How The Housing Bubble’s Bursting Crushed the U.S. Postal Service

Business Week has an interesting article about the financial state of the U.S. Postal Service.  Here are some of the parts I found more interesting:

“Congress gave him until the end of 2011 to report on the USPS’s woes. But Herr and his team concluded that the postal service’s business model was so badly broken that collapse was imminent. Abandoning a long tradition of overdue reports, they felt they had to deliver theirs 18 months early in April 2010 to the various House and Senate committees and subcommittees that watch over the USPS. A year later, the situation is even grimmer. With the rise of e-mail and the decline of letters, mail volume is falling at a staggering rate, and the postal service’s survival plan isn’t reassuring. Elsewhere in the world, postal services are grappling with the same dilemma—only most of them, in humbling contrast, are thriving.”

Some stats:

“It takes an enormous organization to carry out such a mission. The USPS has 571,566 full-time workers, making it the country’s second-largest civilian employer after Wal-Mart Stores (WMT). It has 31,871 post offices, more than the combined domestic retail outlets of Wal-Mart, Starbucks (SBUX), and McDonald’s (MCD). Last year its revenues were $67 billion, and its expenses were even greater. Postal service executives proudly note that if it were a private company, it would be No. 29 on the Fortune 500.

The problems of the USPS are just as big. It relies on first-class mail to fund most of its operations, but first-class mail volume is steadily declining—in 2005 it fell below junk mail for the first time. This was a significant milestone. The USPS needs three pieces of junk mail to replace the profit of a vanished stamp-bearing letter.”

I found this next part especially surprising:

“During the real estate boom, a surge in junk mail papered over the unraveling of the postal service’s longtime business plan. Banks flooded mailboxes with subprime mortgage offers and credit-card come-ons. Then came the recession. Total mail volume plunged 20 percent from 2006 to 2010.”

Amazing: there was so much junk mail resulting from the housing bubble that it made the postal service think that their business plan was viable!

The article gets into a look at how postal systems work in many European countries, where they closed many post offices and instead privatized those services, installing them in gas stations and convenience stores.    The USPS is exploring this idea, but it seems like it will be slow in coming.  This seems like an obvious first step to me – it’s more convenient to have a postal cashier at the gas station or the grocery store anyway.

“The question is, are there any special circumstances that suggest all these other countries are wrong and we are right?” says James I. Campbell Jr., a consultant in Potomac, Md., who advises foreign governments on postal policy issues. “The answer is pretty simple: The European countries are on a reasonably viable course. The U.S. is not.”

Insanely, the USPS seems bent on trying to deny that the future is coming:

“Under Donahoe, the USPS is focused instead on trying to slow the migration of its customers to the Net. The man in charge of this task, which brings to mind King Canute’s attempts to hold back the incoming tide, is Paul Vogel, a former letter carrier who is now the postal service’s chief marketing sales officer. He is less spirited than his boss and understandably so; his job is to persuade banks to keep sending paper statements in the mail. It’s a losing battle, and Vogel knows it. “Inevitably, it’s going to go to those new technologies,” he sighs.”

The fact that there is a USPS employee tasked with persuading banks to keep sending hard copies of statements via snail mail is shocking, sad, and hopeless.  It gets more hopeless when we get the details about junk mail.  Quoting mail carrier Jim Rice:

Some things about his job are eternal. Others are changing rapidly. He carries a lot more of what he calls “standard mail.” “Civilians call it junk mail,” Rice says, joking. “We don’t like that term. We call it job security.”

Later, it seems like junk mail is their business plan!  Why not raise rates on junk mail then?:

He says he wants to dispel “some of the negative vibes that have been floating around” the postal service. He acknowledges that first-class mail is in an inexorable decline, but he sees junk mail rebounding with the economy. In the last quarter of 2010, junk revenue climbed 7.1 percent. “That proves that there is viability in our system,” Donahoe insists. (Unfortunately for the USPS, junk volume has since plateaued.)

And they sum it up with the money question, emphasis mine:

“The USPS, however, still seems to be in denial. “The postal service is already carrying more junk than first class,” says postal consultant Campbell. “Pretty soon it’s going to be a government-run advertising mail delivery service. Does that make any sense? It doesn’t make any sense.””

There’s also a massive undercurrent throughout the article about the effect unions have on the cost cutting measures and the relating legislation.  I’ve chosen not to focus on this side of the problem because I don’t really want to get into another “unions suck” “no, unions are good” debate – which almost always proves unproductive.

I guess I’d like to poll my users on how they use the USPS:   How often do you go to the post office?  How often do you receive mail at your home/apartment/mailbox that you “need”?  Would you care if mail were picked up and delivered every other day instead of every day?

Personally, I wouldn’t notice a difference if mail were delivered 3 times a week, or if I had to take a package to the supermarket instead of the post office.  I pay all of my bills online electronically, and despite Mrs. Dynamite’s War on Junkmail (Where she calls the sender of everything that comes to our house and demands to be taken off the list), junkmail still composes the majority of the items in my incoming mailbox.

Readers are well aware that I order tons of stuff on Amazon.com, although the majority of that comes via Fed Ex or UPS.  Now, interestingly, USPS and UPS have some logistical synergies where UPS uses USPS for the last leg of deliveries – ie, I occasionally get a UPS package in my mailbox, delivered by the USPS.  I think that the private carriers have long carried USPS mail on their planes, but this USPS delivered via USPS system, as far as I know, is new.

-KD

 

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