to five days a week and raising postage rates yet again.

The ultimate fallback is for the federal government to swallow the losses.

Not everyone is pessimistic.

“I just believe the mail will come back and the company will survive and we’ll continue going forward,” said John Savala, president of the National Postal Mail Handlers Union in Kansas and western Missouri. “I’m not naive, but I just believe that we’ll get through this.”

Several steps already are in motion:

• Health benefits. Most immediately, the Postal Service wants Congress to relieve it of the massive burden of pre-paying health benefits for future retirees. That will cost $5.4 billion this year.

Bills to relax the pre-pay requirement are pending in both the House and Senate, but the healthcare reform debate is consuming lawmakers’ attention.

• Staffing. The Postal Service has already made deep cost savings by closing six of 80 district offices and reducing administrative staff by 15 percent. About 160,000 career workforce positions have been eliminated through early retirement and attrition, from a high of 800,000 in 1999. Thousands of urban delivery routes are being consolidated.

• Shutdowns. The Postal Service is looking at nearly 3,200 postal stations and branches for possible consolidations.

But even all that won’t be enough.

Postmaster General John Potter wants permission to reduce delivery to five days a week, as the Canadian post does. Estimated savings are $2.2 billion to $3.5 billion a year. That would take legislation, and many in Congress were cool if not hostile to the idea when it was floated early this year.

But advertising mailers say they are OK with it, and surveys indicate a majority of the public and of small businesses and nonprofits could accept a five-day mail delivery week.

“It would be fine with me, personally,” said Karen Campbell of Kansas City, who was buying stamps recently at the post office in Union Station.

The Postal Service is working on a study, due this fall, of how a five-day week could be implemented with minimal disruption.

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The justification for the Postal Service’s monopoly is long past.

 

Wall Street Journal – 8/22/09 - link to original

 

Whatever possessed President Obama to mention the travails of the post office while discussing health care the other day, his timing was certainly apt. The Postal Service is headed toward a loss of $7 billion this year and another $7 billion in 2010. Naturally, Congress is planning another bailout rather than the kind of reform that would recognize how technology has transformed modern communications.

Most mail today is delivered electronically via email. Traditional postal mail volume has fallen by nearly 20% since 2000, and the average household gets one-third fewer letters than a decade ago. But this is only the first stage of the decline. The transition to Internet communications means that the Postal Service’s core business—from paying bills, to sending birthday greetings, to delivering magazines—is slowly vanishing. This is on top of the package business that has already been transformed by Federal Express and UPS.

 

Not that the Postal Service has ever been a paragon of efficiency. If the cost of a postage stamp had risen at merely the rate of inflation since 1950 when a stamp cost two cents, today you could send a first-class letter for 30 cents. Instead the cost rose in May to 44 cents from 42 cents.

These higher prices have corresponded with worsening service. The mailman used to deliver twice a day in urban areas, but now Postal Service Chief Executive John Potter says he wants to stop Saturday service to reduce costs. No private business in America could continually raise prices, lose billions of dollars and then hope to win back customers by promising poorer service.

Here’s a secret Washington doesn’t want to admit: That 14 cent per letter cost hike after inflation over the past 60 years imposes a $20 billion a year toll on the U.S. economy. The government mail system is essentially a $20 billion annual income transfer from businesses and households to the postal unions.

About 80 cents of every postal dollar pays for employee salaries and benefits (compared to less than 50 cents for Fed Ex and UPS). What that means is that if you want to cut costs at the post office, you have to slash labor expenses. Mr. Potter has reduced Postal Service employment to 650,000 from 800,000 the past four years, largely through attrition. But he still employs 650,000 workers who have among the best wages and benefits in all of American life.

Most employees have no-layoff clauses, the starting salaries are about 25% to 30% higher than for comparably skilled private workers, and the fringe benefits are so expensive that the Government Accountability Office says $500 million a year could be saved merely by bringing health benefits into line with those of other federal workers. Mr. Potter has to set aside $5 billion a year just to pay for health insurance. Postal management now wants to “save” money by not advance-funding those obligations, and Congress is likely to say yes. But that doesn’t save a dime; it simply creates even larger unfunded liabilities down the road.

The four biggest postal-carrier union contracts come up for renewal in 2010 and 2011, and Congress and the Obama Administration can best serve the public by using the negotiations to promote a major restructuring. One priority should be closing thousands of obsolete post offices around the country; many post offices now serve towns with fewer than 250 people. This is something Mr. Potter has long wanted to do, but thanks to Congressional meddling, closing a small town post office can be harder than shutting a military base.

The most overdue reform is to strip away the Post Service’s monopoly on first-class mail and bulk mail. Competition is the key ingredient to innovation, low prices and good service. This was Mr. Obama’s insight at his recent health-care town hall when he noted that “UPS and FedEx are doing just fine, right? No, they are. It’s the Post Office that’s always having problems.”

The argument has been made for 200 years that the postal monopoly is necessary to “bind the nation together.” Once that was at least plausible. But today the Internet delivers to the most remote corners of Alaska and the Badlands at one-one-hundredth the cost of snail mail. The sooner Congress requires the Postal Service to shrink and adapt to this reality, the smaller will be the losses imposed on taxpayers.

EDITORIAL: Unfair government competition

 

The Postal Service is a scary model for health care – link to original article

 

By THE WASHINGTON TIMES | Monday, August 17, 2009

 

According to President Obama, government health insurance will create competition in the health insurance industry. It simply would provide another alternative to existing plans offered by private companies, the argument goes. Like many Americans, we simply don’t believe it. Whenever the government enters into a market, it will try to expand its share and take over the sector.

During a town hall meeting last week at Portsmouth, N.H., Mr. Obama pointed to the U.S. Postal Service as evidence that private companies don’t need to worry about competition from the government. “If you think about it, UPS and FedEx are doing just fine, right? No, they are. It’s the post office that’s always having problems.”

If the president considers the Postal Service as an example, we should all be scared. The Postal Service is a classic example of both inefficiency and extreme monopoly power.

The Postal Service has staunchly resisted competition from UPS and FedEx since their infancy. Even though the Postal Service loses money in the overnight delivery business, it resisted infringement on its turf. The Postal Service has often increased its first-class mail rate to be well above cost, then used those profits to subsidize its overnight delivery service. For example, it raised first-class stamps to 33 cents in January 1999 and simultaneously reduced the price of domestic overnight express mail from $15 to $13.70, even though it was already losing money at the $15 rate.

Despite numerous advantages that FedEx and UPS could only dream of having, the Postal Service loses money. In addition to direct subsidies, the Postal Service is exempt from paying state sales, property and income taxes. It uses some of the most expensive real estate in the country rent-free. Perhaps Mr. Obama has not noticed, but nobody else but the Postal Service is allowed to deliver regular first-class mail, and only the Postal Service has access to Americans’ mailboxes.

The Postal Service has not managed to kill off UPS and FedEx because these private companies have better on-time delivery and much lower costs. But that is not because the government postal business did not try to squeeze out the competition. When a government agency gets into an industry, it tries to get bigger, even when it is not profitable.

The competition that Mr. Obama envisions between government and private insurance companies won’t be fair. Many proposed regulations, such as eliminating caps on what insurance companies will pay out or preventing insurance companies from discriminating against those with pre-existing conditions, will eliminate private insurance. But even if the government only tilts the playing field partially in favor of a government insurance plan, making it artificially cheaper, a lot of Americans will give up their private insurance to save money. Government insurance gradually will take over, and service will deteriorate.