Beyond Postal Panic

A U.S. Postal Service office is pictured in Philadelphia, Penn., on Aug. 14, 2020. (Rachel Wisniewski/Reuters)

Commentary

The panic over whether the U.S. Postal Service (USPS) could deliver election ballots has passed. So is the fear it would run out of cash and stop all deliveries—Congress provided it with $10 billion in emergency relief to cover COVID-induced losses and expenses.

But fundamental problems still threaten its future viability as mail delays continue.

Postmaster General Louis DeJoy will soon offer overhaul plans, and the new Congress and administration also are toying with reforms, some of which would make matters far worse. Thus, it’s important to frame the issues for the coming debate.

Money Matters

For years, the USPS has lost revenue as individuals, businesses, and advertisers shifted to electronic communications from paper delivered by mail carriers. Cumulative losses since fiscal year 2007 were some $87 billion, including a loss of $9.2 billion in fiscal 2020 against revenue of $73.1 billion.

In that year, with COVID-19 raging, first-class mail volumes dropped 4 percent with revenues falling by $653 million. Marketing mail volumes dropped by 15.2 percent with revenue down $2.5 billion. Volumes and revenues are unlikely to fully recover to pre-pandemic levels.

Don’t Mess With Packages

The Trump administration and some critics argue that USPS loses money when it delivers packages for e-commerce shippers, notably Amazon. Yet, USPS revenue from package deliveries in fiscal 2020 surged to $28.5 billion, an increase of more than 25 percent over 2019, actually exceeding the $23.8 billion in revenue from first-class mail. It’s the bright spot in USPS finances.

Currently, by law, USPS must charge e-commerce companies for delivering their packages rates to cover its direct, or “attributable,” costs, e.g., the time mail carriers spend delivering packages, and an appropriate share of USPS overhead costs, e.g., a share of facilities. Courts have certified that USPS pricing is in accordance with congressional mandates.

Some critics would justify higher package rates by pushing the antiquated, widely rejected “Fully Distributed Costing” accounting trick that arbitrarily assigns costs not directly related to services provided. Congress rejected this approach when it passed the Postal Accountability and Enhancement Act of 2006.

If USPS does substantially boost package rates on U.S. companies and consumers, e-commerce companies such as Amazon and UPS would simply carry more packages on their own expanding fleets of delivery vehicles, reducing USPS package volume and revenues; DeJoy wisely refused Trump’s demands to quadruple package deliveries rates.

Today, DeJoy is thinking about raising rates on first-class and marketing mail, but a substantial increase would likely drive more customers to electronic communications. That could lead to a “death spiral,” in which rates on mail and packages are increased even more to make up for reduced volumes.

Focus on Cost Control

A 2019 General Accounting Office study does shed light on several actual reasons for USPS losses:

“Insufficient cost savings: The savings from USPS cost-reduction efforts have dwindled in recent years. Although USPS has stated that it will aggressively reduce costs within its control, its plans will not achieve the kind of savings necessary to significantly reduce current operating costs.

“Unfavorable trends: USPS’s expenses are now growing faster than its revenues—partly due to rising compensation and benefits costs and continuing declines in the volume of First-Class Mail.”

USPS clearly needs major restructuring. Workers should be retrained and reassigned where possible to increase efficiency and, where not possible, cut through attrition or buyouts to control costs. Further, USPS should expand the use of the private sector to perform functions other than final mile delivery, wherever this is more efficient.

Address Pension Costs

A major reason for USPS deficits is that it’s required by Congress to pre-fund employee retirement. Other government agencies have those costs covered by taxpayer dollars. But USPS is supposed to cover benefits from revenues from its services. Recently introduced House legislation would remove this requirement. But there are better approaches to addressing this problem. Amortizing payments over a longer period and using postal-specific wage growth data and more realistic allocation methods for calculating USPS’s share of the pension liabilities would help.

Moving at least a portion of the retiree funds in the form of defined contributions to individual Federal Thrift Savings (401(k)-type) accounts open to other federal employees, or even to private 401(k)s or IRAs, would be a long-term option.

Avoid Non-Postal Frolics

Some suggest that USPS provide non-delivery services, e.g., banking, but such efforts in the past have been costly boondoggles. USPS should stick to the business of delivering mail and packages, while exploring ways to increase efficiency and hold down costs by expanding the use of the private sector.

Above all, policymakers should move beyond the recent panic mindset and think clearly about e-commerce and serious postal reform.

Edward Hudgins is president of the Human Achievement Alliance, which celebrates achievement, promotes understanding of the potential of exponential technologies, and explores policies to usher in the free, prosperous economy and culture of the future.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.