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Time to set the Postal Service free?
Neither debt, nor whopping losses nor employee pensions will keep the Post Office from delivering the mail. Well, actually they might. The Postal Service planned to announce new measures today in hopes of righting a ship that appears to be sinking.
The measures reportedly include cutting back mail delivery to five days a week (no Saturday delivery) starting next year. The Postal Service would also raise rates yet again. It hopes to convince regulators that sharp rate increases on some services are needed. The agency is also proposing to close some branches and expand the use of self-service kiosks.
But will it be enough? CNN Money points out what the Postal Service is up against:
The Post Office, an independent government agency, does not receive taxpayer dollars and is funded entirely by its own revenue. However, the Postal Reorganization Act of 1970 constrains the agency's operations. It prohibits USPS from closing small branches based solely on economic factors, and prevents the agency from expanding its services beyond postal delivery.
Post offices in some countries, including Italy and Japan, have boosted their sales by offering ancillary services, like banking. But unless Congress steps in, USPS cannot expand beyond the postal-mail realm.
And so far, Postmaster General John Potter has resisted privatizing or expanding services. From the Wall Street Journal:
Jumping into businesses such as commercial banking or telecommunication services would require an upfront investment that isn't feasible given the Postal Service's current financial woes. However, Mr. Potter didn't rule it out as a longer-term way to capitalize on the Postal Service's 36,500 retail outlets, more than McDonald's Corp., Starbucks Corp., Walgreen Co. and Wal-Mart Stores Inc. combined in the U.S.
Postal officials rejected other options, such as privatizing the U.S. Postal Service, increasing its $15 billion borrowing authority with the Treasury Department, or seeking direct taxpayer funding.
In a Washington Post editorial, Potter makes this point:
It's no secret that the Postal Service has been losing money since 2007. What are not well known are the financial demands of the Postal Reform Act of 2006 -- demands not faced by the private sector. Though the USPS is self-supporting, its finances are tied to the federal budget because postal employees participate in federal retirement plans. In 2006, Congress required that the USPS prefund 80 percent of future postal retiree health benefits. This will cost more than $5 billion a year through 2016. No other federal agency or private company carries such a heavy burden.
Without the prefunding requirement, the Postal Service would have been better able to weather the recent recession. In 2008, prefunding contributed to a loss of $2.8 billion. Without it, we would have been $2.8 billion in the black.
Something's gotta give here. It's clear that cutting Saturday delivery isn't going to save the Postal Service. I don't know if I can see the Post Office as a bank, but maybe? Certainly Congress needs to loosen its grip. Otherwise, the ship's going down.
What do you think?
I dispute that the Post Office is a sinking ship. In terms of the price per mile, the US probably has the lowest first-class postal rates in the world.
The problem with the post office is that, like any business, their costs rise over time in a diagonal line, while the rates they can charge are fixed along horizontal lines.
So, periodically, the cost line rises through and goes above the revenue line - putting the USPS in the red, and then there's a long series of red tape they have to go through to raise rates.
Meanwhile, everytime the above scenario occurs, everyone says that the post office is "sinking."
Think about it, I can send a letter from NY to LA for 44 cents. What else of that kind of value can I get for 44 cents? I say: not much.
Yeah, but Ned, this is a long-term revenue problem. People don't send letters anymore, not nearly in the bulk they used to. I understand your point about cost vs revenue, but this looks to be a greater long-term problem because of creative destruction. And unlike private sector businesses, the Post Office has to jump through hoops to respond -- it can't close stations in a timely fashion or raise rates or do anything. That's my point. It's time Congress set the Postal Service free. It doesn't require taxpayer funding, so why does it need such a level of Congressional meddling?
I agree with a lot of of what you said. Right now the post office does not need tax payer funding. However, if they de-regulated first class mail, then I predict that it would require tax-payer subsidies to maintain service to unprofitable areas. I'm just not sure that's where we want to go.
I think it would be like the airline deregulation. Before airline de-regulation, rates were higher, but airlines were required to serve smaller markets. They passed on the losses of the small markets to other flyers. So, all of the costs were contained to the people who bought tickets.
After they deregulated the airlines, the government had to insitute tax-payer subisdies to keep service to small markets. So, ticket prices fell, but the cost was passed on to the larger public.
I think the post office will end up the same way. The commercial carriers will cherry-pick the profitable markets, while small, rural areas will be underserved, and then Congress will be forced to come in and pay subsidies to keep the level of service up to all areas. Or, maybe I'm just cynical, I dunno.
Here's a thought: how about charging more for junk mail? I handle most all of my finances online these days so it's exceedingly rare anymore for me to open up the mailbox and find something I need in there.
I'm about ready to saw the post down, cut a big hole in the bottom of the mailbox and mount it to the top of the recycle container.
Sounds like Amtrak: damned if you do (liberals/conservatives), damed if you don't (conservatives/liberals).
The two sides of policy might independently work (might, not saying which), but they've been allowing each other their own little pet items ("I'll give you that thing I hate if you give me this thing you hate") for so long that the rope in the middle of the game of tug of war is finally going to pull apart.
Free them or pull them in. Don't try both without real compromise.
sounds like they just have a hump until 2016. Once they have 80% of their retirements prefunded, they will be a lot more resilient to economic downturns. Maybe the timing wasn't perfect, but if they can make it for the next 5 years they'll be doing fine.
It looks like USPS' major financial problem for 2009 has been declining business resulting from the Great Recession. 10 percent of their revenue comes from financial services and real estate mailings. Note that they saved $4 billion by underfunding employee health benefits (to be made up, no doubt, in the netherworld). Advertising mail in general accounts for more than half of their volume. Time to raise their rates? First class mail is by far the largest revenue generator.
I wonder what the creative destructon effects of email will be on that genre of literature that consists in editing and publishing the letters of famous people?
Their annual report is clearer than most.
http://www.usps.com/cpim/ftp/ar09html/welcome.htm
The postal service is experiencing much of its rising costs the same way municipalities and states are: too much inefficient, low-density sprawled development.
The postal service is running increasingly longer routes using more and more vehicle miles traveled and requiring larger numbers of far flung post offices.
Of course there are other factors contributing to its struggles, but this factor cannot be overlooked.
The organization of our cities based on segregated land-use zoning and low-density development patterns cannot continue perpetually and will retract significantly. Will we retract in a planned, organized manner or in a nasty, haphazard one?
