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How to solve the Post Office’s problems?

Felix Salmon offers some suggestions. (For some background, see this news article by Steven Greenhouse.)

I have no management expertise but about fifteen years ago I did some work on a project for the Postal Service, and I remember noticing some structural problems back then:

Everyone would always get annoyed about the way the price of a first class stamp would go up in awkward increments, from 29 cents to 32 cents to 33 cents to 34 cents etc. Why couldn’t they just jump to the next round number (for example, 35 cents) and keep it there for a few years? The answer, I was told, was that the Postal Service was trapped by a bunch of rules. They were required to price everything exactly at cost. If they charged too much for first class mail, then UPS and Fed-Ex would sue and say the PO was illegally cross-subsidizing their bulk mail. If they charged too little, then the publishers and junk mailers would sue. Maybe I’m getting the details wrong here but that was the basic idea. There was actually a system of postal courts (it probably still exists) to adjudicate these fights. Basically, the post office is always broke because it’s legally required to be broke. It’s not like other utilities which are regulated in a gentle way to allow them to make profits. Looking at this from a political direction, things must somehow be set up so that the Postal Service’s customers have more clout than the Postal Service itself. I don’t really have a sense of why this would happen for mail more than for gas, electricity, water, etc.

13 Comments

  1. zbicyclist says:

    Get into financial services? Really? I can’t imagine that going well. The countries that do it have decades of experience. The high end of the market is already well serviced (and over-branched) and the post office has little to offer. The low end is hard to make profitable, particularly for as labor-inefficient an operation as the USPS — and with politics entering to determine services and rates.

    Plus, politically this isn’t going to happen. Remember all the opposition to Walmart getting into banking services? Banks don’t like competition, even for firms likely to start by serving customers they don’t really want.

    • thetruth says:

      zbicyclist is way off base, has he/her ever delivered mail? Look into the facts, the “laborers” are the only ones who do real work. Check out how many managers per laborer and then how much salary those managers account for compared to people actually doing work (the laborers). As a laborer, I totally agree that the Postal Service is running inneficiently but know this ” we laborers are the only ones who truly care about the customers. Despite managements lack of customer service, we understand and appreciate the customers. There is only so much we can do with a top heavy management. Congress needs to ask the Postmaster why an unheard of amount of money was spent on machinery to sort the magazines, while at the same time they are crying about the drop in mail volume. This is only one blatant waste of money management has made and continues to make. I hope Congress does a payroll check and sees how many management positions contribute absolutely nothing to make revenues.

      • zbicyclist says:

        thetruth, you are reinforcing my comment by your statement “Check out how many managers per laborer and then how much salary these managers account for”. Labor inefficiency includes ALL labor costs.

  2. Deinst says:

    The organization is the Postal Regulatory Commission (aka Postal Rate Commision) http://www.prc.gov/prc-pages/default.aspx which unfortunately shares an acronym with the Peoples Republic of Cambridge.

  3. Xi'an says:

    The French Postal Services have mixed mail delivery with financial services for more than a hundred years: there was a logic to this, when most of the customers were living in rural areas with little or no access to banks in the vicinity. It always irked me, when waiting in line for stamps or packages, a monopoly of the Post Office, to have to increase my waiting time because of customers of the bank side, not a monopoly! However, in the long run, I think the banking part has helped keep the French Postal Services afloat with enough of a quality service. Even though I still have to wait a wee more than I should. (The banking services of the Post Office are also more “social” towards low income citizens than the “true” banks.)

    • Anonymous says:

      The French post office had (until 2011) a monopoly on mail delivery. Stamps have been available at tobacco shops for a long time.

  4. Frank in midtown says:

    The utilities are regulated by state regulators, the post office by congress. It is agenda for part of congress to make sure government is viewed as a failure, it is not part of the state regulators agenda that the utilities be viewed as a failure. The current crisis at the post office is one entirely of congress’s making.

  5. Do people still buy their first class stamps denominated with the current cost? I have gone over to Forever Stamps, since there is no need to add a few cents every time the PO raises the rates.

  6. A. Zarkov says:

    The USPS has less work to do because its First Class Mail revenue base is shrinking. Mail volume has dropped 22% since 2006. In short, the Internet is putting it out of business. The USPS also has huge labor costs, and it put it bluntly it pays its workers too much. They get better benefits than other federal workers and they are negotiated separately. USPS has to reduce its workforce by 220,000 by 2015 with 120,000 coming from layoffs. Their costs are much higher than FedEx and UPS.

    Like any failing business, the USPS has to either restructure or go into liquidation. “Restructure” is a euphemism for Chapter 11 bankruptcy (or its equivalent). Contracts get renegotiated, and the operation shrinks to a size better matched to its business. There’s noting difficult to understand about what has to be done. If USPS gets liquidated then FedEx and UPS and the other private carriers will expand to accommodate the additional business. The excuse for preserving the USPS has been rural mail delivery. The fear is these routes are unprofitable and need a subsidy otherwise rural residents will have to pay too much. But if First Class mail is disappearing in rural areas as well, then we simply don’t need the USPS anymore.

  7. numeric says:

    I don’t really have a sense of why this would happen for mail more than for gas, electricity, water, etc.

    Article I, Section 8, Clause 7 of the United States Constitution, known as the Postal Clause or the Postal Power, empowers Congress “To establish Post Offices and post Roads”. No such clause is for gas, electricity, water, etc (and they are all state/local, not federal).

  8. […] Service under the Postal Rate Commission. While not familiar with the current debate, his post in Statistical Modeling, Causal Inference, and Social Science, states what should be clear for anyone who has studied business.  An enterprise will find […]

  9. […] Service under the Postal Rate Commission. While not familiar with the current debate, his post in Statistical Modeling, Causal Inference, and Social Science, states what should be clear for anyone who has studied business. An enterprise will find […]

  10. […] Service under the Postal Rate Commission. While not familiar with the current debate, his post in Statistical Modeling, Causal Inference, and Social Science, states what should be clear for anyone who has studied business.  An enterprise will find […]