By Edward Hudgins
The U.S. Postal Service (USPS) Board of Governors has reached a quorum for the first time since 2014. Finally, USPS can take much-needed action to stem multi-billion-dollar annual losses, which threatens the very future of USPS mail delivery. However, the board should not seek more revenue by forcing USPS to raise rates on its package delivery customers. If done, this could cripple the growing e-commerce sector and would probably not actually bring in more revenue. In other words, USPS should consider more innovative methods so it can meet the many challenges that lie ahead.
In thinking and writing about postal issues for over 20 years, I’ve come to conclude that right now the key to postal reform is getting the Postal Service to focus time, attention and resources on using its ubiquitous national network for final mile delivery of mail and packages.
In case you aren’t aware, the financial state of USPS is dire. For fiscal year (FY) 2018, USPS operating revenues of $70.8 billion could not cover its $74.7 billion in expenses, so it ran a $3.9 billion deficit. The USPS FY 2019 deficit is on track to reach $8 billion. Since the board’s last quorum, USPS has bled $30 billion. USPS hasn’t broken even since 2006.
Revenues and volume for first-class mail continue to fall because most Americans pay bills electronically rather than putting checks in the mail. Ditto for marketing mail and periodicals; we read more and see ads more online. The only USPS bright spot is its package delivery service, which raked in $21.5 billion in 2018, up from $19.5 billion in 2017 and $17.4 billion in 2016. Package delivery revenues will soon surpass USPS revenues from first-class mail, its now-anemic former cash cow.
This good news is the result of booming e-commerce. Amazon leads the way in online sellers that use USPS to deliver packages to your door, bringing in solid revenues to USPS. Because USPS competes with private carriers for package delivery, it is rightly required by law to charge prices that cover its direct costs for delivering those packages and a share of the overhead, or institutional costs. Currently, package delivery covers approximately 25 percent of USPS overhead.
But bizarrely, the Trump administration asserts that USPS loses money when it delivers e-commerce packages and should charge more. Board members can easily see why this is a terrible idea by looking out their windows to see more and more how packages actual make their way to their houses. This is called package delivery competition!
Amazon, for example, already has a truck fleet delivering thousands of packages every day, and is moving from free two-day delivery to free one-day delivery for its Prime customers. Additionally, Amazon recently announced it will purchase 100,000 new delivery vehicles. In the coming decade its fleet could outstrip USPS’s 140,000 iconic blue and white mail trucks.
Moreover, FedEx announced that starting in 2020, it will offer home package deliveries seven days a week throughout much of the country. It will cut back on its current practice of dropping off most FedEx SmartPost packages at local post offices to be carried the last mile to the customer’s door, moving two million packages per day onto its own delivery trucks instead.
In fact, USPS package rates might already be too high, and raising them higher to bilk Amazon, eBay, and other e-commerce companies likely would mean more packages on private carriers and less revenue for USPS.
The USPS Board needs to get serious and innovative about reform. Since 2000, USPS has cut its workforce from about 800,000 to about 500,000. However, labor costs and benefits are still a huge issue. Fortunately, work-sharing and contracting for sortation and transportation services have kept USPS from collapsing completely into insolvency.
USPS operates under a universal service mandate to deliver to every address, and carrying mail and packages the “last mile” to customer doors is the most efficient part of its operations. USPS could and should turn over or share more of its other operations with efficient private providers.. Does it even make economic sense to employ USPS workers, other than letter carriers?
As the USPS Board of Governors finally meets again, let’s hope it can be as innovative in coming up with real reforms as those other innovators who have been leading the e-commerce revolution.
Edward Hudgins ([email protected]) is research director at The Heartland Institute and the editor of The Last Monopoly: Privatizing the Postal Service for the Information Age and Mail @ the Millennium: Will the Postal Service Go Private?