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Going Postal The Imminent Death of the U.S. Postal Service?

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Master of Distraction
Staff member
SUPER Site Supporter
A long but good analysis about the USPS, worth reading if you have the time:

http://www.the-american-interest.com/article.cfm?piece=614

From the May - June 2009 issue:

Going Postal The Imminent Death of the U.S. Postal Service?

Georg Jensen

For all its inability to stay in tune with changing consumer trends, technology advances, a warming planet and a deep economic crisis, the leadership of the U.S. Postal Service (USPS) might as well have given all their mail carriers Hummers to drive on their appointed rounds in recent years. As it turns out, the USPS and Hummer’s parent company, General Motors, have a lot in common these days. Both are currently generating multibillion dollar annual losses, pushing products that ever fewer people want, burdening themselves with bloated payrolls and huge fixed-cost infrastructures, continuing to roll up enormous unfunded pension obligations, and contending with some of the largest and most powerful labor unions on earth. Both, too, are expecting the American taxpayer to bail them out.

There are also, however, some differences. We all know what an American automobile company is: a private corporation (or at least it was until a few weeks ago). But almost no Americans know what the U.S. Postal Service is, and it’s easy to forgive their ignorance.

The USPS is the successor to what used to be a full-fledged government department—namely, the Post Office Department, founded in 1792. So much a part of government was it that its rationale is mentioned in the Constitution, and the Postmaster General was in the line of succession to the Presidency—last in line, yes, but in line all the same. So things remained until President Richard M. Nixon’s Administration reorganized the Post Office Department in 1970 in response to a debilitating strike by postal workers, establishing the newly branded USPS as a “corporation-like” independent agency. What did, and does, this mean?

For one thing, it means that, as of July 1971,when the reorganization took effect, Postmaster General was no longer a cabinet-level position appointed by the President. Instead, a Board of Governors was created consisting of nine members appointed by the President. These nine, in turn, chose the Postmaster General. These ten, in turn, then chose a Deputy Postmaster General to serve as chief operating officer, making for a nice round number of eleven. In addition, the new arrangement called for a Postal Rate Commission consisting of five President-appointed members, the idea being that there needed to be some check on those who control the USPS’s financial operations. (As of December 2006, the Postal Rate Commission became the Postal Regulatory Commission, with somewhat expanded powers.)

The result of all this was a platypus-like creation that is neither exactly a Federal agency nor exactly a private corporation. Nor is it a hybrid government-owned corporation, like Amtrak, for example. The USPS isn’t really a corporation at all. Since the Board of Governors does not have the same sort of fiduciary responsibilities and liabilities as real corporate directors do, it amounts to window dressing. In fact, the USPS’s only real shareholder remains the U.S. government, and it has no actual board of directors other than Congress—more specifically the Subcommittee on the Federal Workforce and the Postal System of the House Government Operations Committee. But Congress, as we know, only deals with emergencies. It does not engage in long-range strategic planning or market research. It does not evince responsible financial behavior or exemplify corporate best practices of any kind—especially when it comes to oddball appendages like the USPS. And from this circumstance all else follows.
Big Oil, Big Mail

Just as General Motors has in effect subsidized Big Oil by continuing to build gas-guzzlers in recent years, so has the USPS continued to subsidize Big Mail by shaping its operations to encourage what it now calls, revealingly, “standard mail”—that is, advertising junk mail. Most American citizens are blissfully unaware of the degree to which USPS subsidizes U.S. businesses by means of the fees it collects from ordinary postal customers. For example, if you wish to mail someone a large envelope weighing three ounces, you’ll pay $1.17 in postage. A business can bulk-mail a three-ounce catalog of the same size for as little as $0.14.

USPS management claims that “standard” mail makes lots of money, that the USPS makes a better margin delivering a “standard” mail package for $0.14 than it does a first-class one for $1.17. Why? Supposedly because of efficiencies produced by bulk-mail, machinable, zip-plus-four and zip-plus-nine standardization schemes. If you look at the revenue stream from advertising mail, it does look impressive, and it has been growing (for perverse reasons we’ll come to in a minute). But when you juxtapose next to that revenue stream the enormous transactional costs of maintaining a riotously complex rate structure to service it, you quickly reach a different conclusion: Standard mail, the costs of which are also generally tax-deductible for businesses, does not make money. It amounts to a corporate subsidy, which helps to explain why Congress, insofar as its members understand this, typically doesn’t object to the status quo. After all, these corporations have been known to contribute to electoral campaigns.

Actually, it’s worse than that. Not only are pennies shaved off the postage affixed to grandma’s letters routed directly into the pockets of direct-mail marketers, some 20 percent of direct-mail advertising volume is comprised of credit card, mortgage and other financial offers. So yes, the USPS has contributed in a subtle yet very real way to our burst economic bubble.

Because first-class mail volume has been falling off increasingly over the past dozen or so years, thanks largely to the Internet, “standard” mail operations have become proportionately more important to the USPS. So it has gone to some lengths to cater to and to increase this aspect of its business. The lower the postage for bulk advertising mail, the more of it the USPS receives—more than 100 billion pieces per year—and the more profits businesses have to then plow back into even greater print circulation. This speaks to common sense: When you tax something, you get less of it, and when you subsidize something, you get more of it. That is part of the reason the USPS now handles less first-class mail, because it is in effect taxed, and more junk mail, because it is subsidized.

There are basically three problems with all this, at least one of which has now become obvious. While the standard mail revenue stream has helped keep the USPS apparently solvent, it has amounted to a huge gamble that the increases in volume, paid for again in part by out-sized increases in other rates (first-class, parcel post, international mail), would go on essentially forever. This amounted to a Ponzi scheme, and that scheme has now collapsed. Driven by Internet cannibalization and especially the economic downturn, mail volumes have been plummeting off a cliff at a rate several times faster than the USPS’s own experts predicted in their worst-case scenarios. Advertising mail, most critically, is down more than 20 percent compared to last year.

The second problem, not so obvious, is that for every additional piece of standard mail the USPS has handled, it has actually lost money thanks to the enormous transactional costs it incurs. This is not mainly because its business model has driven away first-class mail customers (though of course it has done that, too); it is because there is a point at which the efficiencies of economies of scale tip over into the inefficiencies of gigantism. The USPS has long since tipped. It has a vast, fixed-cost infrastructure that includes a massive footprint of 38,000 buildings. Its bloated payroll of 800,000 employees—third only to the Department of Defense and Wal-Mart—makes up a whopping 80 percent of its operating expenses (UPS and FedEx spend between 37 and 51 percent). The USPS has tried to pare down its payroll, but the power of the unions has made that very difficult. From senior management down to unionized letter carriers, USPS employees are grossly overpaid compared to any government or private enterprise of its kind, foreign or domestic. This is largely why no matter how much labor-saving technology the USPS buys to service “standard” mail, it seems to have little impact on its labor costs.

It’s almost impossible to say how much of this infrastructure is devoted to subsidized standard mail. It is clear, however, that a disproportionate percentage of the USPS’s well-compensated middle managers are responsible for servicing the highly complex and machine-dependent USPS standard mail operations. One can also get a barn-side idea of the breakdown by noting that personal letters are now down to just 4 percent of the mail stream.

The third, even less obvious problem concerns environmental costs. The USPS transportation fleet of around a quarter of a million vehicles consumes prodigious amounts of gasoline and spews tons of emissions into the air. It is vastly more resource-intensive, too, to print, carry, deliver and dispose of paper-and-ink messages than electronic ones. Ah, but here’s the rub: The health and environmental costs of all that pollution is not paid by the USPS, anymore than pollution in general is paid for by the companies that produce it. It has been said many times before, but it is still worth repeating: In market economies, profits tend to be private and liabilities public, according to the hallowed logic of collective action. And that is why all responsible governments in such economies make corporations pay taxes to fund, in part, the clean up of the messes they make. But the USPS is not really a corporation and it has never paid any taxes, so it hasn’t contributed a nickel to cleaning up the environmental messes for which it is responsible. Had it been forced to do so, it would have gone broke years ago.

It’s an open question whether, if U.S. taxpayers really knew how much they subsidize the junk mail that annoys them daily, they would feel better or worse about its cumulative environmental impact. One would like to think that every American with at least half a brain and a mailbox either already is or will soon be an environmentalist. But, then, one would like to think many things.
Nothing New

On Capitol Hill right now numbers being tossed around regarding the USPS’s unfunded liabilities are in the Bernie Madoff zone, already more than $50 billion in total. Clearly, the USPS is sinking fast. But before it began to sink fast, it had been sinking slowly for years. The reason, again, has been the growing unsustainability of its basic business model in the face of structural technological change.

The problem came to head about four years ago and led to the Postal Accountability and Enhancement Act (PAEA) of December 2006. Its basic theme was: “We expect you to start acting like a real business; learn to make a profit.” The USPS was supposed to do this by becoming more competitive in the services for which it did not enjoy a legal monopoly—like sending packages, for example, and express mail services—by using its legal monopoly to better effect, and finally by developing new services and hence new revenue streams. The 2006 Act also enhanced the power and changed the name of the Postal Rate Commission to the Postal Regulatory Commission; and it set limits on postage price increases, capping them to match the Consumer Price Index, but allowing for annual adjustments instead of the prior limitation of adjustments only every three years.

In addition and more importantly, the Act reduced the USPS’s unfunded pension obligations by transferring $30 billion of it to the Federal employee pension program. In return for this largesse, it required the USPS to make scheduled payments for the next ten years to reduce, just partly, the more than $50 billion of unfunded postal workers’ pension-fund obligations still remaining. This amounted to a bailout: $30 billion worth of relief on the USPS’s pension obligations, plus the USPS was given a $15 billion line of credit with the Federal Fund Bank to draw upon in case of emergency.

Postmaster General John Potter hailed the PAEA as a victory for postal workers, but he underplayed the potential threats posed by Internet cannibalization, environmental-sustainability pressures, energy costs and a possible economic downturn. In 2008, this year and most likely next as well, all of these threats have materialized with devastating financial consequences. Potter wasn’t the only one who didn’t see this coming (though that is part of his job). Despite three postage-rate hikes over the past three years, few in Congress were paying much attention. After all, compared to the breathtaking losses being racked up by Fannie Mae and Freddie Mac, who had time to think about the postal service?

Now the problem can no longer be ignored. With the economy collapsed, direct-marketing response rates in a nosedive and the entire Ponzi scheme now blown up, the day of reckoning is here. Many experts predict that the USPS will far exceed a $3 billion loss this year and that even with all the cost-cutting measures the USPS has already put in motion, a $6–12 billion loss is more likely. Any loss of over $7.8 billion, which now seems probable, will exceed the $15 billion maximum Federal loan ceiling from the 2006 Act, leaving the USPS unable to meet its financial obligations. The USPS is about to go broke. If it does the phrase “going postal” may acquire a whole new meaning, describing something that literally vanishes.
What to Do?

So, as Lord Rutherford once said, “We’re out of money; it’s time to think.” USPS senior management has a thought: Hand taxpayers the bill, again. This is a bad idea. A better idea would be to recognize the failure of USPS senior management, and do to it, for far more justifiable reasons, what the White House has recently done to the senior management of General Motors: Change it.

The ever-optimistic USPS senior management, starting with Postmaster General Potter, continues to make hallucinatory predictions that mail volumes will magically recover once the economy recovers.1 It is hard to find any industry expert outside of the USPS management or its union leaders who agree with Potter’s math, or the logic underlying it. Potter thus continues to rely on the Federal Funds Bank loans to make up for the USPS’s losses, now treating it as a working capital account rather than as the emergency backup it was intended to be. The line of credit allows the USPS to borrow, as noted, up to $3 billion per year, up to a cumulative maximum of $15 billion, to make up for cash shortfalls without requiring extraordinary allocations or annual legislation to be approved by Congress. As of September 2008, only two years on, the account was already drawn down to $7.2 billion.

To get a sense of how intense USPS hallucinations have been lately, consider the USPS’s own 2009 Integrated Financial Plan, published in November 2008. It projected a 4 percent drop in mail volume in 2009. In fact, mail volumes have dropped between 9 and 19 percent in the months that followed the report compared to the same period last year. The reason is that the companies which send out almost all of what is delivered by the USPS—the ubiquitous standard mail—are switching to electronic alternatives faster than ever, and there is no reason to expect them to reverse course. Indeed, the reach and cost-effectiveness of electronic substitutes will only grow, particularly as utilities’ billing moves rapidly from paper to electrons. This means that the USPS will never return to what its senior management still views quaintly as “normal.” It means that no amount of incremental tinkering with the present system and business model will save the USPS. The confluence of forces affecting the Postal Service cannot be addressed except by adopting a bold new product vision to replace its rapidly eroding revenue streams and by right-sizing its fixed-cost infrastructure.

Postmaster General Potter may be a capable administrator, but he has been incapable of providing a vision for keeping the USPS viable and relevant in a society that now clearly values email and text-messaging more than carbon-spewing paper-mail communications. From a financial stewardship standpoint Potter always plays the victim—victim of the economy, growing health-care costs, ecological awareness and, most of all, the Internet. The time for playacting is over. Many have called for Potter to step down, but the Board of Governors has so far opted to let him complete the two years left on his contract. One way to overcome this problem is for President Obama to appoint a new Board of Governors who would take a different approach.

What new approaches might new blood in the USPS take? The simplest and most sensible way to start fixing the USPS mess is to stop distorting the market with subsidies. We could fix the postage rate tables to align better with actual costs. A fairer system that did not amount to a corporate subsidy would make “standard mail” rates much more expensive, and one would therefore expect a lot less of it. That would be good, for it would allow the USPS to radically downsize its fixed-cost structure and to realize dramatic economies from a dramatically simpler rate structure.

This, of course, won’t happen easily, if it happens at all: Corporate and union lobbyists would compete to murder any such idea in its cradle. Politicians who have no interest in standing up to those lobbies are instead proposing dozens of “Do Not Mail” bills, which would allow homeowners to decline receipt of “standard mail.” (The first of these passed on March 31, 2009, in San Francisco.) These proposals tap into the fact that most people feel put-upon by bulk mailers and the USPS when they have to invest uncompensated effort to empty their mailboxes, sift through the junk and recycle all but maybe two or three pieces of mail a week they actually want. But these bills, too, must face counter-pressure from powerful postal union, printing, paper and direct-marketing lobbyists. Introducing such bills may get an applause line now and again, but they won’t solve the problem.

We need an entirely new way of thinking about the delivery of private communications in a new age. The real core of the problem is that in the 39 years since the Postal Reorganization Act the USPS has maintained that it has to have a monopoly in order to fund its Universal Service Obligation (USO). The USO is indeed a universal concept—most countries have followed this same model, which ensures that all citizens get to mail a letter, regardless of the distances involved for the same priced stamp; that all citizens have reasonably convenient access to post offices; and that all citizens get the same service level (i.e., mail delivery six days a week). The basic idea of the USO is a good one, but that doesn’t mean the way we go about fulfilling it cannot change.

For example, given the widespread availability of in-home telephone service and now cell phones, it is no longer necessary for Congress to fund the placement of pay phones throughout rural America in order to ensure universal service for phone calls. It follows that it is also now no longer necessary for the USPS to continue to follow the same century-old model of universal service. Times and technology have changed. The original construct of universal postal service is too costly to preserve as is. More important, it is both unnecessary and, as noted, environmentally unfriendly.

The vast majority of Americans now have an Internet connection or Internet-capable cell phone. Many countries in Europe already have broadband connectivity rates greater than 90 percent and are committed to achieving 98 percent by 2012, something President Obama has also sought in his stimulus plan. It is a crucial foundation for reducing health care costs, government administrative costs, and even energy consumption. Since the end of the 20th century, American society has become remarkably mobile and digital. Many people now use multiple residences and have multiple offices. Some are even completely nomadic, staying in constant touch with friends and colleagues through their BlackBerries, iPhones and laptops while they live in an RV for a year or take a year off to see the world. They could be out of town for a month and, unless they request otherwise, their postal carrier would still dutifully drive past their homes every day, leaving mail in their unsecure mailboxes. Some younger Americans have never even used a postage stamp; they have had no reason to do so.

Note, too, that while UPS and FedEx use dynamic routing systems to stop at only every twentieth home or business every day, the USPS continues to stop at every single one, whether the occupants are there or not, whether there’s anything in the mail they are likely to want or not, at an enormous economic and ecological cost. As a result, despite suffering from the same higher energy costs and reduced volumes, FedEx and UPS still make billions in profit, pay their corporate income taxes and fully fund their pension obligations. The USPS cannot do any of these things, and its outdated USO paradigm is a major reason why. If the USPS were a real corporation, it would have a real board of directors looking out for the interests of shareholders, employees and customers; it would pay taxes; and its executives would be held accountable for its fiscal performance. That is why some critics have been arguing for decades that the USPS should be truly privatized, as the postal operators in many other industrialized nations have already been (such as Germany’s Deutsche Post and the Netherlands’ TNT). As other operators have given up their monopolies over the past two decades (100 percent of Europe will be fully liberalized by 2013)—many of them selling equity stakes to the public or to large private equity firms to raise capital—they have also entered new lines of business such as mailroom and document management, banking, logistics and a variety of retail services. In Italy you’re more likely to buy a cell phone at the post office than anywhere else, for example.

The USPS, on the other hand, has held onto its monopoly with a death grip, rendering it unable to diversify its revenues and thus prepare for a viable post-Internet future the way other postal operators have. Indeed, many postal operators have also gone seriously high-tech and green, such as that of my native Denmark, where last year more than 100 million billing statements were sent to consumers electronically and paid that way, too, through Danish Post’s eBoks website. (Leave it to the country that was the pioneer in eliminating its dependence on foreign oil, and becoming one of the world leading purveyors of green energy technology, to be the first to succeed so magnificently in eradicating paper delivery.) Denmark isn’t a one-off, however. From Australia to Estonia there are many examples of transformation in the name of paper-use and fossil-fuel reduction, and forward-looking strategic planning. With their mail volumes being only a fraction the USPS’s (Americans receive 55 percent of the world’s total mail volume) these liberalized posts are for the most part well-managed, profitable and growing businesses.

There are exceptions, of course. The United Kingdom’s Royal Mail looks a lot more like USPS, racking up billions of pounds in operating losses and billions more in unfunded pensions. The British Parliament has been engaged in a heated debate over whether to sell off a one-third ownership stake in Royal Mail to one of its neighboring postal operators or a private equity investor who can modernize it and make it profitable again. The labor unions in Britain are fighting that proposal tooth and nail, despite the fact that letting the Royal Mail fail catastrophically is far more likely to result in a loss of union jobs and pensions.

Privatizing the USPS in a way the keeps its Universal Service Obligation intact would not be a simple drill, however. Its infrastructure and employee bases are so massive and it carries such a large Federal and pension debt that there might be no private investors brave enough to plow money into it. If the USPS had a visionary management team like those of the Dutch, German, Austrian, Danish, Finnish, Swedish, Italian, Swiss, Australian and New Zealand postal operators—or even FedEx and UPS, for that matter—and if it had managed to create new revenue streams to offset, if not exceed, the revenue losses from traditional paper postal-mail delivery, it might have earned a shot at attracting the capital required to survive and thrive in an increasingly digital, green-based economy.

Had Postmaster General Potter and his management team not been in denial about the changes in consumer behavior and the impact of the Internet, had they observed what their contemporaries overseas were already doing, and had they not merely relied on postage hikes and bailouts from Congress, there might now be a prospect of effective privatization. But those hopes now appear to be nearly dashed in the current economic environment. President Obama is very likely going to have to tackle this bailout shortly, and it will be about as pretty as the Detroit bailout. The only other conceivable way the USPS might attract enough private equity investment to privatize would be if Congress were to transfer the remaining pension fund liability over to the Federal pension program, adding another $50 billion to future taxpayers’ debt load—a move that wouldn’t be very popular, to say the least.
The Swiss Model

If a bailout is inevitable, what should it look like? What strings to reform should be attached to it?

USPS senior management yet again has its own ideas—bad ones. So far it has relied solely on relatively minor cost-cutting measures such as eradicating the billions it used to spend on worker overtime. It has also cancelled many new automation programs that might have led to higher long-term operating efficiencies because it can no longer afford the short-term investments in them. So, with his back up against the wall, the Postmaster General pleaded in his January testimony with Congress to relax some of the Universal Service Obligation requirements—namely, by reducing mail delivery to five times per week in some parts of the country, and by closing some unprofitable branches (each of which is in some reluctant Congressman’s district). Federal regulators and academic experts all testified, however, that these actions would barely make a dent in the USPS’s financial woes and would also likely cause a further decline in mail volume.

Others have suggested tightening control over the unions. TNT, the Dutch postal operator, recently negotiated a 15 percent reduction in compensation from its labor unions, which many said could never be done. They also reduced their headcount and continued to pay dividends to their investors. FedEx did the same. But Democrats are particularly mindful of whom they will need in their back pockets to get re-elected in 2012, and few believe they’ll have the backbone to tackle the postal unions head on. Meanwhile, according to a USA Today/Gallup poll taken immediately after Postmaster General Potter’s January testimony, 57 percent of Americans indicated they would rather see the USPS drop a delivery day and close unprofitable post offices than jack up postage or get a Federal bailout.

There is a better way: the Swiss model.

The Swiss Post is a world leader in postal business-model innovation with operations in 16 countries across three continents. Despite its home-country’s population of only seven million, it generates $9 billion in revenue and earns an impressive 10 percent profit. It has aggressively rolled-up, partnered on or internally launched a variety of Internet-ready businesses that offer services such as document imaging, electronic document signature, electronic postage that costs less than paper stamps, and an international shipping network. Its annual report states that it generates 20 percent of its revenues from outside Switzerland. It is still 100 percent government owned, and its profits go to the general fund, but it acts more like a private corporation responsible to shareholders.

That’s not all. The Swiss know that paper mail volumes will continue to decline and that the Internet isn’t going away. So the forward-looking Swiss Post has been the first in Europe to introduce a service to deliver paper-originating postal mail via the Internet, called Swiss Post Box.

Swiss Post Box is powered by technology from Seattle-based Earth Class Mail. The service emails multi-sided color images of incoming envelopes and parcels to their recipients as soon as the mail reaches the first sorting center nearest where it was collected by the post office. While the mail and parcels are held in an automated temporary cache, recipients decide which mail pieces they want to have opened and scanned to PDF inside an ultra-secure scanning center at the Post Office (where confidential documents for Swiss banks are also scanned), and which are to be delivered physically to the address on the envelope, redirected to another address, shredded, recycled or archived for safekeeping. Three-quarters of the mail ends up leaving that first sorting center bound straight for recycling, either after being scanned to PDF or discarded unopened by customer’s choice. The energy savings implications are obvious.

The technology is revolutionary in that it reshapes the Universal Service Obligation to fit the mobile, digital, multiple-location life- and workstyles of many consumers. As more consumers and businesses switch to this form of mail delivery, postal operators may be able to switch to a dynamic routing model for delivering the much smaller volume of paper mail much like FedEx and UPS use, thus wasting less fuel to stop at mailboxes with nothing to insert or withdraw. Many other countries are now considering offering a Swiss-style service. Earth Class Mail, too, has announced that it is working on enabling mailers to inject electronic postal mail directly into users’ online accounts, thus eliminating the paper-delivery cycle altogether for those who choose that route. After all, almost every piece of paper mail delivered today started out as an electronic file that was converted to paper, delivered through an energy-intensive and polluting process, and in some cases even reconverted to an electronic document once it arrived at a place of business. Why go from digital to paper only to go back to digital? Why not skip the paper stage altogether?

In the future these electronic files could be directly transmitted to recipients through the Internet to their government-certified online mailing addresses—safe from exposure to hackers, viruses and other risks of open email. To get legal delivery status for a Swiss Post Box account, a Swiss citizen must go down to their local Swiss Post branch and have their appropriate identification papers verified.

The ecological impact of delivering postal mail electronically (as distinguished from simple email) would be even greater as certified electronic postal mailers joined the party. And the postage that the post office could earn from electronically injected items would be much more profitable than today’s first-class mail, to say nothing of advertising mail. If small nations such as Switzerland and Denmark can successfully deploy online postal mail, why can’t the most powerful and technologically advanced country in the world do it too?

Earth Class Mail isn’t alone in developing electronic alternatives to traditional mail delivery. In late 2008, a Southern California-based startup called Zumbox launched a service that creates an online mailbox corresponding to every U.S. street address, allowing individuals and businesses (the latter pay a 2-cents-per-address fee) to send digitized postal mail to those addresses. Small countries like Finland, Holland and Belgium have also introduced their own proprietary systems for e-invoicing, some with more success than others, using the Danes’ eBoks service as a model. Whether they adopt commercially developed systems like Earth Class Mail or Zumbox or develop their own alternatives to paper mail like eBoks, forward-looking postal operators are realizing that their long-standing business models need radical revamping.
From the Ground Up

As with many failed and failing government organizations, the team that got you into a mess isn’t likely to be the team that gets you out. The USPS needs to be torn down to the studs and re-invented. The Obama Administration and Congress must practice what Austrian economist Joseph Schumpeter termed “creative destruction” in order to save the USPS from itself. Here is what to do, and the order in which to do it:

1. Replace the USPS senior management team with proven corporate executives who know how to run a $76 billion company with vision and accountability to stakeholders.
2. Negotiate with the unions to gain the concessions necessary to get the USPS’s labor costs in line. To be competitive with private competitors, the USPS will need to pay its workforce less than the $42 average hourly wage they receive today. Between layoffs and renegotiated compensation and benefits, drop the payroll costs from 80 percent of USPS’s expenses to 60 percent.
3. Invest in modernization of the sorting centers to gain long-term efficiencies, but tighten up the network so that unprofitable centers and unprofitable post office branches are closed.
4. Normalize the pricing differences between first-class, second-class (publications) and standard mail (advertising) to reflect actual delivery costs, and end the ratepayer and taxpayer subsidization of Big Mail.
5. Redefine the Universal Service Obligation so that it makes sense in the 21st century. Use available online technology that enables the Postal Service to know when customers don’t need delivery or would forego a default delivery option to have their mail delivered electronically, redirected elsewhere or destroyed.
6. As consumers switch to all-electronic delivery of postal mail, modify the USPS’s delivery fleet with in-vehicle dynamic routing systems such UPS and FedEx use, so that USPS vehicles don’t have to stop at every house, every day.
7. Follow the international model for liberalization. Having competitors in the marketplace will force the USPS to become more efficient and truly competitive. Customers will have a choice, just as they do today with phone-service providers. Better yet, move to privatize the USPS before the option disappears.

There is even more we can do in the fullness of time. The Internet is still an inherently lawless medium. Emails are fraught with all sorts of malfeasance, from viruses to financial scams. The USPS could play a role in assigning legal online addresses for all citizens and businesses and providing a secure Internet-based channel for trusted communications. We only need to look across the pond for examples of now to do this. Such an adaptation would fulfill its Universal Service Obligation even as it acknowledges changes in society and the effects of pollution and carbon-based fuel consumption.

By rightsizing the infrastructure and implementing secure and legal “electronic postal mail delivery” like other countries have, the USPS could become profitable and sustainable within two years, preserving far more jobs than if it continues to operate as if the Internet has not changed the world forever. Darwin, Deming and Schumpeter are all looking down on the USPS to see if it becomes a victim of natural selection, or a beneficiary of it. As things stand today, its survival prospects don’t look so good.

1 Potter rarely makes headlines, but when he does it is often for the wrong reasons. In March Potter was criticized by some Congressmen for earning a salary several times larger than a Senator’s, even though that salary was set through processes technically subject to Congressional oversight. This sheds light on the fact that the only thing really corporation-like about the USPS is senior management salaries, but this was an almost ridiculous diversion from the real issues before us.
 
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