The Post Office — return to sender

June 1, 2011

Suppose a company that was losing customers to other firms responded by increasing prices, cutting service, granting raises to workers and overpaying management. If the company then demanded a lavish government bailout, the public would laugh.

The company I have just described is the United States Postal Service.

A USPS bailout is not the solution. Blowing up the Post Office — its monopoly, its customer-be-damned attitude, its system of lifetime job guarantees regardless of performance — is the solution. After the dust from the explosion settles, the mails will continue to exist, in a leaner, sustainable and more customer-conscious form.

The USPS just reported a $2.2 billion first-quarter loss, despite having a federal monopoly that exempts the Post Office from competition for its core business. Exemption from competition is the core of the USPS problem, allowing the agency to drag its heels against the modern age, while clinging to bad business practices.

Any private firm losing market share, as the USPS is losing market share to electronic mail and to package services such as FedEx and UPS, would respond by cutting prices, in order attract business. Textbook economics says cut prices, and demand will rise — this sure worked for cell phones. Increase prices, and demand will decline. Since 2006, the USPS has increased first-class postage rates by 13 percent — almost double the rise in the Consumer Price Index in the same period. Also in that period, mail volume has declined 20 percent, with sharp drops in first-class mail. This is not a shock. This is textbook economics!

In its last fiscal year, the Post Office lost $8.5 billion, and projects total losses of $42 billion from 2010 to 2015. Despite raising first class rates twice in the last five years, the Post Office has filed for another rate increase. Despite staggering losses, the USPS just agreed with its primary union on a contract including raises and a no-layoffs clause. Here, Business Week recounts more bleak or embarrassing USPS info.

The pay of the Postmaster General, the system’s CEO, rose 40 percent from 2006 to 2010. In fiscal 2009, the Postmaster General paid himself $800,000, plus preposterous perks such as country club membership. The new Postmaster General is earning a mere $276,000, plus perks.

This would be humorous if taxpayers and mail users weren’t being taken for a ride. Here, the Postmaster General of 2009 declares that because of congressional mandates, he has almost no authority. If the Postmaster General has almost no authority, why high pay? Hire a teenager to run the USPS after school.

There is one thing the USPS consistently does right, and that is fully fund its pension program. The law that changed the Post Office from a government branch to a quasi-independent entity required that in return for the gift of taxpayer-financed federal property across the country — Post Office real estate is worth a bundle — the USPS would cover its own pensions. If only all state and local government branches, and all corporations, were honest about fully funding their pension obligations.

Since fully funding its pensions is the one thing the USPS does right — the agency wants to stop! The mail service is asking Congress for a pension bailout; senators Tom Carper of Delaware and Susan Collins of Maine, ranking members of the Senate committee with USPS oversight, just introduced a bill that would in effect force future taxpayers to cover USPS pension costs.

So an organization that is performing poorly, while exempting its workers from accountability via no-layoff rules, wants federal taxpayers to take over its pension costs thus freeing up more money for USPS management and unions to waste on themselves.

This would be amusing, if average people weren’t being bilked. The money the USPS wants doesn’t pop out of the air. It would come from average people trying to post letters or packages, or from future generations being saddled with yet more pension expenses.

The idea of creating more unfunded pension costs — when federal, state and local unfunded pensions are already a scandal — is absurd. Since the idea is absurd but benefits a special-interest consistency, naturally the United States Congress is interested.

The only solution is to end the USPS mail monopoly: let private competition enter the fray, and let the chips fall where they may.

Yes, this would inevitably lead to the closing of tiny rural post offices, and that would be a sad day. But there are no horse-drawn stage coaches stopping at the town saloon anymore, either, and rural America gets by. It will get by with a revamped modern mail service, too.

Correction: The two senators have separate bills with similar titles. Both senators’ bills would streamline USPS operations. Both would allow the USPS to reduce its pension contributions, citing studies that suggest the USPS is setting aside more pension reserves than needed.

Author’s Note: Perhaps the Senators are right, and USPS pension contributions may safely be reduced. But recent history on this point is not encouraging — many states, and General Motors and Chrysler, cut their pension contributions, and bailouts followed.

Photo: A U.S. Postal Service vehicle navigates amid the storm-damaged Alberta community near Tuscaloosa, Alabama, April 29, 2011. REUTERS/Marvin Gentry

11 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

Yes, let private competition enter the fray. Let’s see which competitors will get a letter from coast-to-coast within a week for less than 45 cents.

I am a small business owner that uses USPS extensively, with FedEx being a very distant second. I find USPS to be far more economical and almost as efficient as FedEx and UPS on expedited letters and packages. You can whine about how the cost of the stamp has gone up a few cents in the last five years, but the issue here is not USPS’ price increases, but rather that they are not increasing prices enough in relation to rising expenses (like fuel and the biggy – pensions and employee compensation).

Posted by bzscorpio | Report as abusive

Nice Rant – Feel better.
Perhaps you should read some of the sources you quote.

For example, pensions.

“Every year between now and 2016, he has to put aside over $5 billion to finance health benefits for future employees. You read that right: future employees. There isn’t another business in the country that finances benefits for employees it hasn’t even hired yet.”

Add to that the $75 Billion in overpayments that the Federal Government won’t return.

How about all those post offices. It’s against the law to close a post office for strictly revenue reasons. Yes,against the law. Going to blame the USP for that? Write your congressman.

Oh, and please show us the line item in the Federal Budget where the Tax Payers put money into the Postal Service. You know, where all thaqt bilking is going on.

Posted by FantheFlames | Report as abusive

Hi Greg. A couple thoughts about the piece below.

Senators Carper and Collins do not have a bill together. Each has their own bill right now. Your text makes it sound as if there is a Carper-Collins bill. The WSJ editorialized with this error too.

The Collins’ bill does not bail out the Postal Service; it fixes a Postal Service overpayment to federal retirement funds that was identified by two independent actuarial studies.

Her bill contains workers’ compensation and contracting reforms that would likely save the Postal Service hundreds of millions of dollars. Currently, more than 2,000 Postal Service employees age 70 or older receive workers’ compensation when they should be in the less expensive regular retirement system. Instead, these individuals, who are never going to be returning to work, are collecting up to 75 percent of their pay tax free. The Postal Service paid more than $1 billion in workers’ comp costs last year demonstrating the need for reforms and better safety practices.

Her bill also cleans up the contracting mess that includes costly, no-bid contracts awarded to employees who retire one day and return to work the next as an expensive contractor.

Feel free to give us a ring next time your are writing on this issue. Thanks so much.

Elizabeth “E.R” Anderson
Press Secretary
Senate Homeland Security and Governmental Affairs Committee
Senator Susan Collins, Ranking Member

Posted by ERAnderson | Report as abusive

[...] the agency to drag its heels against the modern age, while clinging to bad business practices.http://blogs.reuters.com/gregg -easterbrook/2011/06/01/blowing-up-the-p ost-office/ Tagged as: Bailout, FedEx, United States Postal Service, UPS Cancel replyLeave a [...]

I am a frequent user of the Post Office and would be sorry to services degraded. Its’ still is very useful for my business. I really don’t know a lot about its’ finances,however I do know it is not tax payer funded. I guess people can put anything they want out there, true or not. Makes me doubt his entire premise. It truly is shameful.

Posted by andypost123 | Report as abusive

What if you were the CEO of the nations third largest employer? What if your company controled 40% if the worlds mail volume. What if your company had $67 Billion in revenue last year more than Apple and Microsoft combined. What if your company was the backbone of a $1 Trillion year industry that employed 8 million americans and totaled 7% og the nations GDP. What if you were only paid $276,000 a year while your competion paid there CEO’s $10 and $14 Million a year. What if your company was overgharged by Congress $78 Billion dollars in 2003 for pension payments. What if the pentagon and Congress overgharge your company $27 Billion in 2004 for military credits. What if your company was again overcharged by Congress %75 billion in 2010 for Civil Service pensions and $6.9 Billion for FERS pensions. What if in 2006 Congress decided to write a law that your company must turn over $5.5 billion a year to set in a trust fund for “future” employees health beinfets? Note* not employees that are currently working but for employees you may hire in 2050 and retire in 2075. What if Congress made your company fund this amount in less than 10 years. What if your company was the only company in the entire world that has to do that. What if your company was reuired by law to deliver to EVERY address in the nation while your competion could pick and choose. What if your company was required by law to have a retail office in every town in the nation regardless of population while you competion can have just one office in a 50 mile radius. What if your competion, knowing that your company goes to every address had you delivered 40 million of THEIR packages last year and looking at close to 70 million this year. What if you delivered 27% of your competions ground parcels last year. What if your company was unable by law to offer the same services as your competion, like fax service, email notifications, ebill payments, electronic mailboxes and a whole host of other things. What if congress wrote a law that your company can ONLY sell stamps and package products. What if your company lost a total of $20 Billion dollars from 20006 thru 2010 with a total of $21 Billion of that being paid to Congress for the so called “trust fund” payments? What if your company was requied to charge on $.44 to deliver something 3000 miles away only to find out the person moved and your company now has to haul it another 3000 miles for free. What if your company did all these things from money generated from postage sales and not 1 ounze of ANY TAX PAYER MONEY.

The company I have just described is the United States Postal Service.

Posted by fn04zb | Report as abusive

I love how people try to overstate their stats by only going back to a date to make them look better. sure stamps are up 13 percent since 2006 but only 18 percent since 2002 which is 2 percent a year far less than inflation. and a 3.5 percent raise over 5 years is less than one percent a year plus employees will have to pay more in health care costs all but erasing this increase.

Posted by richusker | Report as abusive

Rural America would get by without its tiny post offices? Well, yes, small towns would not disappear without the USPS. But what about the jobs and simple fact of sending and receiving mail. Would the private companies even bother with the small town of 1,475 where my relatives live? The last thing rural America needs is another source of jobs and another link to other owns and cities disappearing.

Also, check out Section 8 of the Constitution of the United States. “Congress shall have the power to…Establish Post Offices and Post Roads.” Mandate or possibility, I’m not a lawyer, but the post office is provided for in the highest law of the land.

Posted by mlcro | Report as abusive

The reason the USPS raised its first class rates is simple…it’s the only way it can make money now.
Letter rates were formerly subsidized by large-scale shipping and overnight letters…things that have been taken away by UPS and FedEx, because there’s no monopoly on it.
The USPS has a monopoly on mail because it is the RIGHT of every U.S. citizen to send out a letter for the same price and see it delivered anywhere in the country, all for the same price.

If you dismantle this monopoly, and sell off the business parts, what you will get is the following, and you need only look to Britain and Europe:

1) Multiple postal services that give horrible service, don’t pay postal workers well, give no job security, and have overlapping postal duties that do not get done efficiently.

2) The ‘cream’ areas will be skimmed off, purchased, and run on a ‘local monopoly’ basis, as is done in Britain. These are the areas with high population density, where it is easy to deliver vast amounts of mail, collect the revenue.
Outlying and rural areas that are currently subsidized by the cities will be left to the USPS, which will then lose even more money, as these routes have ALWAYS lost money, but the PS can’t make it up elsewhere.
3) Profit-driven companies have little care for their workers. Look at the European companies and how they’ve increased volumes of mail that have to be delivered, forced longer working hours without increasing pay, etc.

4) Mail will shift to FedEx pricing, which is strictly source to destination. Mailing a letter from Backroads, AR to WhereinthehellamI, AK, could cost $10.

Is the ‘job security’ aspect of the PS overblown? Yeah, probably. But privatizing mail will NOT go well. There’s ample proof all over the world that selling off the mail service doesn’t bode well for anyone outside major cities.

==RED

Posted by REDruin | Report as abusive

The issue of rural delivery you mention as being in jeopardy could be resolved if rural areas used the only other transportation that travel our roads every day, everywhere….SCHOOLBUSES! The buses could collect the mail via Blue Post Office Street box mounted near the door inside the front of the bus. Rural schools could be the new location for Pickup and delivery also. The use of PO Boxes at rural schools would provide that service.

Posted by Reuterster | Report as abusive

I am sure this article has raised a few eyebrows especially given the facts that are simply WRONG…

1. The USPS gets no federal funds. It operates from ratepayer provided revenues only.

2. The USPS has NOT asked for a Government Bailout, just a return of money that it has paid in over the years in excess of benefits paid out.

3. The USPS needs to be allowed to manage as a business, to resize itself as needed, to establish operating practices that are cost efficient and to operate to best meet customer needs.

4. The USPS is not insignificant to the US Economy, in fact mail related jobs and revenues represent 7 percent of GDP. It would impact the economy if it ceased to exist.

5. The problems the USPS are only partially due to the economy and technology, more are related to a business model that was created in the 1970s and not relevant to the market of today.

6. It is very difficult to compare the USPS to any other global post. It carries 40 percent of the world’s postal volume and delivers over a very wide geographic area – very few other posts deliver over such a wise area.

7. We certainly need to look “outside the box” at a future design for the USPS but we don’t have to “blow the agency up” in the process. If the tools are developed correctly, if the USPS can continue to retain the right people and if it has flexibility to adapt, it can be here.

8. Carper and Collins and their staff’s get it. They all know it is not a bailout, they have just got to create the tools to enable the enterprise to thrive.

And I am not a postal employee!

Posted by Envelman | Report as abusive

Buses travel every day, during summer and weekends too? And they go down roads where there are no children? When did this happen?

==Aelryinth

Posted by REDruin | Report as abusive

[...] the union contract to which I object. For a more detailed account of postal service dysfunction see this detailed post by Gregg [...]