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Issue #583 | Forest Products

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2014 Media Kit
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Why the Postal Service can’t capitalize on the Christmas shipping woes

By: | at 02:56 PM | Channel(s): Intermodal  Transport Intermediaries  

It’s time to free the U.S. Postal Service.

While people continue to fight over who is to blame for the shipping problems that saw some packages delivered too late for Christmas, the good old post office is trying to shine its own apple, noting that while competitors UPS and FedEx had problems, its carriers “delivered mail and packages in many places on Christmas Day to keep up with higher-than-expected package volume.”

These postal workers didn’t take off on Christmas so they could “make sure everyone enjoyed their holiday.” Everyone, that is, except for those silly enough to deliver through UPS or FedEx, the Postal Service infers.

It’s enough to make businesses forget about UPS and FedEx altogether and go back to the USPS for shipping, right?

Hardly. While companies are obviously going to rethink their shipping options in the wake of these problems, the truth is few will actually make any changes, and even fewer will push more package deliveries through the Postal Service. Why? Because businesses don’t trust the Postal Service for bulk shipping. Even though rates through the Postal Service are historically cheaper, businesses have always respected the private competitors like UPS and FedEx for their logistical know-how, particularly for those deliveries that must be made quickly.

Even though that same focus on logistics was severely tested and questioned this Christmas, it is unlikely the USPS can use the fiasco to get more customers. In short, the Postal Service will miss its chance to take advantage of its greatest competitive opportunity in history.

As with many business problems, blame Congress and regulations. The Postal Service is an economic Frankenstein, state-run and micromanaged, but expected to act as if it were completely a private enterprise in the marketplace. As a result, it is a Labrador on a short leash playing frisbee – its instincts to run and fetch are choked by the firm pull of the handler unwilling to let him complete his task.

In a perfect world, the Postal Service would look at the marketplace, evaluate the business needs of customers, assess what costs it has to bear to fill those needs, and charge appropriately. That is, after all, basic economics.

But the Postal Service has no flexibility on what it can charge for its services, and even less flexibility in its costs. The government must approve its pricing. The USPS just got an increase in the price of a stamp, to a whopping 49 cents. When it tried to help its own economics by floating the idea of canceling home delivery in Saturdays, Congress pushed back.

Then there is its infrastructure. First is the cost of its network of actual post offices. A whopping 92.5 percent of all post offices in this country lose money, though that number is a bit deceiving because of the way revenue and costs are allocated throughout the system. Still, it is clear profitability can be improved by simply closing more offices.

But Congress hates it when post offices close. For one thing, constituents often gripe that they have to travel further to have the luxury to wait in line to buy stamps. Second, many of these buildings have historic or sentimental value to community. Hell, some of them probably are named after the great-uncles of the Congressmen themselves (the relatives who gave them the name recognition to get elected in the first place).

Then there are the labor costs. Because Congress mandates it, the Postal Service is unique in a requirement that it pre-fund its health benefits for workers, to the tune of $5.5 billion a year. There is no elasticity in this, meaning the organization is saddled with costs that are divorced from market realities.

“Today, the Postal Service and its employees are paying for benefits we don’t even use. We are effectively buying insurance we don’t need, and we’re overpaying for it,” Postmaster General Patrick Donahoe told Congress earlier this year.

Is it any wonder that the Postal Service loses $16.4 million per day? That’s an improvement over last year, when it lost $43.8 million a day, but it is still a deep, crippling loss.

No business can survive with those kinds of financials, let alone take advantage of the weaknesses in its competitors. UPS and FedEx have exposed their flanks, but there isn’t a single horse at the USPS to lead a cavalry charge.

It is a shame, because competition always brings down prices and stronger, more economically free Postal Service could benefit independent businesses and consumers alike. But Congress would have to unshackle the Postal Service, allowing it to truly make its own decisions free from regulatory and political interference, for that to occur. You probably stand a better chance of getting to Christmas present delivered on time than seeing that happen. (Reuters)