Congress, in the proposed Postal Service Reform Act of 2021, is attempting to deal with the decades-long travails of the government enterprise that has lost $87 billion since 2007 and $9.2 billion just in fiscal year 2020. A key to improving USPS financial prospects in the future is their participation in delivering packages for the exploding ecommerce market.
Profiting From Packages
Historically, delivering first- and third-class mail was the Postal Service’s principal revenue source. But as individuals and businesses moved to electronic communications and transactions, those revenues plunged, from $37.6 billion in 2007 to $23.8 billion in 2020. But the USPS bright spot is package delivery from growing ecommerce, bringing USPS $28.5 billion last year, more than from delivering mail. Indeed, from October through December, USPS ran a surplus of $318 million (pdf), thanks to the growth in package deliveries. If anything, package delivery revenues are supporting the shrinking mail services.
Sec. 202 of the Act before Congress contains the commonsense requirement that USPS continue delivering mail and packages together in “an integrated network.” But bizarrely, some critics want to chop USPS into two separate units: one to deliver first- and third-class mail and the other to deliver packages. Breaking USPS into two units on its face would make it much less efficient and burden consumers with much higher prices. Does it make sense for one carrier to come to your door with mail and another one—perhaps the same one—to make another trip to bring you your packages?
Avoiding Accounting Tricks
Major online enterprises as well as businesses across America’s heartland utilize USPS to bring packages to our doors. Critics argue that the Postal Service is under-charging large online enterprises when it delivers their packages, with the difference made up by higher charges on those using the mail service. But by law, the Postal Service must charge for both the direct costs for providing that service, such as the carrier’s time, as well as a portion of fixed or overhead costs, such as postal buildings. The Postal Regulatory Commission (PRC) ensures rates cover all costs, and it regularly adjects those rates.
These facts should settle the package rates issue, but critics still demand lawmakers resort to accounting tricks as a means to bilk large ecommerce companies that use USPS package services. Notably, United Parcel Service and others would mandate the widely discredited “Fully Distributed Costing” that arbitrarily allocates costs not directly related to services provided.
NASA played with similar pricing schemes several decades ago when private companies wanted to launch smallish rockets from government space ports. Don’t just charge those companies for use of a needed cement launch pad and trailer to monitor the launch plus a reasonable overhead fee; charge a percentage of the cost of everything on a huge base! Drive out those private providers!
The Postal Service, PRC, and Congress rightly have not wanted to drive away postal service customers. They ignored the recommendation in a flawed 2018 task force report (pdf) to use “Fully Distributed Costing,” and Congress rejected this approach in the Postal Accountability and Enhancement Act of 2006.
The consequences of as much as quadrupling package delivery rates with accounting tricks or even breaking USPS into separate units in any case would not bring in mountains of money for USPS. Amazon and FedEx, which use USPS to deliver many packages, would simply shift most deliveries to their own vehicle fleets and pass along higher costs to consumers and businesses, even as the country faces rising prices and COVID-related disruptions. USPS would lose billions in revenues.
The Postal Service has a government-mandated monopoly on delivering first- and third-class mail. It also operates under a universal service mandate, that is, it must deliver to all addresses in the country. While we can rightly speculate about the USPS role in the emerging economy in coming decades, the U.S. Congress simply will not, in the near future, kill off USPS as unnecessary. The Postal Service Reform Act is hardly perfect, but it’s far better and more realistic than the proposals of its critics, and it leaves enough flexibility for USPS to adjust its infrastructure to meet changing customer demands.
What’s at stake here is not only the USPS organizational chart or package rates; it’s the fate of the ecommerce transformation of the American economy.
Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.