The United States Postal Service: Snail Mail Forever

The United States Postal Service: Two Goals

The Unites States Postal Service (USPS) in its current form was founded in 1971 with the Postal Reorganization Act, but the U.S. Mail organization dates back to the 1775 Second Continental Congress, when Benjamin Franklin was appointed the first Postmaster General. By definition, the USPS is an independent agency of the U.S. government; it fulfills a public service yet operates outside of direct Presidential control. Despite its critical public function, the USPS has not received taxpayer money since 1982 (with few minor exceptions), and relies fully on the sale of postage, products and services to sustain its operations.[1]^,[2]

A combination of recent legislation and market pressures has driven the company into nearly ten consecutive years of unprofitability.[3] In November, USPS reported a 2015 fiscal year loss of $5.1 billion, and over $100 billion in unfunded liabilities for its mandated pension and retiree benefits.[4] To account for the impact of these high expenses related to government mandated employee benefits, deemed “factors largely outside of management’s control”, USPS also reports a “Controllable Income” measure, which was $1.2 billion.[5]

The USPS has two main organizational objectives: first, to provide postal access to all Americans, and second, to operate profitably so that it can continue to fulfill its services. It stands as a unique example of an entity that is ineffective because its two goals conflict—due to its ultimate purpose as a governmental agency, it cannot freely adjust its operating model or offerings to perform profitably.

 

Business Model

USPS revenue comes from multiple classes of mail, shipping and packages services, periodicals, and other services. The Digital Age has impacted each of these product lines. In 2015, total mail volume fell to 154.2 billion pieces, a 28% decline from 2006, the last year USPS reported a profit. In the same period, package volume has increased by 14.1% due to e-commerce.[6]

In the face of these challenges, the USPS has sought new sources of income. Although restricted by law from providing non-postal products (e.g. banking or internet services), it has broadened its scope of service with more innovative offerings. [7] In response to market trends of on-demand delivery, USPS piloted a same-day service in San Francisco and New York for delivery of groceries or fresh fish to restaurants, and has been working with partners such as Amazon to deliver packages on Sundays during the holidays.[8]

 

Operating Model

While revenues have increased year over year, the top line growth is not enough to compensate for the high level of inflexible expenses required to maintain universal postal access, and to fulfill employee benefits. The post is mandated to operate six days per week, and maintain locations in rural areas, for which the impact of lower post volumes is greater. [9] The USPS is the third-largest civilian employer in the US, and 80% of the USPS budget goes to pay for its nearly 500,000 employees. This includes salary and under a law passed in 2006, a required pre-funding of 75 years of health benefits for retired workers.[10]

The USPS supports a significant infrastructure, with 32,000 postal office locations, a fleet of over 200,000 ground vehicles, as well as air and ocean delivery. Additionally, it directs a network of warehouses and shipment centers. [11]

Governance of the USPS is driven by a board of eleven members, nine of which are Presidential appointees, who in turn appoint the Postmaster General or CEO. In this way, the organization stays closely tied to government.[12]

 

Do the models align and support each other?

The structure of the USPS as a governmental agency ensures that it is able to realize its universal service obligation—its primary organizational goal. USPS benefits from a monopoly over mail delivery and mailboxes, as well as tax subsidies, preferential interest rates, and real estate. [13] In this way, it possesses an edge over its private sector competition, including publicly listed companies UPS and FedEx, but also the host of instant delivery services that have emerged with product offerings similar to its newer services (e.g. Instacart, UBERrush). According to a 2015 study, these monopoly privileges add up to an estimated $18 billion dollars in special annual savings and subsidies. [14]

At the same time, the USPS is inherently limited in its ability to achieve its second goal—profitability—by improving operations as a fully private sector entity would. For instance, it cannot reduce six-day delivery to five, or closing and/or reducing areas with low mail volume without changing legislation. However, in an effort to address the poor financial performance, USPS has trimmed substantially, cutting rural postal working hours and overall employee count.[15] Its positive Controllable Income number suggests that it is performing well given its constraints.

While the USPS may not be an operationally optimal organization, it provides equitable communication service at a low cost to all Americans, and a large number of decent-paying union jobs, and is the largest employer of veterans.[16] Some argue that the solution is for the USPS to be privatized, but others see this as a threat to a core government promise. Either way, the organization must continue to adopt creative approaches to accommodate external pressures of change.

 

Sources:

[1] Unites States Postal Service 2014 Annual Report to Congress: 29.

[2]Lee, Brianna. “5 Things You Need to Know About the US Postal Service.” Need to Know on PBS. WGBH, September 13, 2011. http://www.pbs.org/wnet/need-to-know/five-things/the-u-s-postal-service/11433/. December 8, 2015.

[3]“How to lose $5 billion.” The Economist. November 21, 2015: 29.

[4]Ibid.

[5] “US Postal Service Reports End of Fiscal Year Results.” United States Postal Service, November 13, 2015. https://about.usps.com/news/national-releases/2015/pr15_060.htm. December 8, 2015.

[6]“How to lose $5 billion.” The Economist. November 21, 2015: 29.

[7]Katz, Eric. ” Bernie Sanders Addresses Postal Union to Decry USPS Privatization” Government Executive, October 15, 2015. http://www.govexec.com/oversight/2015/10/bernie-sanders-addresses-postal-union-decry-usps-privatization/122859/. December 8, 2015.

[8] “How to lose $5 billion.” The Economist. November 21, 2015: 29.

[9] Kamarck, Elaine C. ” Delaying the inevitable: Political stalemate and the U.S. Postal Service.” Brookings Institute, August 2015: 6.

[10] Ibid.

[11] Unites States Postal Service 2014 Annual Report to Congress: 48

[12] http://about.usps.com/who-we-are/leadership/board-governors.htm.

[13] Kamarck, Elaine C. ” Delaying the inevitable: Political stalemate and the U.S. Postal Service.” Brookings Institute, August 2015: 14.

[14] Ibid, 8.

[15] “How to lose $5 billion.” The Economist. November 21, 2015: 29.

[16] Katz, Eric. ” Bernie Sanders Addresses Postal Union to Decry USPS Privatization” Government Executive, October 15, 2015. http://www.govexec.com/oversight/2015/10/bernie-sanders-addresses-postal-union-decry-usps-privatization/122859/. December 8, 2015.