Is the U.S. Postal Service ready to be sold off?
Last month in Britain, her Majesty’s government made an initial public offering of shares in the British post office, raising $5.3 billion. The government is only retaining between 38 percent and 49.9 percent of the shares, meaning that the three-and-a-half century old state enterprise soon will be guided by private hands. The Royal Mail will no longer be so royal.
You might think this is a model to rescue the U.S. Postal Service, to help it complete with emails, tweets, and Facebook as means of communications. But not so fast. Politicians in Washington need to put the Postal Service on an equal footing with other private enterprises, sorting out which monopoly rights, mandates, and regulations stay and go. Further, the USPS needs to decide exactly what its core functions would be. Otherwise private investors would have little reason to sink their own money into the Postal Service’s sinking concern.
The U.S. Postal Service is now in a fiscal death spiral as the communications and information revolution has eaten into many of its profitable services. Mail volume peaked in 2000 and has dropped by almost one-third since then. USPS income peaked in 2008 at $74.9 billion and then declined to $65.2 billion last year. But the big problem was that expenses last year were $80.9 billion. While much of that $15 billion loss stemmed from the requirement that the USPS put aside money to cover future pension liabilities, it would still be losing money in any case.
The service’s favored status is actually what makes it unsustainable. It has a monopoly over delivery of first- and third-class mail, and over physical mailboxes. It’s mandated to provide universal service and uniform prices. And it enjoys special powers and privileges — e.g., it is tax-exempt. But all that means it’s overseen by a government-appointed regulatory board, which enforces strict regulations lest the USPS abuses its status. It doesn’t have the flexibility of a private company.
If the USPS wanted to go public, like the Royal Mail in Britain and the Deutsche Post in Germany, a lot has to change. To begin with, American policymakers would need to scrap the regulated government monopoly model and put the USPS on an equal footing with private companies. This could mean stripping it of many special powers and privileges. But the big question would be what to do with the universal service mandate as well as the monopoly. To dampen unfounded fears that rural or other costly delivery points might find their mail delivery cancelled, there will be political pressure to retain the mandate and monopoly at least during a transition period.
But what is it that the USPS would be transitioning to? What, exactly, would be the core functions of a restructured USPS worthy of an IPO?
I was a contributor to a recent white paper that suggested building on a recent trend of postal services being taken up by private companies. For example, the USPS now shares sorting of incoming mail with private firms and mail houses that work with businesses that want the best efficiency and service. And the USPS now contracts out to private carriers — e.g., FedEx — nearly all long distance transportation of mail. Why not extend this trend further to produce a hybrid public-private USPS model that at least would not be bleeding money and would still provide universal service?
Private retail outlets — picture a 24-hour Wal-Mart — in addition to post offices could collect the mail. And all mail sorting could be handled exclusively by private providers. (As of now the USPS still handles the final sorting of incoming mail from across the country, and all regional transportation of mail from the final sort facilities to local post offices for distribution.)
So what functions would the USPS be left with? It would still handle the “last mile” service, the function it currently does best, when your friendly mail person brings that Amazon or eBay package to your home. (Now including delivery on Sundays!)
Would it keep the universal service mandate? Initially, though there is little danger that any address would go without mail service. FedEx always would—for the right price. Uniform rates would probably remain with or without a mandate, as it would likely not be worth it to charge differential prices.
What about the monopoly on delivering first- and third-class mail? I suspect that for political reasons this would initially remain as well. A continued monopoly could ease concerns of potential private partners during a transition period about stability of the customer base the USPS would be offering. But in the long-run there would be little need for a monopoly; private firms could offer varying types and qualities of innovative services for various rates.
Michael Fallon, Britain’s Minister for Business and Enterprise, was right to observe that postal services “aren’t businesses that sit naturally in the public sector” and that their “future lies in the private sector.” That’s because private owners with “skin in the game” are best at offering services to paying customers and at meeting market challenges. These owners only profit if their customers are happy; if their enterprises fail to deliver, the owners lose their money. Private entrepreneurs transformed communications and information markets with PCs, the internet, tablets, and smartphones. They can do the same for traditional postal services with technologies and innovation undreamt of today, but only if they are free of traditional government restraints.
PHOTO: U.S. postal service trucks sit parked at the post office in Del Mar, California November 13, 2013. REUTERS/Mike Blake