The Unique Role of the Postal Service: A “Business-like” Public Service

Once again, legislators are attempting to “fix” the United States Postal Service. Various stakeholders are reacting to the most recent proposals in the Senate. The debate depends, in part, on your view of the real role of the Postal Service. The argument has been around for a while. This article attempts to reposition the discussion.

The Postal Service is a Business or, at Least, it is often “Business-like”

The Postal Service is primarily paid by organizations seeking to reach potential and current customers for a variety of purposes. These businesses make decisions on whether or not to use the postal channel based on the effectiveness of their results with the mail compared to alternatives.

These businesses want, among other things, efficient delivery at the lowest possible prices. They want services designed to meet their needs, and they want prompt customer service. They are reluctant to pay for services they do not use. The Postal Service responds with reasonably efficient business-like approaches to operations management.

In some important respects, the Postal Service is treated as a business, with requirements to conform to SEC-style reporting (public 10K, 10Q reports, compliance with Sarbanes-Oxley) and many other requirements typical of businesses but not most other government agencies.

The Postal Service, unlike the private telecommunication sector, does not receive billions in subsidies to provide universal service. Taxpayers contribute nothing to the financial well-being of the postal channel.

The global trend of successful postal systems is to become more “business-like”. Perhaps we should encourage, rather than discourage, the U.S. Postal Service efforts to adopt more relevant private sector practices.

But it is not yet a Real Business

While the Postal Service is paid by businesses for specific services, it has only recently (Postal Enhancement and Accountability Act, 2006) been allowed to earn a profit. It has no real “shareholders” who have invested in the organization.

It has specifically been restricted from developing business not directly related to its traditional services. It cannot acquire businesses or abandon unprofitable services, customers, service areas or outdated service standards.  While some operations may be “business-like”, many critical support functions and infrastructure suffer from chronic underinvestment due to its legislative and regulatory framework. Certain activities, such as marketing, are underdeveloped.

Opportunities for innovation and radical restructuring are limited, even as core postal markets are disrupted by competition from technological alternatives. While the Postal Service receives certain benefits from its association with the Treasury Department, its ability to invest or even control its own funds is limited compared to a private sector enterprise.

As hard as it is to consider, given the excruciatingly pace of the current round of legislative “improvements”, it may be time to begin to consider the design of the next round.

The Postal Service May Be a Monopoly of Sorts, But it is a Lousy One

The Postal Service is still often treated as a “monopoly” exercising “market-dominant” powers in precisely those markets where it is losing business. This market power allegedly exists whether it is a business or a government agency.

Note to anti-trust analysts: Yes, there may be elements of a natural monopoly, and yes, there are certain markets where the Postal Service may have little real competition. However, a firm would not be losing its core business and operating without profits if it were an effective monopolist. Its abuse of its market power has also resulted in the lowest postage rates in the developed world but one of the worst financial positions.

Side note to those who would cling to the monopoly: The “quiet liberalization” of work sharing initiatives and contracting out key functions has reduced the relevance of the monopoly. The most popular arguments for protecting the mail box relate more to the issues of privacy and security than economic efficiency.

It is time to reassess the value of the monopoly “protections” and some of the associated restrictions placed on the Postal Service.

The Postal Service is a Government Agency Designed to Enable Commerce (Help the Economy Grow)

But that does not necessarily mean inefficiency and incompetence is inevitable (or that such characteristics do not occur in the private sector as well). From one point of view, not normally emphasized in public policy discussions, the Postal Service is not unlike the Department of Agriculture or the Department of Commerce.

The roles of such agencies are to enable businesses to succeed. We often think of the person to person role of the Postal Service as its core mission, but the role of enabling commerce has also always been essential. The Postal Service, without hardly thinking about it and without the many of the tools of other agencies, has been extraordinarily successful in helping to create a trillion dollar mailing industry that helps grow the whole economy.

Perhaps the public-private partnerships recently discussed by the Office of the Inspector General require another, expanded look. The Postal Service and industry could look to partnering with other agencies to obtain relevant grants and other support for key national objectives, such as energy reductions and vehicle fleet replacement.

The Postal Service is a Public Service

The Postal Service has an obligation to provide universal delivery service across a wide variety of market conditions and service areas. A Congress eager to reduce government services almost across the board pulls back from supporting reductions in Postal Service infrastructure and programs.

Unlike utilities or telecommunication services, there is no “access” fee, and changes to delivery modes are hotly contested. Unlike airlines or other transportation services, the ability to charge the full cost of providing services is somewhat restricted, as is the ability to assess fees for “extra” services.

Pricing is comparatively inflexible and cannot accommodate developments rapid changes in key costs such as fuel. Unlike private sector Internet Service Providers, who provide non-universal services that can be characterized as expensive and slow compared to other countries, the USPS provides high level of universal service and customer satisfaction for one of the lowest rates of postage in the developed world.

The Postal Service must operate a vast retail infrastructure essentially unchanged from decades ago even as local populations and needs change. The majority of these retail units are unprofitable and many customers have other alternatives to traditional postal retail stores. These postal stores are limited in the services they may offer to avoid competing with the private sector.

The Postal Service must provide a number of services at or below cost to various customer groups favored by Congress. It also must provide a number of purely governmental services, including a specialized law enforcement agency (the Postal Inspection Service), an investigative group (The Office of the Inspector General), and its very own regulator (the Postal Regulatory Agency). This does not even include operating Selective Service registration or other services. The Postal Service has a host of reporting requirements typical of government agencies and is on the unified federal budget, even though there are almost no appropriated funds involved. The total cost of all this is not really known, but the Postal Regulatory Commission estimates the net cost (after deducting for some of the “advantages” of being a government agency) at about $5 billion.

Almost no one can conceive of a return of appropriations or subsidies for postal operations. But some public services can be modified, reduced, or perhaps funded separately. In addition, as the Office of the Inspector General has recently pointed out, there may be services (such as offering banking services to the underbanked) that may be meet a public need currently unfulfilled that may be profitable.

Neither Fish nor Fowl or Any Other Kind of Recognizable Animal

The current public/private confusion distorts efforts to create rational postal legislation.  We want efficiency and quality service (I remember when we had two deliveries a day… and the postman always rang twice). Any increase in postage is a sign of inefficiency, fraud, waste, and abuse (Why, I remember when postage was 3 cents!) Why can’t we maintain (improve) the infrastructure (at no cost) and we must stop closing facilities (especially in my district). Why does it cost more to provide service in Alaska than it does in suburban Washington, D.C? It must be bad management. Or greedy unions. Why can’t we just go back to the way it was (in some idealized time)?

Much of the discussion of postal policy seems stuck in a kind of time warp where even ideal solutions are mostly incremental improvements to the status quo and a return to some sort of “business as usual.” We are failing our stakeholders by this lack of vision.

By Kent Smith

Kent Smith is Research Director, Ursa Major Associates / Postal Vision 2020. His 38 year career in the Postal Service included Rate Classification Research, Market Research, and Strategic Planning. Ursa Major Associates / Postal Vision 2020 is dedicated to taking a broader, longer-term perspective on the future of the mailing industry ecosystem. The thoughts expressed in this “Point of View” are his own.

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One Reply

  1. You have an interesting perspective, very good to hear coming from someone in the industry.

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