US Postal Service Dilemma

[Americano]

How does a service entity survive facing the following conditions:

1. Loss of mail volume to electronic communication
Few companies could survive a 22% loss of sales volume over a 5-year period without drastically reducing operating costs. USPS is denied that ability due to congressional control and political pandering.

2. Inability to increase revenue by raising rates.
While supposedly an independent entity, USPS can not raise rates without congressional approval, all requests denied during 2011.

3. Labor and benefit costs far exceeding industry standards
Labor/benefits for USPS equal 80% of expenses, compared to UPS at 53% and FedEx at 32%. USPS is also burdened by no-layoff union contracts, unheard of in the real world but dictated by congressional oversight members seeking union political support.

Source (http://www.nytimes.com/2011/09/05/business/in-internet-age-postal-service-struggles-to-stay-solvent-and-relevant.html)

From a business viewpoint, solutions are very straightforward. Increase revenues, reduce the workforce, close inefficient facilities and bring labor costs in line with the private sector.

Unfortunately, corrupt politicians with their hands out are still in charge and this situation will more than likely follow the path of the recent debt ceiling crisis. What should be a practical matter of reorganization will turn into chaos.

[dilettante]

As I understand it (and admittedly, that probably isn't very well), the post-master general has made all sorts of suggestions including:

-Letting Post Offices perform more services (apparently other countries have post offices that offer/sell much more than American ones, by law, are allowed to)

-Let the Post Office deliver alcohol (which it present cannot)

-Let the Post Office contract for space with other businesses (e.g. put a post office in Walmart; the PO gets space at a fraction of the cost and Walmart gets extra walk-ins).

-Let the Post Office contract with UPS/FedEx/etc so that the PO can deliver their packages to rural communities where it doesn't pay to send a UPS truck.

There are probably more, but I think many of these sound reasonable. The PO also seems like it should be a poster-child for anti-public-union groups. I'm actually kinda shocked that the GOP hasn't made this a major talking point already.

[Americano]

As I understand it (and admittedly, that probably isn't very well), the post-master general has made all sorts of suggestions including:

-Letting Post Offices perform more services (apparently other countries have post offices that offer/sell much more than American ones, by law, are allowed to)

-Let the Post Office deliver alcohol (which it present cannot)

-Let the Post Office contract for space with other businesses (e.g. put a post office in Walmart; the PO gets space at a fraction of the cost and Walmart gets extra walk-ins).

-Let the Post Office contract with UPS/FedEx/etc so that the PO can deliver their packages to rural communities where it doesn't pay to send a UPS truck.

There are probably more, but I think many of these sound reasonable. The PO also seems like it should be a poster-child for anti-public-union groups. I'm actually kinda shocked that the GOP hasn't made this a major talking point already.

The union situation is scandalous. Hopefully the GOP will bring it up in the next few weeks as the crisis point approaches. Democrats will fight it tooth and nail to retain union support, yet another partisan quagmire.

[Michael]

As I understand it (and admittedly, that probably isn't very well), the post-master general has made all sorts of suggestions including:

-Letting Post Offices perform more services (apparently other countries have post offices that offer/sell much more than American ones, by law, are allowed to)
Non-starter. USPO is a chartered monopoly. No one is going to let them play along with new products and private markets since there is the old 'cross-subsidy' game to contend with (and the USPO will certainly play that game!).

-Let the Post Office deliver alcohol (which it present cannot)
I can't see much of a market here - certainly not one to plug a revenue problem worth billions. Besides which, if there was a profitable market for delivering alcohol, the private market would fill it in an instant. That the private market doesn't even try suggests that there is not much of an actual market there.

-Let the Post Office contract for space with other businesses (e.g. put a post office in Walmart; the PO gets space at a fraction of the cost and Walmart gets extra walk-ins).
This is old news. Canada Post has the vast majority of its post offices are little more than kiosks inside drug stores.

This is a simple policy - cut costs and cut services. No one wins with this solution other than a bandaid solution for a money losing and government monopoly just grasping at straws.

But it can work as a cost/service cutting policy (which it is).

-Let the Post Office contract with UPS/FedEx/etc so that the PO can deliver their packages to rural communities where it doesn't pay to send a UPS truck.
If it doesn't pay to send a government subsidized USPS truck, you can be damn sure that no private market player is going there either.

Besides the fact that this violates the fundamental lettermail monopoly of the USPO. If USPO is allowed to violate the lettermail monopoly at their convenience, why not allow UPS/FedEx/etc to violate the USPO monopoly at their convenience?

Fact is, if USPO is allowed to outsource mail, then why not just get rid of the USPO and just outsource the mail? USPO can't have it both ways.

There are probably more, but I think many of these sound reasonable. The PO also seems like it should be a poster-child for anti-public-union groups. I'm actually kinda shocked that the GOP hasn't made this a major talking point already.

The post office monopoly is in deep trouble and has been for a couple of decades. Bandaid solutions, or nipping at the margins isn't going to solve the big problem (which is measured by losses of billions, a solution cutting a few million here and there isn't going to have any effect).

Bottom line is either you have a gold-plated union-run monopoly post office that is entirely uncompetitive in the marketplace and loses billions of dollars per year, or you don't. Pick one. :shrug:

There is no viable policy for making gold-plated union-run monopoly post offices run efficiently, let alone stopping the losses. The future of the USPO is straight downhill (at taxpayer's expense). Btw, the post office essentially exists as yet another government subsidy for those who live in sparsely populated rural states. Call it for what it is.

[dilettante]

I can't see much of a market here - certainly not one to plug a revenue problem worth billions. Besides which, if there was a profitable market for delivering alcohol, the private market would fill it in an instant. That the private market doesn't even try suggests that there is not much of an actual market there.

The private market does fill it. Anyone who wants to ship alcohol must do so through a private company because the Post Office refuses to do so. Opening the Post Office to that revenue stream won't save the day, but every little bit helps.

This is old news. Canada Post has the vast majority of its post offices are little more than kiosks inside drug stores.

This is a simple policy - cut costs and cut services. No one wins with this solution other than a bandaid solution for a money losing and government monopoly just grasping at straws.

But it can work as a cost/service cutting policy (which it is).

Well, cost cutting is the point.

If it doesn't pay to send a government subsidized USPS truck, you can be damn sure that no private market player is going there either.

Besides the fact that this violates the fundamental lettermail monopoly of the USPO. If USPO is allowed to violate the lettermail monopoly at their convenience, why not allow UPS/FedEx/etc to violate the USPO monopoly at their convenience?

Fact is, if USPO is allowed to outsource mail, then why not just get rid of the USPO and just outsource the mail? USPO can't have it both ways.


I think you've got the idea backwards here. The Post Office doesn't want to pay a private company to carry mail; they want to be able to make money by carrying packages for private companies.

E.G. UPS and Fed/Ex don't want to deliver to Nowheresville, Montana because it costs more to send the truck than the delivery is worth. But the Post Office already has to send a truck to Nowheresville every day. Why not let UPS or Fed/Ex pay them a small fee to carry their package along?

It isn't going to plug the budget whole, it it might help and I don't see how it could hurt.

Btw, the post office essentially exists as yet another government subsidy for those who live in sparsely populated rural states. Call it for what it is.

Undoubtedly. Though I don't think that alone means it should be eliminated. Recognizing that it will require a government subsidy doesn't necessarily mean it isn't worth, or that it's efficiency can't be improved.

[Americano]

Bottom line is either you have a gold-plated union-run monopoly post office that is entirely uncompetitive in the marketplace and loses billions of dollars per year, or you don't. Pick one. :shrug:

There is no viable policy for making gold-plated union-run monopoly post offices run efficiently, let alone stopping the losses. The future of the USPO is straight downhill (at taxpayer's expense). Btw, the post office essentially exists as yet another government subsidy for those who live in sparsely populated rural states. Call it for what it is.

I think it could easily be made solvent as it is a monopoly. The major issues are gold-plated union-dominated labor costs (27% above unionized UPS), being tied to federal union benefit plans ($41k per year per individual), inability to increase revenue (with a monopoly!) and USPS owned/operated retail facilities. The rest would be simple operational corrections common in the industry; better known as blood in the halls by those of us in the business community.

The fly in the ointment is purely political and it could well be a game stopper. USPS does seem to be sacrosanct to politicians. Both major parties fear disturbing the masses with any change in tradition while Democrats heavily support the union aspect, regardless of how much money it costs taxpayers.

I am surprised the GOP, again attempting to dismantle social security, hasn't made an issue with USPS waste. What a target.

[Donkey]

As usual, Americano's first (and only) solution for every problem imaginable is "break up the unions."

[Michael]

The private market does fill it. Anyone who wants to ship alcohol must do so through a private company because the Post Office refuses to do so. Opening the Post Office to that revenue stream won't save the day, but every little bit helps.
So you are proposing to encourage a government owned, government operated and taxpayer subsidized monopoly corporation to compete in a private market against private players? :eek:

If the USPO is allowed to, it will use its monopoly post cross-subsidty to wipe out the private competition and then suck up the business at an increased price. If the USPO isn't allowed to do that and are forced to compete 'fairly' then they will lose because they pay double-wages and have gold-plated union benefits and all the wonderful benefits that ten thousand bureaucrats can bring to the negotiating table. The competition does not have these 'advantages'.

Indeed, it is important to remember that the USPO is in trouble in the first place because they lost most of the highly profitable parcel business to the private market already. That's where UPS and FedEx, etc, come from in the first place - US Post Office failure. :shrug:

Well, cost cutting is the point.
Yes, but you must realize that it is a service cutting policy as much as a cost cutting policy. I don't have a problem with this, since I think that cutting the Post Office is good policy.

If we are going to run a massive tax subsidized small parcel delivery service for residents of large and sparcely populated states, or small rural towns and remote places, that's fine - lets call it that. I don't like doing one thing while pretending we are doing something else for political spin reasons. That's ugly politics that just makes everyone cynical and contemptuous of the process.

But the idea that government owned monopoly is the best/optimal way for the private market to deliver small private parcels is absurd. It was in the distant past due to the limitations of technologies used and the creation of post office monopolies was at one time highly beneficial public policy. It is clearly not now. I see no reason to justify the existence of a public post office service as anything but a highly limited and specialty service. I see no reason to 'protect' or 'save' the post office. If we must subsize the rural expanses, lets put a specific price tag on that and call it for what it is. As I've said before, I'm not against tax-cross subsidies. I just like good public policy and I hate inefficient useless public policies that are expensive failures.

We've been over this whole topic here in Canada many years ago. Canada Post lost all the battles. Basically it was decided that Canada Post must exist politically to serve all those remote rural places in Canada. That's just a fact of life. Expecting Canada Post to make a profit from this is just absurd. They are just forced to do and that's that. The private market competes for everything and wins 99% of the business against Canada Post.

The interesting thing is that Canada Post has been making a comeback lately based on 'unaddressed admail' processing. Canada is way ahead of the US in this area. I know quite a bit about this topic because I've always been involved with Direct Mail printing for both Canada and US mail distributions. Canada Post offers a whole bunch of targetted distribution service options for unaddressed mail that is years ahead of US post.

Basically, up here you can mail-drop pretty much anything, designated by zipcode blocks, on a neighborhood block by block basis, anywhere in the country. You can also designate 'residential only' or 'business only' in any given zipcode block. Remember, no actual addresses are necessary. The Post Office up here has taken over delivery of most retail flyers and local-regional mini-newspapers. This is actual market-service innovation - building on what the Post Office actually does well at - going door-to-door on a local basis.

Incidentally, it seems like Canada Post is picking up on the dying newspaper industry. I remember long ago understanding the 'newspaper' business as being all about being a 'delivery to the door advertising vehicle'. They've lost that now - but there is still pretty good demand for advertising to be delivered door-to-door. The Post Office here in Canada is getting into this in a big way. I expect USPO will follow along shortly.

I think you've got the idea backwards here. The Post Office doesn't want to pay a private company to carry mail; they want to be able to make money by carrying packages for private companies.
I'm familiar with this issue since its been a hot one in Canada going back twenty years now. All the same issues exactly. Canada has even greater concentrated urban vs extreme rural spaciousness than even the USA - with a lower population base too! We fought through the argument and settled on a political decision. I expect the US will be forced to follow the same path (one can only hope!).

E.G. UPS and Fed/Ex don't want to deliver to Nowheresville, Montana because it costs more to send the truck than the delivery is worth. But the Post Office already has to send a truck to Nowheresville every day. Why not let UPS or Fed/Ex pay them a small fee to carry their package along?

It isn't going to plug the budget whole, it it might help and I don't see how it could hurt.
The problem is a legal/technical/accounting one.

1. How can the 'cost' of the service be accurate understood? What is the actual cost of capital for the US Post Office? Fact is, as part of the government, the cost of capital is always zero in dollar terms. Thus, the price set for the service becomes an extension of the government monopoly - the government will be arbitrarily determining the market price for the service. FedEx and UPS would be forced to pay that stated price or forego the service. The price can only be determined/changed by political policy.

2. Alternatively, one can just point to the fact that USPO has to decide if it is a monopoly government service, or a private market competitor. It can't be both. That is to say, USPO cannot violate its monopoly rules just when it is convenient for the USPO. If USPO can violate the monopoly rules then other private market companies ought to be able to violate the same rules. That's the political problem for USPO. It can't be all things to all people all the time. It has to make some choices.

Undoubtedly. Though I don't think that alone means it should be eliminated. Recognizing that it will require a government subsidy doesn't necessarily mean it isn't worth, or that it's efficiency can't be improved.
Efficiencies can always be improved at the margins.

Suffice it to say that Canada Post is required to maintain its delivery network service - however, there is a limit to the subsidies we pay for that. We pay just barely enough tax subsidy to let Canada Post survive. After that, Canada Post must compete and survive on its own. The taxpayer will not subsidize Canada Post to go into competition with FedEx and UPS. That's the key.

Bottom line is that Canada Post sucks a much smaller (relative) subsidy than USPO. I think that's the right way to go. On its own, USPO is just going to want bigger and bigger subsidies to keep playing the same games (and losing to the same other players). Cutting back the services and the costs and the overheads are a big part of that. Concentrating on the core mission is what its all about. Canada Post is now doing a pretty good job of that - providing an innovative, growing and profitable service for Direct Mail marketing.

[Michael]

As usual, Americano's first (and only) solution for every problem imaginable is "break up the unions."

That's a fool's game. Break up the management is way more efficient and effective policy. Or change the laws. :shrug:

But if unions are as ugly as one might believe, then according to the same market dogma, they will die out soon enough. ;)

Btw, Canada 'solved' its Post Office problems without union-busting. That being said, the postie unions are pretty ugly unions and did their very best to run the Post Office into the ground.

[Americano]

That's a fool's game. Break up the management is way more efficient and effective policy. Or change the laws. :shrug:

That's blood in the halls. Prudent labor negotiation doesn't stem from management with no efficiency motivation joined at the hip to political idealism seeking votes.

But if unions are as ugly as one might believe, then according to the same market dogma, they will die out soon enough. ;)

Btw, Canada 'solved' its Post Office problems without union-busting. That being said, the postie unions are pretty ugly unions and did their very best to run the Post Office into the ground.

There's no reason to bust public sector unions. In a declining nation they merely need to face reality by adjusting their wage and benefit demands to the private sector market.

[dilettante]

So you are proposing to encourage a government owned, government operated and taxpayer subsidized monopoly corporation to compete in a private market against private players? :eek:

I'm saying the ban on shipping alcohol seems arbitrary. The USPS already competes with private players in shipping all sorts of other junk.


The interesting thing is that Canada Post has been making a comeback lately based on 'unaddressed admail' processing. Canada is way ahead of the US in this area. I know quite a bit about this topic because I've always been involved with Direct Mail printing for both Canada and US mail distributions. Canada Post offers a whole bunch of targetted distribution service options for unaddressed mail that is years ahead of US post.

Basically, up here you can mail-drop pretty much anything, designated by zipcode blocks, on a neighborhood block by block basis, anywhere in the country. You can also designate 'residential only' or 'business only' in any given zipcode block. Remember, no actual addresses are necessary. The Post Office up here has taken over delivery of most retail flyers and local-regional mini-newspapers.

So you have a government subsidized organization that specializes in delivering junk mail?


The problem is a legal/technical/accounting one.

1. How can the 'cost' of the service be accurate understood? What is the actual cost of capital for the US Post Office? Fact is, as part of the government, the cost of capital is always zero in dollar terms. Thus, the price set for the service becomes an extension of the government monopoly - the government will be arbitrarily determining the market price for the service. FedEx and UPS would be forced to pay that stated price or forego the service. The price can only be determined/changed by political policy.

I suspect the cost would be "the highest amount the private companies are willing to pay for the service." :shrug:


2. Alternatively, one can just point to the fact that USPO has to decide if it is a monopoly government service, or a private market competitor. It can't be both. That is to say, USPO cannot violate its monopoly rules just when it is convenient for the USPO. If USPO can violate the monopoly rules then other private market companies ought to be able to violate the same rules. That's the political problem for USPO. It can't be all things to all people all the time. It has to make some choices.

It already is both. It has a government monopoly on deliveries to boxes marked US mail AND it competes for package delivery.

Concentrating on the core mission is what its all about[/U]. Canada Post is now doing a pretty good job of that - providing an innovative, growing and profitable service for Direct Mail marketing.

The underlined part I can agree with. But I'm not sure Direct Mail marketing is a "core mission" I consider worth supporting with government money.

[Michael]

I'm saying the ban on shipping alcohol seems arbitrary. The USPS already competes with private players in shipping all sorts of other junk.

Allowing the USPO to deliver alcohol, I suspect, would require re-writing the legislation that runs USPO. As I said above, that's expanding USPO's mandate and that's the game they've been playing all along - the game that has lead to record levels of deficits.

So you have a government subsidized organization that specializes in delivering junk mail?
Technically yes, but the subsidy level is a whole lot lower than USPO's (in relative terms). That is to say, the subsidies are just enough to enable maintenence of the door-to-door service in remote areas and that's that. What other private services Canada Post may offer is their own business - but because postal subsidies are constrained up here, Canada Post has to figure out how to offer new services without asking for more subsidies.

That's the key difference between Canada Post and USPO - USPO is still trying to be all things to all people and thus subsidies are just getting larger and larger (and harder to justify).

The more one panders to the post office, changing rules to allow them to stick their thumbs in more markets, the bigger their losses will be. That's just a fact of nature and government-run post offices. We ended that game in Canada by capping the subsidy twenty years ago and never raising it beyond the cost of inflation.

I suspect the cost would be "the highest amount the private companies are willing to pay for the service." :shrug:
I doubt it. FedEx and UPS aren't fools. For a much smaller price they can just buy up a couple of friendly Congress-critters and get what they want for much less. That's apparently how much US capitalism is done these days. Fact is, USPO can't burp without Congressional approval.

It already is both. It has a government monopoly on deliveries to boxes marked US mail AND it competes for package delivery.
Right. And the subsidies to run the place just keep getting larger and larger - meaning that the USPO loses more and more money each year playing this game.

Fact is USPO cannot actually compete with private players (but it always tries to). In the end, the post office just gets the deliveries that the private players don't want (meaning there are no profits there). So the Post office sucks up that work and ends up losing even more money than if they didn't even try to compete. That's how the post office grows larger and larger and manages to lose ever more and more money.

The underlined part I can agree with. But I'm not sure Direct Mail marketing is a "core mission" I consider worth supporting with government money.
We don't actually subsidize anything at Canada Post other than rural home delivery services. That subsidy cost was calculated and that's all Canada Post gets. No extra annual increases come from the government as in the USA.

Now if Canada post started to lose money due to the DM marketing business, that's their problem - they will have to have layoffs and close buildings to make up the shortfall - or get out of the DM business. This is definitely NOT the situation in the US at all. In the USA, you certainly are subsidizing everything the USPO touches (at an ever-increasing rate of subsidy).

[Greendruid]

We don't actually subsidize anything at Canada Post other than rural home delivery services. That subsidy cost was calculated and that's all Canada Post gets. No extra annual increases come from the government as in the USA.

This is also increasing going the way of the community mailbox. We have one in our rural area that services the entire road that is about 3 miles long. Most of the longer roads around us have segments about that size each having their own community box. The great thing about it, and ironic to Michael's point about the non-address market mailing that Canada Post engages in, is that I can take the junk mail out of my box and put it right back into the outgoing mail slot above it. Very quick and convenient!

[rocky.dwf]

This is the inevitable problem with civilization and progress. What was essentially meant to be a public service must now be weighed in terms of profit and loss.

[Americano]

This is the inevitable problem with civilization and progress. What was essentially meant to be a public service must now be weighed in terms of profit and loss.

When labor costs for a public service far exceed those in the private sector due to political corruption how else does one measure the efficiency of that service? This circumstance is no different than current voter demands for extravagant city/state government worker compensation being modified to align with compensation in the private sector.