Is the U.S. Postal Service ready to be sold off?

By Edward Hudgins
November 18, 2013

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

33 comments

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Even if the postal service has to be subsidized, who cares? Highways are subsidized, because free transportation benefits the country. That was decided long ago. Getting mail 3,000 miles on 47 cents also benefits the country. Maybe make it an even buck for a stamp, if they need more money. Still a good deal. Even the slow FedEx letters are $11. And their package fees are outrageous. You can’t run a country that way. Postal service is a necessary service. Keep it intact.

Posted by AlkalineState | Report as abusive

You might do well to examine what will happen to the millions of square feet of prime real estate that an article I read recently in a fringe paper examined. I think the Paper was called Morbus and I saw it on a day trip to Boston?

Unfortunately the paper got stuck with other old papers I gave to a neighbor so her dog could take a dump and I can’t remember all the details. It named a real estate investor who apparently already has dibs on the system, (this is a very corrupt government) and will immediately set about splitting the postal system into two parts: a real estate arm and a service arm. He will then proceed to sell off the tens of millions of square feet of prime real estate to his friends and reduce the postal system to the bare bones. No doubt most of its employees will be fired.

BTW – the Postal System as we knew it was an improvement over the medieval system that seems to have prevailed in Europe until modern times. The old regime postal system was privatized and expensive.

The vultures are simply looking for ripe pickings and the PO is in their sights. Anything that may be promised will be forgotten the moment the ink is dried on the contracts.

A 15 billion loss for this government is small change now. Maybe the US government should take the system back because they will never be able to build it again and the vultures didn’t build it at all. Private enterprise will cut out the unprofitable aspects and only serve what they can make money on. The investors aren’t usually satisfied with making a living – they want megafortunes now and don’t give a damned for anyone but their own welfare and ambitions.

That is what life is a dying regime means.

Posted by paintcan | Report as abusive

Selling off the British postal service is just another step down the road to perdition Cameron’s “austerity” plan is taking his country.

Here in the US, watch what happens if the forces hell-bent on killing off the USPS actually succeed. It’ll take about an eyeblink before the announcement of the merger between Fedex and UPS. Then we’ll be at the mercy of another out-of control monopoly that serves the Wall Street criminals instead of the public interest.

Posted by Art_In_Seattle | Report as abusive

I hear you AlkalineState.
However the postal system is no longer needed for mail. It is a dinosaur in our digital age. Paper can all be delivered electronically.

The only thing needed for postal delivery is packaging and UPS rates are similar to FedEx and DHL and Expeditors.

What should happen is that regular postal mail should triple in cost overnight to encourage more use of digital mail. Saves a few trees too. Think of all the wasted phone books and other catalog garbage that arrives in your mail and goes right to the landfill without even getting cracked.

Posted by Butch_from_PA | Report as abusive

Just watch. The real wailing and crying will not be by or for the public who should be front and center. It will be by and for the union postal workers about pensions and benefits that few Americans still have. It will be about preserving their advantage. Nothing else.

I have been in a post office with a line out of the lobby and the building (in summer heat) during lunch when ONE clerk was manning SIC windows. When I asked one of the other people wandering around to GET THE POSTMASTER OUT FRONT, she finally appeared.

Her explanation was that families in line for PASSPORTS (which took up a LOT of time) were as entitled to service as anyone else (and so not separated in separate lines). And, due to union rules, no supervisor or anyone not a “clerk” could man a window under ANY circumstances.

Let…them…be…sold!

Posted by OneOfTheSheep | Report as abusive

OneofTheSheep,
I am always delighted renewing my license tabs when I stop in an office run privately. I will never ever ever go in to our local state run office for this. You are treated with no respect and there are always long lines.

One thing most all government workers seriously lack is understanding they have customers and should understand a least a little bit about customer care.

They are not there simply to collect a paycheck. I am a Democrat at heart, however see the apathy and serious problems with our government run systems.

Maybe if government employees had to reapply for their job every 4 or 6 years, like our politicians – this might open their eyes to being more customer friendly.

They are privileged to have a government employee position – not part of some royal blood line entitled to that job. Who knows – all I know is that it is broken and shameful when compared to private run enterprises.

Posted by Butch_from_PA | Report as abusive

Not just the Post Office, Give the education Dept back to the states, along with medicaid. Close all 154 Housing programs, they failed us in the Great Recession.

Posted by nodeficit | Report as abusive

Hudgins doesn’t even mention what will happen when the USPS is turned into a real business and it goes bankrupt within a couple of years…

They should immediately consider getting rid of postage stamps, a totally unnecessary expense to the USPS and its customers. They might even dare to create accounts for their customers to which charges for all of their services can be made including weighing. What a modern revolution!

Posted by ptiffany | Report as abusive

Hudgins doesn’t even mention what will happen when the USPS is turned into a real business and it goes bankrupt within a couple of years…

They should immediately consider getting rid of postage stamps, a totally unnecessary expense to the USPS and its customers. They might even dare to create accounts for their customers to which charges for all of their services can be made including weighing. What a modern revolution!

Posted by ptiffany | Report as abusive

But you have a guarantee of privacy with paper mail. No one has that with digital mail!

The people have no guarantee of price stability with private enterprise and postal rates are more difficult to raise and are legally bound to insure the privacy of the mails. Private enterprise might do that too but it could be at such a high rate many would refuse or try to avoid paying for the extra protection.

People seem to be forgetting that municipal, state and federal governments must be able to send documents to people by way of a safe, secure and legally accountable service. Certified mail provided by the PO is the preferred and rather cheap method now. It is also delivered with guaranteed privacy and can also guarantee that the person it is sent to has received it by requiring the receiver to sign for it.

So called inexpensive email ignores the numerous ancillary costs with owning a computer and keeping it secure from spam, viruses and other malware. Email isn’t really that inexpensive when you take into account the cost of the computer, the cost of subcriptions to internet providers, the enormous variability of search engines who always seem to want you to get their tool bars or are “no longer supported” and the costs of malware protection that never seems quite good enough. Internet users have almost no legal protections for anything they do online unless they are providers of services or content. And I doubt they even have that much protection unless they are very large, with deep pockets and have a teem of lawyer on their staff.

When will people stop buying whole the idea that privatization is somehow always better or even an improvement of service? That only works if there is true competition and that is becoming more of a myth every day.

The post office could set junk mail rates higher for catalogs and the like but they encourage junk mail because it is easier to sort and handle. In fact it is usually presorted by the sender for the cheapest rates. The PO could do that easily because what other option is there for bulk catalog senders? Email that gets blocked at the spam filter? And without spam filters email becomes a nightmare of trying to sift through dozens, even hundreds of pieces every day at the users end and the cost of hours of sifting it all. It’s own volume would make email practically useless. That would leave the individual with the sole option of using cell phones for communication with only the people within his own network. And that is the electronic equivalent of the middle ages.

Big business is rapidly becoming an unaccountable government beholden to no one but its biggest investors. In fact – both business and government is becoming beholden to no one but its biggest investors.

OOTS you are an old fool. Because an old retiree with really nothing but a lot of time on his hand, an enormous sense of entitlement and an expectation that the world should lay carpeting and clear a path for the passage of his majesty, and might not regard him with quite the same awe he has come to expect, you are ready to trash a very extensive system that at any other time in history would be considered the last word in convenience, elegance and even luxury and all done for surprisingly low rates. It is also a mandated in the Constitution, Article I, section 8, clause 9 that it is Congress’s duty to provide a postal service, not private enterprise.

You have an odd system in AZ. Here is New Hampshire the PO doesn’t do passports in the same building. There is a separate office in the federal building for passports and we aren’t even a very populated state. AZ is a populated state and very urbanized and they could try to break passports from the rest of the mail rather than trash the postal system.

Posted by paintcan | Report as abusive

I forgot to add . Who guarantees the privacy of private carriers of paper or package mail? Would the Federal government have to require guards in sorting facilities?

Posted by paintcan | Report as abusive

I think it’s funny that people have no problem with taxpayers paying for millions of things that have no business being covered by tax money… but something as important as the postal service, and everybody thinks it’s a giant waste of money. This is just like NASA and Amtrak. People don’t see a personal gain for it, so in their minds… it’s a big waste. Unless it’s a check coming to their house, the average person thinks virtually everything is a waste. Not to mention the fact that it’s a common misconception that the PO even takes that much in subsidies. It’s just assumed that they do by most uniformed people. I’m now paying 22% more for my private health care, because the government decided I should have to pay for other people. But tax money can’t help the PO once in a while?

I own a web sales business. If I had to count on private carriers, I would be out of business… Simple as that. The private carriers are out of control. The public demands ever cheaper prices and costs, associated with internet sales. Giants like Amazon, are only making this worse, with free shipping, one day shipping, Sunday delivery and so on. The PO is the only thing left that’s affordable. You take away the PO and/or convert them to private, and small to mid size business are completely at the mercy of the large carriers. I can ship something anywhere in the world for $40-50 PO. That same exact package on UPS or FedEx, would be $300-400. By the time they add in all their fees and surcharges, that’s what you end up with. Then on top of that, they often add a “broker” fee at the other end, which can amount to 30% of the original cost. Customers love it when they go to get their package and they spring that one on them. The PO is the only thing left, even remotely keeping the private carriers in check. I literally could not sell anything overseas without the PO. This not only benefits me, it benefits the public. You may think it doesn’t concern you, and it’s a “waste”… but you will definitely not be thinking that, when all the stuff you order on line has the shipping rates go up, due to the private carriers and their monopoly.

As of late, the PO has been trying very hard, and they have made some good changes. In over a decade of business, not one shipment of ours through the PO has been lost. Give them a break. The private carriers act like they’re doing you a favor. How has it gone with your phone, TV and other major services being turned over to giant corporations? Enjoying those phone calls half way around the world, to get help from some Indian guy?

All the grumpy people calling for the dismantling of the PO, should think long and hard about what they’re asking for. It’s like fighting against a railroad being built by your house, only to win and get a giant freeway instead. Be careful what you wish for.

Posted by dd606 | Report as abusive

The push to privatize the US Postal Service “is just wrong” on so many levels:

Privacy – your address and addressee might be tracked but your content is not read and filtered. Risks by mail are arguably lower – paying by check helps avoid having your account hacked. Not everyone wants to live online with scores of links to banks and credit cards.

Cost of service – no competitor does what USPS can do. Congress hamstrung USPS with arcane rules about rate increases that guarantee the operating shortfall and are a nuisance. Let USPS raise rates in 5 or 10 cent increments, and do that before they are losing money. Increases would be less frequent and could be pro-active, each new rate tied to the midpoint of a cost forecast, making money then perhaps losing some before the next increase, but balancing books over the long term.

Alternative to a ‘subscription society’ – a service you can buy when you need and at the level you need is worth keeping. I bristle at every new requirement for an account and automatic billing. USPS is the ‘anti-cable’.

Inclusion – you don’t need a computer or an often expensive cable etc. provider to correspond by mail or send packages (including books, or small town papers with family news, at media mail bargain rates).

History – most of Ben Franklin’s good ideas or lifetime efforts are still worthwhile, including the USPS.

Alternatives: Make rate increases sensible and pro-active. Test the good idea for added service of small banking at post offices. Support the USPS to fight back against the ever-more expensive subscription society that privatization has generally brought us so far.

Posted by Decatur | Report as abusive

The postal service was created so the american public could communicate, not for use by big mailers to send out advertising!!!

Posted by leebeau | Report as abusive

This is totally stupid. If USPS cannot make a profit with the monopoly on First-Class Mail, how on Earth could it do so without it? Furthermore, if the Postal Service cannot generate sufficient business to be profitable as a non-profit quasi-governmental entity, how could it generate more business charging the higher rates necessary to build in a profit? This is just another privateer, trying to gut out USPS, in favor of its private-sector competitors. More along; nothing to see here.

Posted by grannybunny | Report as abusive

Why should people consider the USPS has too be profitable? Nothing else the government does is and the government shouldn’t make a profit. At best it should break even.

Remember when Clinton left office there was a budget surplus. The Republicans came in and immediately looted it all.

Rotting carcasses attract vultures. But the USPS is one of the least rotten pieces so far.

Posted by paintcan | Report as abusive

Interesting idea. Something the commenters forgot about is rural America. If you just wham-bam privatized it, the cost of getting mail in a very rural area would become excessive and unrestrained. It would also cause instant monopolies as someone above pointed out. It would seem to me that a better approach would be to initially make it more of contracted service. Fire all the USPS workers except for small administrative, regulatory and inspection group. Put the service out to bid and see how much the joint venture of UPS and FedEx would charge to provide the service. Then slowly sell it off as technologies and society change.

Posted by tmc | Report as abusive

Hudgins misrepresents some of the figures. In the last fiscal year the Postal Service actually made a $600 million profit from operations. Its pension funds are overfunded with the exception of the fund for retiree health benefits which has been the source of the problem. Essentially this is a made-up crisis, designed by Congress to extract money from the Postal Service with the goal of weakening it as an excuse to privatize.
The postal network remains essential infrastructure even in the face of electronic diversion. The postal network has many potential uses but the problem, as others have noted, is that we fail to make the distinction between functions of government and the private market. They are not the same and expectations should be different.
@Oneofthesheep – yes, postal workers make a good living and have decent benefits, that should be considered a model rather than something to be gotten rid of. Our economy suffers mostly from a lack of demand which can be traced to the lack of growth in wages. We’ve come a society that seeks the lowest common denominator in search of the last bit of profit. Unfortunately that model damages the vast majority in favor of a privileged few – a model that is unsustainable in a democratic society.

Posted by MJamison | Report as abusive

“…to help it complete [compete] with emails, tweets, and Facebook as means of communications.”

Posted by kph6875 | Report as abusive

@tms – Why would you fire everyone except you might envy them for having jobs with benefits?

That’s something commenters forget to mention too: the envy factor everywhere now. The USPS is envied for its long term and stable employment opportunities and its massive holdings of real estate.

A big fat chicken can’t afford to stand in sight of flocks of hungry vultures. The vultures look for any weakness in spite of the fact that the vultures produce nothing but massive amounts of excrement and only make more vultures.

BTW – this subject has appeared before in this paper and the issue of rural delivery was beaten about then.

And what about the constitutional mandate? Congress can’t say that leaving a vital service to the fickle and very changeable private sector is truly fulfilling its constitutional obligation. Before the USPS was privatized one would think the question would deserve Supreme Court review first.

Posted by paintcan | Report as abusive

BTW – the USPS is honest and it books honestly show a deficit. The expose of the Pentagon yesterday showed that over 60% of the Federal budget is in the hands of habitual liars and criminals who made a fine art of swindling the taxpayers for over 50 years.

The trouble is, that fat chicken is armed to the teeth and has the appetite of a whole continent of vultures. Maybe it’s just uneatable?

No one in their right mind would ever suggest privatizing them but they are the ones who should be taken in hand and squeezed mightily. The trouble again is – so much of their real estate is in rural areas and a privatized PO probably wouldn’t deliver the summons to them. And I think they’d shoot the sheriff and his deputies and call them all “terrorists”.

Posted by paintcan | Report as abusive

Um, @paintcan, I’m not an employee. I never will be. And I make a ton more money than any union slug. Why fire them all? Because they cost to much and are not competitive. Simple as that.

Posted by tmc | Report as abusive

I should not have been so harsh. Not all union members are slugs. I support unions in the private sector. I do not support unions in the government sector.

Posted by tmc | Report as abusive

I’ve been saying for years: outsource it to China… problem solved! :)

Posted by UauS | Report as abusive

Do it the libertarian way. If you buy a hunting vest online….. drive to Nebraska and pick it up. Then from there, just drive down to the warehouse on the far side of Houston and pick up your 99-cent charger cord for your phone. For a mere $800 in gas and lodging…. you’ll have that camo vest and little cord.

Posted by AlkalineState | Report as abusive

What I want to know is what the Tea Party thinks of this BIG Government service? Are they behind selling it off to the highest bidder & then paying the higher prices that privatization will require in order to satisfy corporate stockholder?

Posted by euro-yank | Report as abusive

One big X Class solor flare can take the internet and the electrical grid down for months if not longer.

Like to see who delivers the mail then.

Posted by Harry079 | Report as abusive

Unfortunately for the idea of ‘privatizing’ the USPS, Congress has a *constitutional mandate* to make sure the mail gets delivered. ANY privatization of the USPS will be subject to congressional oversight through the regulatory board, and the mandates of universal delivery and fair, fixed, uniform prices will also stay.

Understand this; the USPS was never *meant* to be profitable. Like all government agencies, it does necessary things that are not profitable, because you cannot trust private companies to provide unprofitable yet necessary services.

Posted by Burns0011 | Report as abusive

Like George Carlin said many years ago:

“I’m not exactly a business genius, but for christ’s sake, just have the Jehova’s Witnesses deliver the mail.”

Posted by AlkalineState | Report as abusive

@AlkalineState,

Amen!

Posted by OneOfTheSheep | Report as abusive

I think you all forget that congress can set the price of a stamp at anything they want and run the USPO at a profit if they choose. They, however, choose to run it at a loss. In the political world, things that are successful are useless, and things that are a failures are something that can be used in their campaigns to keep themselves important. Our postal service is a created emergency by our politicians, because only so many people believe the terrorist drug dealer athiests are coming to get us. So, one more emergency for our fearless leaders.

Posted by brotherkenny4 | Report as abusive

while we are at it..sell off the Senate and Congress as well…I’m sure some .99 cent store might take them.

Posted by rikfre | Report as abusive

@rikfre lol, so true. I still think there is another reason why they are getting the post offices, but we will find out when and if they go through with it.

Posted by UnsecuredLoan | Report as abusive