The Postman’s New Bag

The U.S. Postal Service Abandons Legacy to Grow its Parcel Business

The mission of the U.S. Postal Service (USPS) is to provide the American public with trusted, affordable, universal mail service. In order to ensure sufficient revenues to meet its obligations, the USPS was granted a monopoly on the delivery of letters and sole access to customer delivery boxes.

The USPS is a money-losing government enterprise. In Fiscal Year 2012 alone, it lost approximately $16 billion, causing the Postmaster General to propose radical measures such as an end to Saturday delivery services. The USPS faces a virtually insoluble financial problem as the result of two factors:

  • First, rising fixed costs due in part to its universal service obligation but also to Congressional restrictions on measures that would reduce excess infrastructure and rationalize personnel.
  • Second, the declining value of its monopolies, primarily the delivery of First Class mail. Even though the price of stamps continues to increase, this has not adequately compensated for the steep drop in the volume of First Class letters, which have long been the Postal Service’s cash cow used to subsidize competitive products.

Uneven playing field

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It is clear the USPS needs new sources of revenue to remain viable. But this should not be to the disadvantage of highly efficient private companies.

The USPS is seeking to stop its financial hemorrhaging by increasing its share of the lucrative and growing package delivery business.

Postal Service officials have declared this, and not improving mail service to its captive monopoly customers, to be their highest priority. Not only does the USPS retain its monopoly over First Class mail. It also has the freedom to compete with private companies for the movement and delivery of packages and other items.

If the playing field were level, this might be okay, although it just doesn’t seem right to have a government-created entity involved in businesses that companies such as FedEx and UPS have demonstrated they do well.

But the playing field is not even. The USPS is using its monopoly over First Class mail to subsidize its package delivery business. For example, the price of a stamp increased by 6 percent this past January while that for packages only went up by 2.4 percent.

This means that the average American who mails a letter is getting taxed so that the USPS can lower the cost of its package delivery activities, thereby competing more effectively against the private delivery companies.

Public Money for Private War

The Wall Street Journal recently carried an article reporting that UPS and FedEx were increasing their use of USPS delivery services because the prices they were charged were so low. How is this possible? Because the USPS is undercharging for package delivery so as to increase its volume and market share and overcharging letter writers to cover institutional costs.

Not only do those who use USPS mail delivery services pay too much but they have to tolerate declining quality of service. First Class mail delivery performance has been declining for several years. At the same time, the USPS has been spending lavishly on technology upgrades in order to allow it to improve the speed and accuracy of its package deliveries. This is adding insult to injury.

If a foreign country did something like this to us, it would be an unfair trade practice. If that country were a member of the World Trade Organization the United States could charge that country with a treaty violation and impose offsetting tariffs on the offending products.

But this is far worse. This is a governmental entity in the U.S. trying to undercut the business of U.S. private companies and taking money from each of us to do so.

Congress needs to look into the way that the USPS uses its monopoly over First Class mail to cross subsidize its growing package delivery business. It is clear that the USPS needs new sources of revenue in order to remain viable and recapitalize its aging infrastructure and systems.

But this should not be to the disadvantage of highly efficient private companies nor done on the backs of the average American consumer. goldbrown2

This article originally appeared on the Lexington Institute’s blog on Aug. 6, 2014 and was republished by permission.

Daniel Gouré, Ph.D. is a vice president with the Lexington Institute, a nonprofit public-policy research organization headquartered in Arlington, Virginia.

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