Postal Service’s ‘Priority’ Should Be Delivering Mail

Brian McNicoll
|
Posted: Nov 07, 2015 12:01 AM
Postal Service’s ‘Priority’ Should Be Delivering Mail

Is the Postal Service taking its captive customers – those who have no choice but to do business with it – for granted?

That’s one of the suggestions of a recent report from the Tax Foundation.

It is clear the Postal Service thinks one way about its commercial products and another about the delivery of regular mail on which it has a monopoly.

For instance, the Postal Service’s approach to its package delivery business has been to add seven-day-a-week delivery in 650 cities. According to a press release, “Sunday delivery serves the needs of valued customers in today’s busy online world while at the same time, generates new revenue [sic] for the Postal Service.”

For regular mail, the Postal Service has focused on cutting its losses. It closed so many mail-handling centers so quickly that late deliveries skyrocketed and Congress finally had to step in and halt the downsizing until delivery times improve. Since 2009, it has pushed to cut Saturday delivery and claimed it could save $3.1 billion per year by doing so.

But this raises a question:

“If six-day-a-week mail delivery harms profitability, how does seven-day-a-week merchandise delivery help the bottom line?” the report’s authors ask.

Nothing has helped the bottom line in recent years. Volume of the first-class mail on which it has a monopoly started downward with the Great Recession and never recovered as business shifted to the Internet.

As a result, the Postal Service, which is supposed to be independent but has tapped out its $15 billion line of federal credit, has not turned a profit since 2006. Its losses since then amount to more than $51 billion, and it already was down nearly $3 billion after the first quarter of this year.

Critics say it would turn a profit if not for the requirement in the 2006 postal reform legislation that it pre-fund its benefits. But the losses, which have been as high as nearly $16 billion in a single year, far outstrip the amount needed to meet the pre-funding requirement. And anyway, the Postal Service has not paid into the benefits fund in more than four years, and its current unfunded liability – for benefits and all other expenses – now sits at nearly $100 billion.

The Postal Service says it has to enter these side businesses – package delivery, grocery delivery in big cities, even real-time delivery of fresh fish to restaurants in Manhattan – to survive. The Internet has meant less first-class mail but more packages as people order products online. The Postal Service says it’s merely shifting its emphasis to these new profit centers.

But there are three problems with this argument:

We depend on the Postal Service to do that which only it can do – deliver the mail, and its ability to do so in recent years has reached alarming levels;

We have numerous options for package delivery in the private sector;

And the investment decisions the Postal Service makes do not inspire confidence.

As the report points out, the Postal Service remains one of the federal government’s most popular agencies, with more than 70 percent of Americans saying it does a good job. But that figure is in jeopardy thanks to the dramatic rise in late deliveries.

In the first quarter of 2015, only 63.1 percent of single first-class mail arrived on time. In the first quarter of 2014, it was 84.1 percent. It fell from 89 percent to 80 percent for 3- to 5-day first-class pre-sort mail – the easiest, most profitable mail the Postal Service handles.

That, and the fact the new emphasis on package delivery is necessitating an expensive retooling of the Postal Service’s huge vehicle fleet, ought to mean a return to focus on basics.

Instead, the Postal Service says its side businesses are necessary profit centers. But even that’s unclear. The cost side of the ledger for the Postal Service’s competitive businesses reflects only a bit more than half the actual expenses. The rest is consigned to general overhead – we own a fleet, and the fleet carried packages – or assigned specifically to the letter-carrying side.

“Given most of those products have low cost coverage ratios, far below the average for market-dominant products, it would not take much of a cost misallocation for some competitive-market products that are actually losing money to show up as profitable in the Service’s financial statements,” the report said.

Some have been some spectacular losers, such as MetroPost, a same-day delivery service piloted in San Francisco and New York. The Postal Service’s inspector general found that in San Francisco only 95 packages were sent over a 5-month period. The Postal Service spent more than $10,000 on the project and made just $760. The Postal Service’s response to this was, of course, to close the San Francisco operation but expand the service to the Washington, D.C., area.

Some, such as the 3- to 5-day package operation, probably make a profit. But the point is the Postal Service is failing at the mission only it can do and using its monopoly advantages to muscle out responsible private competitors.

We don’t need that. What we do need is for the Postal Service to go back to what it was created to do and focus on doing that really well.