Why the Post Office Needs to Go Private

April/16/2018 8:10AM
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The USPS business model is broken. Bureaucrats are promoted to top management levels with zero capacity to fix the problem. Add to that the 635 members of Congress who think they run the business and you have zero hope of fixing the $2.7 billion loss on revenue of $75 billion.

The USPS delivers to 157 million addresses. They have 230,000 trucks to do that and 31,000 buildings plus 4,000 contractor run mail outlets. Mail peaked at 213 billion pieces in 2006, down to 149 billion in 2017. The exception is parcels.

They have 500,000 employees and 600,000 retirees who receive health and pension benefits. These costs have risen $2 billion since 2015.

Trump put his finger on the problem of the post office. It’s so simple an intern could solve it.

When I was a Harvard Business School we had a case problem about FedEx. Early in the company’s existence it was bleeding red ink. Fred Smith, the CEO, called in a Harvard professor to study the situation. FedEx was pricing overnight mail to be competitive with the USPS. But, FedEx was alone in offering overnight mail and could charge far more than they were charging. They raised the price tenfold , kept the business, and saved the company.

The USPS is suffering the same problem. They have Parcel Select for their package delivery business. They give three biggest customers; Amazon, FedEx and UPS 5%-10% off the Parcel Select rate.

In my business life my company delivered gasoline and diesel to retail outlets. We had our proprietary trucks and used common carriers as well. We had a model that told us which to use for every retail outlet. Basically we took the short, quick deliveries with our trucks and gave the rest to the common carriers and negotiated rates that were lower than if we had used our trucks.

The USPS is a combination of the Harvard FedEx problem and the gasoline delivery model(above).

Parcel Select had $1.83 billion in revenue for USPS in the 4th quarter of 2017. That’s an average of $2.09 per package. To ship on UPS you pay $8.19 and FedEx $8.64.  So the USPS simply needs to raise the price on Parcel Select $6 a package.  See, their big customers are using them for the remote deliveries. They drop the packages at the post office and pay $2 for the last leg of the delivery. The ones you can’t get to from here.

Trump is right. Add $6 to the package price on Parcel Select and you stay below the competitive cost and the USPS makes money despite the cost of all those retirees. Even despite the cost of having half of  their work force on disability. We have at least 3-4 different delivery people at each of two residences every year. When you ask, it’s disability. Dangerous work.

Now add to that, a real Trump skill set. Many of those 31,000 buildings are on property worth far too much for a retail post office. Sell those and lease cheaper properties.

Keep in mind, all of this requires an approval from Congress. Lawyers who know nothing but selling words and making speeches. Therein lies the rub. Remember the elimination of Saturday delivery? They are now making Sunday deliveries for Amazon.

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Comments (2)

  1. Ronald Gonshorowski says:

    Your research is right on the money.
    During the Christmas rush there were times that I could bid up to $10. per mile and of course I did just that.
    There were times that I took emergency contracts on very short notice.
    The biggest problem with transportation costs is that the market does not control the labor cost.
    It is the Davis- Bacon rate that required me to pay higher rates than an average truck driver earned.
    If they charged like in your example and allowed contractors more freedom, then the USPS would flourish once again.

  2. Marta says:

    Ronald Gonshorowski says:, thanks a lot for the post.Really thank you! Much obliged.http://customessaywrtsrv.com/

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