Wednesday, January 26, 2011

Red Ink at U.S. Postal

The Wall Street Journal had an article regarding the current financial state of the U.S. Postal Service (better known as the "Post Office").  Here is how the article begins:

"The U.S. Postal Service plays two roles in America: an agency that keeps rural areas linked to the rest of the nation, and one that loses a lot of money."

The article goes on to say that the Post Office lost $8.5 billion in its fiscal year 2010.  Even though, technically, the Post Office is owned by the U.S. Government, it is an independent entity which is supposed to be financially self-sufficient.  However, it is allowed to borrow from the Federal Government, which it has done liberally over the past several years.  It owes the U.S. Government $12 billion, and it something is not done soon it will reach its statutory debt limit of $15 billion by the end of 2011.

Unfortunately, it is hamstrung by one huge factor which needs to be addressed in order to make the Post Office profitable:

Universal Service Obligation:

The Post Office has a legal obligation to provide mail service everywhere at a uniform price.  Whether you are sending a letter down the street or across the country, a stamp costs the same.  Whether your letter is being delivered to an apartment in a high density urban area, or to a post office box in a remote area of Alaska that can only be reached by plane, a stamp costs the same.  Private carriers like UPS or FedEx are not burdened by this rule.  They are free to pick and choose to where they delivery.  They are free to charge more for rural areas, or for packages that go across the country.  Therefore, they can price their services in line with what it costs to perform the service.

This legal obligation was offset by a benefit that was supposed to make up for the additional cost:  a monopoly on mail service.  The Post Office is the only entity that is allowed to deliver letters.  UPS and FedEx are only allowed to deliver packages and urgent letters; they are forbidden by law to deliver non-time definite letters.

This monopoly on mail delivery is supposed to compensate the Post Office for having to deliver everywhere at the same low price.  In the past, this may have been true.  At one time, the mail was the only way to send messages to Aunt Betty in Scranton, and it was the only way to pay your telephone bill.  It was the only way that Sears could send you a catalog, and it was the only way that Ray's Car Wash could send you coupons.  However, as we know, all of those things can be handled more quickly and efficiently through electronic means.  The number of letters sent through the mail has dropped over the past decade, and it continues to drop.  A monopoly on mail service is like a monopoly on buggy whips after the advent of the automobile:  it is worthless.

My solution to this mess isn't to close post offices or eliminate Saturday service or raise rates in isolation.  My solution would be to free the Postal Service from the shackles of its Universal Service Obligation and give it the flexibility to compete in the 21st Century marketplace.  Then, the Post Office would be free to make the financial decisions necessary to keep itself in the black.  They would be able to price mail service according to the amount of work that it entails to send the letter from point A to point B.  They would be able to charge a premium for rural deliveries.  They would be able to close post offices that aren't profitable.  This would allow them to get their finances in order without becoming a burden on the taxpayers.

Now some may argue that this will restrict access to mail service to some who live in the far flung reaches of our country.  If the post office decides that a particular route is unprofitable and close it down, how will those people get their mail?  There is a simple solution to that, too.  In return for freeing the Post Office from its Universal Service Obligation, I would also eliminate its monopoly on mail delivery.  If the Post Office can't deliver to a particular location and there is demand for that service, a private entity can step in and provide that service.  Some enterprising entrepeneur might act as an intermediary.  They would have mail for a particular rural town delivered to a warehouse somewhere, and then the entrepeneur would then resort the mail and provide the last mile delivery of those letters.  The people in the town may have to pay a premium for this service, but they would their mail.  Plus, they would bear some of the cost for living in an out of the way place.

It is a noble goal that the Post Office should turn a profit like a private entity.  However, unless the Post Office has the flexibility to compete like a private entity, it will continue to run up debt at our expense.

1 comment:

  1. Privatise or open up competition. At least we might get better service.

    The postmaster general earns more than the president! Really, is his job that difficult? Waste of taxpayers money.