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Knowingly Jumping Off a Cliff

By Kevin Meyer

The Bloomberg Businessweek cover story on the U.S. Postal Service a couple weeks ago was a real stunner - filled with so many juicy tidbits that it took a while to digest.  It is just phenomenal that a handful of ingnoramuses (ignorami?) are doing this to a once proud example of American ingenuity.

We've heard the story over the past several years - the rise of email has demolished traditional first class mail.  Free markets created the likes of UPS and FedEx, and thanks to better and more reliable service customers willingly paid substantially more for those products.  So what has happened to the business model of the USPS?

It relies on first-class mail to fund most of its operations, but first-class mail volume is steadily declining—in 2005 it fell below junk mail for the first time. This was a significant milestone. The USPS needs three pieces of junk mail to replace the profit of a vanished stamp-bearing letter.

"The postal service is already carrying more junk than first class," says postal consultant Campbell. "Pretty soon it's going to be a government-run advertising mail delivery service. Does that make any sense? It doesn't make any sense."

No kidding.  So my tax dollars are subsidizing junk mailers at a time of severe budget deficits?  Yes they are - the postal service is no longer revenue neutral, by a ways.

Since 2007 the USPS has been unable to cover its annual budget, 80 percent of which goes to salaries and benefits.

The USPS has stayed afloat by borrowing $12 billion from the U.S. Treasury. This year it will reach its statutory debt limit. After that, insolvency looms. On Mar. 2, Postmaster General Patrick R. Donahoe warned Congress that his agency would default on $5.5 billion of health-care costs set aside for its future retirees scheduled for payment on Sept. 30.

So what's their plan?  You won't believe this...

Under [Postmaster] Donahoe, the USPS is focused instead on trying to slow the migration of its customers to the Net. The man in charge of this task, which brings to mind King Canute's attempts to hold back the incoming tide, is Paul Vogel, a former letter carrier who is now the postal service's chief marketing sales officer. He is less spirited than his boss and understandably so; his job is to persuade banks to keep sending paper statements in the mail. It's a losing battle, and Vogel knows it. "Inevitably, it's going to go to those new technologies," he sighs.

You read that right - they are trying to convince billers to continue sending paper statements and customers from using the internet.  In the age of Facebook and Twitter.  And with his own federal bureaucracy slapping him in his face...

The other day he got a notice in the mail from the U.S. Senate Federal Credit Union. It said it was going paperless in August. Customers who still want to get their statements mailed to them would have to pay a fee. He dropped by the office on Capitol Hill to find out how much. A credit union worker told him the fee was $5 a month. "I thought to myself, that's $60 a year," he recalls. "Who's going to want to do that? What happens when Bank of America or Citigroup says you are going to have to pay to get your statement on paper?"

But keep pushing paper... where's that green lobby again?  But the story gets better.  Remember above where I quoted the figure that 80% of postal service costs go to salaries and benefits?  Guess what they just did...

In March it [USPS] reached a four-and-a-half-year agreement with the 250,000-member American Postal Workers Union, which represents mail clerks, drivers, mechanics, and custodians. The pact extends the no-layoff provision and provides a 3.5 percent raise for APWU members over the period of the contract, along with seven upcapped cost-of-living increases.

You've got to be kidding, right?  Mail volume dropping double digit percentages per year, the primary revenue driver of first class mail dropping faster, 80% of costs coming from employees, and they are giving uncapped raises and a no-layoff pledge?  Obviously that won't exactly help their financial situation, so the usual knee-jerk sucker punch to taxpayers has to happen...

The USPS and its employee unions are lobbying for the least painful remedy: They want the agency to be relieved of its requirement to build a health-care trust fund for its future retirees. Democrats receive the vast majority of the contributions made by postal workers' unions, according to campaign finance records, so they tend to be sympathetic. President Barack Obama inserted a proposal in his 2012 budget to absolve the USPS of $4 billion of its retiree health-care liabilities in 2011. Meanwhile, Senator Thomas Carper (D-Del.) introduced a bill on May 17 that would relieve the USPS of its prefunding headaches.

Remember that "relieved" and "absolved" means the rest of us eventually pick up the tab.  And we wonder why we have a deficit.  There is some good news... or there could be.  This situation with migration to email, USPS attempts to thwart notwithstanding, is obviously happening in pretty much every other country.  So how are those foreign postal services faring?

Elsewhere in the world, postal services are grappling with the same dilemma—only most of them, in humbling contrast, are thriving.

What?  Others are trumping American postal ingenuity?  How's that work?

Last summer he [Philip Herr, Government Accountability Office] sent a small team of analysts to Finland, Sweden, Germany, Switzerland, Austria, and Canada. He was fascinated by what they discovered.

Three decades ago, most postal services around the developed world were government-run monopolies like the USPS. In the late '80s, the European Union set out to create a single postal market. It prodded members to give up their monopolies and compete with one another. The effort roused an industry often thought to be sleepy and backward-looking.

Many countries closed as many of their brick-and-mortar post offices as possible, moving these services into gas stations and convenience stores, which then take them over—just as the USPS is trying to do now, only far more aggressively. Today, Sweden's Posten runs only 12 percent of its post offices. The rest are in the hands of third parties. Deutsche Post is now a private company and runs just 2 percent of the post offices in Germany. In contrast, the USPS operates all of its post offices.  In 2009 the Swedish mail carrier merged with Post Danmark, the Danish postal service, creating PostNord, a company with $6.2 billion in net sales.

Wait just a friggin' minute... the exhalted oft-cited examples of working nouveau socialist welfare states did what?  They privatized a key government function?  Egads! Sweden, Germany, Denmark, Switzerland and Finland just for starters.  Yes they did.  And how's that working?

Some of these newly energized mail services used the savings to pursue new business lines. Deutsche Post bought DHL, a package deliverer that competes with FedEx and UPS.

Many used their extra cash to create digital mail products that allow customers to send and receive letters from their computers. Itella, the Finnish postal service, keeps a digital archive of its users' mail for seven years and helps them pay bills online securely. Swiss Post lets customers choose if they want their mail delivered at home in hard copy or scanned and sent to their preferred Internet-connected device. Customers can also tell Swiss Post if they would rather not receive items such as junk mail.

Sweden's Posten has an app that lets customers turn digital photos on their mobile phones into postcards. It is unveiling a service that will allow cell-phone users to send letters without stamps. Posten will text them a numerical code that they can jot down on envelopes in place of a stamp for a yet-to-be-determined charge.

Innovation and profitability, compliments of the wonders of the free market.

"The question is, are there any special circumstances that suggest all these other countries are wrong and we are right?" says James I. Campbell Jr., a consultant in Potomac, Md., who advises foreign governments on postal policy issues. "The answer is pretty simple: The European countries are on a reasonably viable course. The U.S. is not."

Meanwhile the U.S. postal service business model is trying to keep customers from moving into the modern internet world and protecting an unwieldy bureaucracy rooted in the past.

Yes, go ahead and make me laugh.  Or cry.  Tell me again that you must raise my taxes to support "necessary" government services.

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3 Responses to "Knowingly Jumping Off a Cliff"

  • Rob Worth
    16 June 2011 - 2:34 am

    While at university I worked three consecutive Christmas holiday jobs at a Royal Mail sorting office in London, England. One year we spent two weeks hand sorting US mail posted in the States and bound for addresses in the States. I asked one of the Postmen what was going on. He told me that at Christmas the US post contract out the sorting of letters to Britain, Holland and Germany since we do it much more efficiently even taking into account shipping back and forth across the Atlantic. I was surprised since it was only temps like me as a student sorting it all by hand.

    But our Royal Mail is having a few problems of it own now…

  • LITNE
    16 June 2011 - 6:23 am

    And I have to pay to receive junk mail, too. My state has a mandatory recycling program now. Every disposal company must offer curbside recycling services by state law. I have to pay $10 per month for this service. What I actually have to pay the $10 for is to remove unwanted junk mail from my mailbox and throw it into the recycling bin (provided). Necessary services indeed!