Tuesday, December 6, 2011

U.S. Postal Service on the Rack

The U.S. Postal Service announced yesterday that it will ask the Postal Regulatory Commission for permission to alter its service standards, so that instead of seeking to deliver first-class mail in one day, it would do so in 2-3 days. The USPS press statement is here.  The slower service standard would then allow less work over weekends, as well as be part of consolidating the network of mail processing facilities. In a post on September 1, 2011, post, "The U.S. Postal Service Hits Crunch Time," I reviewed these steps and a number of the possible cost-cutting options for the USPS. That post started with the figure that to me encapsulates the basic problem faced by the USPS, taken from a white paper from the Office of the Inspector General: the collapse of mail volume since about 2006.

 Nothing can be off the table for the USPS. Loosening the service standard to 2-3 days and consolidating mail processing facilities might save about $3 billion, which is a start. It would also be a change that isn't visible to most customers. But it doesn't come close to closing the fiscal gap. Going to five-day-per-week delivery of mail would save another $3 billion or so. Finding a way to reduce the USPS costs for health and pension benefits of retirees is another part of the puzzle. 

The postal service will also need to raise its prices, and to branch out into other lines of business. Consider some international comparisons from an October 6 white paper, "Postal Service Revenue: Structure, Facts, and Future Possibilities."

The price of a first-class stamp in the U.S. is vastly lower than postage within other countries. This bar graph is in euros. But the price of a first-class stamp in the cheapest country on the table--the island of Malta--would be about 50 cents U.S., which is more than a 44-cent standard stamp. The 44-cent U.S. stamp is about one-third of the average price charged for postage in Europe. 

In addition, the postal services of most other countries are not only deregulated, and facing competition, but a large proportion of their revenue comes from their non-mail businesses. Here's a comparison across some main postal service companies around the world: for example, the USPS gets 13% of its revenue from non-mail services, while Canada's postal service gets 58% of its revenue from nonmail services and Deutsche Post gets 87% of its revenue from nonmail services.

The white paper writes: "It is important to note the dramatic difference in the proportion of revenue collected from non-mail products between the U.S. Postal Service and major foreign posts. The gap is large and has been growing. The collective non-mail revenue at foreign posts grew from 49 percent in 2003 to 63 percent in 2008. In fact, non-mail revenue accounted for revenue growth of more than 100 percent at foreign posts between 2003 and 2008. Notably, logistics, retail, and banking services provided substantial non-mail revenue diversification opportunities."

The web is in the process of killing the U.S. Postal Service as we have known it. The only question now is how to shape what will emerge in its place.