October 11, 2015

Making the U.S. Postal Service Economically Viable

There have many articles recently in which the U.S. Postal Service has announced that a deterioration of first-class service is an inevitable result of the cost reductions it will have to undertake. This is unfortunate, because we need a viable Postal System to perform many vital societal functions. UPS and FedEx do a great job as for-profit institutions serving the needs of businesses and high-density residential areas, but they are far too expensive in serving lower density geographies.

Moreover, their fee structures would kill individuals and small businesses. For example, UPS and FedEx charge over $10 for improperly addressed letters and packages. This is a profitable source of revenue for both organizations. They also have residential delivery surcharges, especially for more remote residential areas. If they are to take on the responsibility for more mail delivery currently done by the Postal Service, they cannot use their current fee structure to do so.

How can the U.S. Postal Service take costs down?

Use self-service retail more aggressively

The Postal Service is far behind the banking industry, as well as the travel industry, in employing self-service kiosks, as well as online retail purchase systems. You can do virtually all your banking at self-service kiosks, but the Postal Service has nowhere near the deployment of self-service kiosks it can and should have.

Share bricks-and-mortar retail with other retailers

There is no earthly need for dedicated bricks-and-mortar post offices anywhere in the United States. Postal retail operations should be inside major grocery retail operations, rail stations, airports, gas stations, general stores in rural areas, and major shopping malls.

Reduce street collection boxes and replace them with shared mail collection systems

The letter carriers can collect a significant part of the mail currently going to collection boxes, when the letter carrier is still doing residential delivery to the doorstep or dedicated mailbox. However, there should be collection boxes at the self-service kiosks, similar to what banks do with ATMs that collect deposits as well as dispensing withdrawals.

The Pitney Bowes shipping kiosks at Staples and Office Depot are paired with package collection systems at both stores. The retail outlets that sell greeting cards should also have kiosks and mail collection boxes for people that want to write and send an individual card. The types of mail used today need to be analyzed to determine the most efficient mail collection systems to reduce the number of mail collection vehicles and employees.

The mail processing functions should be completely outsourced to the private sector, with rate discounts that enable them to be profitable.

Pitney Bowes became a leading provider of mail sortation and processing services, and delivered mail into the Postal System faster, less expensively and more reliably than the Postal Service could have done with the same mail.

To be fair, Pitney Bowes and other companies offering presorting worked with more standardized and easy-to-process letter mail, as opposed to the bulkier and less standardized mail the U.S. Postal Service workers have to handle. However, the biggest issue with the mail processing centers is not the non-standardized part of the mail, but the inflexible, high cost labor rules under which the Postal Service operates. Mail volumes vary by day, week, month, and time of year. Labor staffing needs to be flexible and part-time. Over time, facilities need to be built, moved, and either reduced or increased in size. Because the Postal Service is government-owned, its ability to react quickly to changes in mailing patterns is non-existent. It takes years to build and move a post office, and it is virtually impossible to close a post office. It is even extremely difficult to remodel a postal facility that remains in the same place.

Change delivery economics to increase the use of clustered boxes

When I co-chaired the Mailing Industry Task Force with John Nolan, then the Deputy Postmaster General, one of the dumbest rate comparisons with which the Postal Service was stuck by its universal service mandate was that it was required to deliver mail free of charge every day to the bottom of the Grand Canyon, but was required to charge a mail recipient who could save it money for a post office box rental.

The economics of mail delivery need to be reversed. Those who give up expensive residential delivery should be rewarded. Those who secure a conveniently located delivery mailbox should get that service without charge. Over time, the mail delivery should gravitate toward moving the mail to where people spend their waking hours, not where they live or do business. We are a more mobile society than ever, and the Postal Service delivery system should recognize this.

Other observations

I have not discussed pricing for mail products because this is an infinitely more complex subject. Cost-based pricing has some perverse effects, such as increasing the cost of mailing for those direct marketers who are more selective in mailing to prospects in a ZIP code. It is cheaper to deliver to every address than to honor “Do not mail” requests and cull out certain addresses for discontinued mailing, but we should encourage the Postal Service and direct marketers to stop mailing to people who no longer want to receive marketing mail. Rate structures should encourage, not discourage, more selective mailing and higher direct mail response rates.

The discounts given to not-for-profit mailers, and for certain classes of mail, such as books and other educational materials, have broader societal purposes. Mail addressed to and from elected representatives and other government officials needs to stay at low rates, especially for people living in remote areas.

However, within existing rate structures and subsidies, there are potential improvements. For example, there should be a discount for mailers who use self-service kiosks and get bar codes printed on single pieces of mail, such as greeting cards. There should be a discount for mailers who drop mail at post offices or bulk pick-up services, as opposed to those who continue to use dispersed street collection boxes. There should be discounts for those who use pre-printed envelopes to pay bills, versus those who create a hand-written envelope to do so. Finally, there needs to be a discount for metered, versus stamped, mail, which is happening in many countries in the world.

Final thoughts

I have seen no business succeed in the long run by saving money through causing its service and brand to deteriorate. We need to prevent the Postal Service from following the path taken by Amtrak, which has become marginalized over a long period of time and required repeated government subsidies because of its deteriorating services and declining revenues.

Finally, let’s eliminate the inflexibility with which the Postal Service has to manage its medical benefits. Years ago, in conversations with one of the Postal Service labor union leaders, I learned that there was an opportunity to save hundreds of millions of dollars a year by taking postal employees out of the federal health benefits system. The Postal Service did not believe it had the freedom to withdraw from the federal system, even though it receives no taxpayer subsidies and it is an off-budget agency. That has to change.

Traditional mail volumes will decline further, but there are many opportunities, including those I have not described in this blog, for the Postal Service to be economically viable. We need a better model, one with considerably less political interference, with which the Postal Service can operate.