Rafi Mohammed

For the U.S. Post Office, One Price for All Isn't Working Out So Well

Posted on September 6th, 2011 (2 Comments)

Have you been to the Post Office lately? Courteous service, offers of assistance (“let’s double-tape that package”), and polite upsell suggestions (“need stamps,” “delivery confirmation?”). Wow - the Post Office has drastically changed since the Seinfeld parodies of poor customer service. 

Steven Greenhouse wrote an interesting article in yesterday’s New York Times (“Postal Service Is Nearing Default as Losses Mount”) which concludes that the Post Office is in deep trouble. Labor wages represent 80% of expenses (compared to 53% and 32% respectively for UPS and FedEx), it needs to reduce 120K workers while having a “no layoffs” pledge to unions, it can’t raise prices by more than inflation, it projects a $9.2B deficit this year, and there is a downward trend in mail (167B pieces annually, which is down 22% from five years ago); to quote Bob Dylan, “I feel a change coming on.”

I’ve always wondered about the 44 cent price for a 1 ounce letter delivered anywhere in the U.S. This is a great deal for transcontinental or rural area letters – heck, it even seems fair for a cross-town letter. While from a value perspective, prices should be differentiated based on destination (local, far away, rural - costly areas to service) as UPS and FEDEX sometimes do; using a make-it-easy-to-use uniform price tradeoff is understandable. It’d be complex for customers to understand/implement as well as for the USPS to monitor compliance of a zone type of pricing.

That said, as the debate about how to save the USPS heats up – there is pressure from rural areas to keep unprofitable post offices open (to preserve a way of life) and Saturday delivery alive (Senator Collins of Maine warns that curtailing Saturday delivery would be tough on people of small towns who receive prescriptions and newspapers by mail).

Why should the USPS - which is not supposed to be subsidized by the government – be responsible for carrying out unprofitable social policy? Preserving small town post offices and Saturday delivery may be a “rallying issue” to rural government representatives, but I don’t think the USPS should be on the hook for the costs.

My first job after graduate school was working on a subsidy program that was meant to help fund telephone companies in high cost areas. This fund, the Universal Service Fund (funded by those pesky additional fees on your telephone bills), distributes approximately $2B annually to maintain affordable telephone service. Perhaps a similar fund should be established for high-cost-to-serve postal delivery areas.

Let’s keep the boundaries straight – if the USPS is not supposed to receive Government funding – it shouldn’t have to provide unprofitable services as dictated by government representatives.

Love to hear your thoughts!

Add Comment
Send to Friend
Email Signup
RSS Feed

Readers' Comments on This Blog Entry

From Steve on September 6th, 2011
This reminds me of the Social Security issue. I think most people realize that things can't just continue on the same course and remain solvent. By making prudent changes now, you avoid the draconian measures required to save it down the road. Saturday delivery? Stop it now or lose a ton more money and then do it later. I love cards and letters as much as anybody, but if the USPS operates at a deficit with the 44 cent stamp, raise it. People will find their comfort level as to whether or not they can afford to use the USPS. Right now between the restrictions put on them by regulations and the unions (both of which I support in most areas)the USPS is doomed to continued failure.
From david on September 16th, 2011
A company needs to try to make money and get rid of the reasons they are not before they get help from the goverment.