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The Postal Service’s Gloomy Twilight

Neither snow nor rain nor heat nor gloom of night will stop the postman from delivering your mail. Unfortunately, the bill for such high-end customer service is officially out of control.

Bloomberg Businessweek’s cover story for the week of May 30, focusing on the United States Postal Service, created a lot of discussion on the topic, but the crisis in our post office has been a long time coming. The easy culprit is the internet; email has certainly been one of the biggest factors in the decline in first class mail over the past couple decades.

But this alone would not have been enough to send the Postal Service into oblivion. Many other first-world countries have postal services that are stable, and some even thrive. Bloomberg’s report uncovers a number of other factors, from USPS workers’ inflated pensions to post office locations in unprofitable areas, which are dragging the Post Office into the red — almost $15 billion into the red.

Part of the problem is that the USPS occupies a strange middle ground between a public service and a profitable business. The USPS as it exists today came into being as a result of the Postal Reorganization Act of 1970, which made it a semi-independent, corporation-like agency. However, as one of the few government agencies specifically mentioned in the Constitution, the Postal Service still occupies a special place in American life and politics, granted importance that may very well exceed the actual demand for its services.

Consider a typical day’s mail. For business, Palisades Hudson uses FedEx for parcels or items that need to arrive with a short turnaround. For non-urgent packages, we still use USPS, because it remains the cheapest option. Should this change, the agency would have to have a much stronger showing in services to keep us from switching to their rivals at FedEx or UPS.

As for personal mail, like most people, I get my bills, bank statements, and other important correspondence online. I don’t get handwritten personal letters on a regular basis. Some of my friends and coworkers get the ubiquitous red envelopes for Netflix, but it’s no secret that the company hopes to continue to move more into the profitable realm of streaming.

So what’s filling my mailbox? When I bother to check it, my mailbox is filled with junk mail, or “standard mail,” as the Post Office calls it. Standard mail has become the USPS’ bread and butter since the drop-off in first-class mail. According to Bloomberg, the USPS needs three pieces of junk mail to replace every lost piece of first class. This was fine until the recession hit and even standard mail began to fall off. Now, the Post Office is courting direct marketers and even raised some commercial mail prices this April.

But this is a limited solution. Commercial mail rates are still very low — they vary, but fall in the neighborhood of 11 to 20 cents per piece for small amounts, or per pound if enough is sent to qualify to mail by weight — but it’s unclear how far the post office could raise prices before the amount of mail began to fall more sharply. With businesses happy to pay USPS rates and fill my mailbox with junk, I’ll posit that a small increase in commercial mail rates would boost USPS revenues without hurting demand. Eventually, though, standard mail might out-price itself, leaving the USPS in a worse position than before.

There are other solutions, of course. There has been active discussion of changing mail delivery to five days a week. It seems unlikely that the loss of regular mail on Saturday would cause a major outcry, especially among younger Americans. Since most of my mail is the standard-mail variety anyway, I can go almost a week without checking my mailbox with no great harm done, barring jury duty summonses and the like. And if some freestanding post offices closed, in favor of Postal Service stations in convenience stores or coffee shops, I doubt many people would lose much sleep.

Part of the reason this latter plan appeals to the Postal Service is because such locations would not have to be staffed with union employees. The postal workers’ union is large and powerful, and between the agency’s inability to lay off staff and the pension and benefit promises it continues to make, it’s hard to see how attrition can curtail this major expense. According to The Washington Post, more than 850 senior Postal Service staff members get their health care absolutely free, and according to Bloomberg, the USPS covers an average of 79 percent of its employees’ health care costs.

Conor Friedersdorf, an associate editor at The Atlantic, points out in an editorial that “At UPS and FedEx, management has a powerful incentive to hold down overall labor costs, and to preserve the flexibility and adaptability of the respective companies. When USPS negotiates with the any of the four unions that represent its employees, the dynamic is completely different: management has fewer incentives to hold down costs, even as labor exercises substantially more clout due to is political influence.” The USPS isn’t honestly competing with UPS and FedEx, because their constraints are completely different — as are their incentives.

If the USPS is to be run like a business, it needs to be run with more of a profit motive. If demand dips, you can raise prices, cut expenses, or search for new, more lucrative services. The Post Office should, ideally, attempt all three. European postal agencies offer services like scanning your mail to deliver it to you electronically, or turning pictures from your phone into postcards. Not all new ideas will work, but unless such new services are attempted, demand for the old services may die out altogether in the meantime.

And if the USPS is an agency run for the public good, like the EPA or NASA, then we need to seriously reconsider fiscally responsible ways of running it. Right now, it is stuck between two models, promising its union more than it can afford, charging the same amount to send a letter 3 blocks and 3,000 miles, and waiting in vain for people to start sending bundles of personal letters again. While Republicans and Democrats don’t agree on much these days, hopefully they can agree that it’s time for reforms that are long overdue.

Vice President and Chief Investment Officer Paul Jacobs, of our Atlanta office, contributed several chapters to our firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55, including Chapter 12, “Retirement Plans;” Chapter 15, “Investment Approaches and Philosophy;” and Chapter 19, “A Second Act: Starting a New Venture.”

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