Why the Post Office Needs to Go Private

April/16/2018 8:10AM
6 interesting comments, join the discussion
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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 (6)

  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/

  3. bradford turner says:

    Before you start bashing how noncompetitive the USPS is compared to FedEx, UPS and other private delivery companies, just how many would be able to compee with the USPS if they all had to prefund their own retirement system and healthcare benefits (up front!!)as the USPS was required to do a few years back. I can hear the howls of protest now. This was a requirement shoved down their throats by Congress dancing to the tunes of the same special interest who are salivating as I write this counting the profits they will reap (and undoubtedly raising prices across the board)for mail delivery if the PO is dismantled and privatized. (think MaBell). This is a quote lifted from a paper by the Post Office Inspector General in 2015 which sheds much needed light on the issue:
    “The Postal Service has set-aside cash totals of more than $335 billion for its pensions and retiree healthcare, exceeding 83 percent of estimated future payouts. Its pension plans are nearly completely funded and its retiree healthcare liability is 50 percent funded – much better than the rest of the federal government. But getting to this well-funded position has been painful. The Postal Service’s $15 billion debt is a direct result of the mandate that it must pay about $5.6 billion a year for 10 years to prefund the retiree healthcare plan. This requirement has deprived the Postal Service of the opportunity to invest in capital projects and research and development…..The Postal Service has set-aside cash totals of more than $335 billion for its pensions and retiree healthcare, exceeding 83 percent of estimated future payouts. Its pension plans are nearly completely funded and its retiree healthcare liability is 50 percent funded – much better than the rest of the federal government.
    I can only imagine how that $335Bn looks to Wall Street carrion pickers.
    From another USPS website this:
    Adopting a traditional “pay-as-you-go” method would produce an average of $5.65 billion in additional cash flow per year through 2016.”

    Of course this little fact is never mentioned by the Conservative commentator No Smoke Blown who doesn’t even have the nuts to give his name probably because this little piece of libertarian BS was written by a team of lobbyists from one of the aforementioned companies. Do I hear, “Fake News” somewhere in the background? The unbridled bias in this piece is beyond the pale and represents another unjustified attack on social and government programs that would actually work for the common good if the greed and profit motive so prevalent in our monopolist capitalist society where laws such as the one which plagues the USPS are promoted by right wing think tanks funded by billionaires whose lack of conscience and morals are singularly focused on the almighty dollar. So, please Mr. No Smoke Blown do some research before you shoot your mouth off with your omissions and fact free propaganda. Sincerely, Bradford Turner, Tucson, AZ
    ps – i would be shocked if the censors on this website will even allow this comment to ever be read on this site.

    • bill says:

      Thanks to these prefunding payments, the Postal Service has greatly reduced its unfunded obligations for retiree health benefits. At the end of fiscal year 2010, these obligations were under $49 billion – a substantial sum, but much more manageable. If the Postal Service continues making its prefunding payments, its unfunded obligations for retiree health benefits will be around $33 billion by the end of the decade. And the postal service will be on course to pay these benefits over time,” a Congressional insider explained.

      Just a mere $49 billion underfunded sir. I will ignore your typical liberal personal attacks and merely present facts as always.
      Bill Robertson

      • Bradford Turner says:

        Before you start bashing how noncompetitive the USPS is compared to FedEx, UPS and other private delivery companies, just how many would be able to compee with the USPS if they all had to prefund their own retirement system and healthcare benefits (up front!!)as the USPS was required to do a few years back. I can hear the howls of protest now. This was a requirement shoved down their throats by Congress dancing to the tunes of the same special interest who are salivating as I write this counting the profits they will reap (and undoubtedly raising prices across the board)for mail delivery if the PO is dismantled and privatized. (think MaBell). This is a quote lifted from a paper by the Post Office Inspector General in 2015 which sheds much needed light on the issue:
        “The Postal Service has set-aside cash totals of more than $335 billion for its pensions and retiree healthcare, exceeding 83 percent of estimated future payouts. Its pension plans are nearly completely funded and its retiree healthcare liability is 50 percent funded – much better than the rest of the federal government. But getting to this well-funded position has been painful. The Postal Service’s $15 billion debt is a direct result of the mandate that it must pay about $5.6 billion a year for 10 years to prefund the retiree healthcare plan. This requirement has deprived the Postal Service of the opportunity to invest in capital projects and research and development…..The Postal Service has set-aside cash totals of more than $335 billion for its pensions and retiree healthcare, exceeding 83 percent of estimated future payouts. Its pension plans are nearly completely funded and its retiree healthcare liability is 50 percent funded – much better than the rest of the federal government.
        I can only imagine how that $335Bn looks to Wall Street carrion pickers.
        From another USPS website this:
        Adopting a traditional “pay-as-you-go” method would produce an average of $5.65 billion in additional cash flow per year through 2016.”

        Of course this little fact is never mentioned by the Conservative commentator No Smoke Blown who doesn’t even have the nuts to give his name probably because this little piece of libertarian BS was written by a team of lobbyists from one of the aforementioned companies. Do I hear, “Fake News” somewhere in the background? The unbridled bias in this piece is beyond the pale and represents another unjustified attack on social and government programs that would actually work for the common good if the greed and profit motive so prevalent in our monopolist capitalist society where laws such as the one which plagues the USPS are promoted by right wing think tanks funded by billionaires whose lack of conscience and morals are singularly focused on the almighty dollar. So, please Mr. No Smoke Blown do some research before you shoot your mouth off with your omissions and fact free propaganda. Sincerely, Bradford Turner, Tucson, AZ
        ps – i would be shocked if the censors on this website will even allow this comment to ever be read on this site.

        Dear Mr. Robertson
        re: Facts as always (In a pigs eye)
        I am hardly convinced that any data you attribute to a “Congressional Insider’ is valid. Hearsay doesn’t fly in a court of law so why should anyone be persuaded it has any merit here in this cesspool of libertarian doublespeak. I quoted the Postmaster General. Who exactly is this expert Congressional insider YOU are quoting? And exactly what are his (or her) credentials to speak on such matters without any authority except that of pundit without portfolio. Or do you like so many mindless conservative lemmings accept unsubstantiated drivel as truth without any further investigation? I’m guessing they are just another right wing think tank lobbyist trying to sugar coat the fact that this singularly unjust and unfair burden the USPS must operate under is of minor consideration when contemplating the demise of an institution that has served the United States public with distinction for over 240 years. Furthermore, you completely failed to address my assertion that if UPS, FedEx etc were required by law to fund their employee health and retirement benefits UP FRONT the outcry from the private sector at such an outrageous requirement would still be resonating up and down the halls of Congress. Bottom line is the USPS isn’t broken, sir, it’s Congress that is broken so either contradict my argument with verifiable facts, not hearsay, or shut the fuck up you smug little asshole.

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