The Grand Illusion
As some long-time readers of this blog may know, some forty years ago, I served briefly as a legislative director to a Congressman. One of my duties was to handle the staff work for one of his subcommittees – the one dealing with appropriations for the U.S. Post Office [before it was theoretically made an independent agency]. Way back then I raised the issue as to why the Post Office was basing its revenue on first class mail rates and treating bulk mail as a marginal cost. Over the years, I’ve raised this issue, and to this day, no one seems to want to deal with it.
Last quarter, the Postal Service lost $5 billion, and those concerned in the USPS and Congress keep talking about raising first class rates, closing post offices, and eliminating Saturday delivery. None of these steps will address the problem.
The vast majority of my mail – measured by weight, not rate class – is either bulk advertising mail, reduced rate charitable solicitations, or periodical reduced rate mail. I’ve asked a number of people with various Postal Service profiles, and that seems to be true of all of them as well. As first class rates have soared, first class volume has declined, and periodical and bulk [junk] mail make up as greater and greater percentage of Postal Service deliveries, again by weight. But weight is what counts! Ask FedEx and UPS. They charge by a combination of weight and speed of delivery.
The problem is that USPS “bulk,” periodical, and “non-profit” rates aren’t literally carrying their weight… or paying their freight. But neither the USPS management nor the Congress has wanted to face the fact that these rates are too low, because, in effect, the USPS inherited built-in subsidies adopted for political purposes. Some of those purposes are still political. For example, all members of Congress have a “franking” privilege that allows them to send letters to their constituents over their signature on the envelope for literally pennies. The direct mail industry is being subsidized as well, as are non-profit organizations and periodicals. If I’ve read the rate charts correctly, advertising mail and periodicals are charged at slightly over twenty cents a pound[ or in some cases twenty-one cents for the first three ounces], while first class letters are now forty-five cents an ounce.
If Congress wants those subsidies to continue, then it should fund the USPS deficit… but in this time of fiscal difficulty, it won’t do that, and it won’t force the USPS management to adopt a realistic and practical rate structure, because churches, political organizations, direct mailers, and Congress itself would all have to pay more. Instead, the everyday Americans who don’t like all the junk mail and political and endless charitable solicitations are faced with poorer service and higher prices for personal communications – and not all of us can or want to pay our bills electronically. Nor can we, since it’s not possible for all businesses or for all individuals. Nor should we have to when those higher postal rates are subsidizing the unrealistically low rates paid by other classes of mail.
It may well be that lower postal rates for periodicals and non-profits serve a greater social purpose, but, if that is so, then Congress should subsidize those rates with public funding. But, as usual, Congress doesn’t want to pay for its privileges [the franking privilege] and doesn’t want to admit the degree to which it wants everyone else to subsidize bulk mail for business, charities, non-profits, and political organizations, all of which apparently have more political clout than the citizenry as a whole.
Not that any of this is surprising, but I have yet to see any public discussion of this aspect of the Postal Service cost structure, not in more than forty years – except for my own comments.
I don’t think congress want or don’t want to is really the way to look at it. If it’s not in the public sections radar it isn’t going to be in congresses, who probably simply see it as a company into it’s self. So if it fails, it isn’t congresses fault its the fact the the company isn’t good enough to make a profit. Real solutions probably aren’t thought of or considered beyond not making it a negative issue to voters. So keep regulations the same and expect the company to solve its own problems is the way congress considers the issue. Because if they do get involved and it helps USPS everyone will simply see it as what should of happened anyway but if USPS still fails then its congresses fault.
-Rehcra
I would cheerfully pay more for my one magazine subscription if it meant that USPS actually delivered the magazine on time, without tearing its cover, and without fail. But at least once a year USPS fails to deliver it at all and I have to contact the publisher for a replacement, and two or three times it arrives weeks late. Maybe that’s because it is delayed by all the junk mail that no-one wants anyway?
Cheers
John
The main part of the problem,I think, is that neither Congress, or, for the most part, business management, can think long term. Congress does not think beyond the next election! Business will not think beyond the next quarters profit. Solutions?
Wasn’t the reason for reduced periodical rates to ensure an informed citizenry? Since the citizenry is obviously neither informed nor getting its news from reading, it seems reasonable to declare defeat and raise bulk rates. The environmental benefits alone justify it.
I find these days I get on average about 3 or 4 pieces of mail every day asking me to donate money, although I actually make all my charitable donations in December and December only (season of giving and all that). All of that mail gets torn in half and goes directly into the trash.
I write one or two personal letters a month and receive about the same. I can easily afford the stamps, of course, but I sure would be pleased if all those people trying to get money out of me had to pay as much as I do to send their letters.
Isn’t one of the reasons the USPS loses money the issue of having to prepay pensions? Also, isn’t the loss a bit over 5 billion USD over the last year?
Not to imply that the USPS doesn’t have the issues you’ve described, but there is a difference between an increasing loss and a diminishing profit.
I found a PBS article quote: “the USPS is required to make an annual $5.5 billion payment over ten years, through 2016”
Source:
http://www.pbs.org/wnet/need-to-know/five-things/the-u-s-postal-service/11433/
I also found a Huffington Post article containing the Reuters notice about USPS prepayment default:
http://www.huffingtonpost.com/2012/08/09/us-postal-service_n_1760141.html?utm_hp_ref=business
You’re correct about pension prepayment, but that requirement was imposed because the pension fund was grossly underfunded… and all private pensions are supposed to be prepaid. Even without the pension issue, the USPS has been required to continually increase first class rates to make ends meet while other rates have not increased nearly so much.
To me, this is merely another example of why Congress needs to stay out of the business of being in business. Judging by the amount of junk mail I get in my out of the way corner of the US (nearest town population is only 20k), they could make an extra $50 a quarter just on the crap that gets delivered to me.
That being said, my rural carrier earns every dime that the USPS pays him – he frequently goes above and beyond the call of duty. Of course, I pay him back with coffee, bottles of water, and the occasional sandwich or bag of chips.
While this is probably a smaller piece, the simple lack of customer service and employee competence drives business away.
My wife runs a commission based costuming business. For a long while we used USPS for all our deliveries and happily paid for the service. Then our first run in with an internation client happened. We wanted to ship a package 35″x18″x18″ weighing 14 pounds to Australia.
Day 1: we come in with the package to get the shipping quote. We are given a quote of around a hundred dollars. We leave, set everything else, come back the next day.
Day 2: we come back in, we are told flat out that it’s impossible to ship this package to Australia because it is too big. No if’s, no alternatives, just a very rude person telling us to it’s impossible. We leave. I call customer service and inquire about this. Turns out the package is too big for Express, but can go by Global Express no problem.
Day 3: I come back in, I get the same employee, who refuses to listen to me and doesn’t seem to care that I may have talked to someone else and had different information. This turns into a full arguement until another agent helps me, finds out that yes I am right, and gives me a quote of around $170.
Day 4: We come back in, with the proper paperwork and the quote we were told. We are then told there’s a completely separate form that they never bothered to give us, while we are filling it out there is yet another arguement about how the package cannot be shipped, this person actually argued with her manager in front of customers despite having been proven wrong. We get everything set and then get told last minute that the box is assumed to weigh 69 pounds and will cost $485 to ship.
This four day process, of people not knowing their own policies, of not being willing to look into things and of not being up front with costs has lead to us going with other shipping methods. Not just for international, but period.
Now we’re not a big big customer, we probably paid USPS around $1k a year give or take in shipping fees. That’s going to other companies now, and I doubt we’re alone if having this type of experience.
From what I have read above, it sound alike the USPS is due for a major change. In the UK, the equivalent is the Royal Mail and this has had to significantly evolve from a public union-orientated organisation to one which has to stand up in the commercial world, and it is struggling.
Having said that, it is also legally obliged to handle all mail wherever the location, whereas commercial enterprises can cherry-pick their zones of interest.
I suspect the Royal Mail would like to dispense with this obligation, and I hope they do so that people in remote areas can no longer rely on a standard rate but have to pay what it costs. Or..the government gives subsidies as it does to telecommunications in outer Scotland and its islands. These subsidies should be paid to any company, not just the national incumbent.
We shall see.
I used to work for the post office and what I was told when I asked why bulk mail was so cheap and first class so expensive was that the people who paid for bulk mail wouldn’t pay more than they were and if the USPS raised the costs, they would lose bulk mail, whereas people sending letters would accept stamp increases. I have no idea how true this is, but apparently the administration at the post office believes it. So that’s why, according to my superiors at the PO.
That may well be what they believe… but that doesn’t mean that they’re right, and it certainly doesn’t justify running a money-losing service for which people won’t pay the true costs of operation. The Postal Service is losing first class customers because of increased rates, yet they’re not willing to lose bulk mail customers if they charge rates able to cover the true costs of operation? That makes no sense.
You have to take into account the disappearing economies of scale, mostly as a result of electronic communications. The fuel and labor costs needed to deliver 3 first-class envelopes to a house is not much more than one such envelope, yet the revenue is three times as much. Let’s face it — neither UPS nor Fedex can deliver even a tiny package for 45 cents (the current 1-oz USPS rate); because they do not have the economy of scale.
As this trend continues, I see no choice but to have USPS raise their rates (bulk, yes, but also first class), reduce their standard service (say to 5 or even 3 deliveries per week), or both.
I completely agree with you on the bulk rate situation, but that problem is secondary to labor costs. A USPS worker typically makes 1.5 times more than an equivalent FedEx or UPS worker. A USPS worker typically is less productive than an equivalent FedEx or UPS worker. The result is that labor costs for a given amount of work are nearly twice as high as in the private sector.
The cost comparisons are probably accurate, but misleading. UPS and FedEx have far more part-timers, many of whom, I suspect, receive no benefits. Both UPS and FedEx “outsource” many of their “office” locations as well, offer limited office hours at smaller UPS locations, while the USPS maintains staffed offices generally from eight to five.