The US Postal Service Thinks Healthcare is the Problem

The US Postal Service is a baffling mashup of bad incentives: restrictive union contracts, too big to fail, and an organization that makes money not off the end user. It’s probably the only company that processes 500 million+ of anything and can’t find a way to be profitable.

Businessweek recently covered the struggles USPS is facing:

Yet Herr finds the USPS fascinating: ubiquitous, relied on, and headed off a cliff. Its trucks are everywhere; few give it a second thought. “It’s one of those things that the public just takes for granted,” he says. “The mailman shows up, drops off the mail, and that’s it.”

He is struck by how many USPS executives started out as letter carriers or clerks. He finds them so consumed with delivering mail that they have been slow to grasp how swiftly the service’s financial condition is deteriorating. “We said, ‘What’s your 10-year plan?’ ” Herr recalls. “They didn’t have one.”

That’s the issue: a private company has to focus on running a business. The US Postal Service has focused on delivering letters in an age where people don’t send letters.

What’s baffling to me is how much more convenient and automated things could be. Buying stamps? Until I realized I could buy a 100 pack at Costco I used to have to drive to the post office or pick them up at certain bank ATMs. Mailing a package? I’m lucky to be able to just drop it in the mailbox at the office, but anyone else actually has to go stand in line at a dedicated post office.

Businessweek points out how Europe has coped with the problem:

Many countries closed as many of their brick-and-mortar post offices as possible, moving these services into gas stations and convenience stores, which then take them over—just as the USPS is trying to do now, only far more aggressively. Today, Sweden’s Posten runs only 12 percent of its post offices. The rest are in the hands of third parties. Deutsche Post is now a private company and runs just 2 percent of the post offices in Germany. In contrast, the USPS operates all of its post offices.

It’s brilliant! Then you simply employ the mail carriers who are already dropping off letters to pick up packages from these locations.

Why not? Those pesky union contracts have a nice way of keeping that kind of cost savings from happening:

[Patrick Donahoe, Postmaster General] says he wants to reduce the USPS’s headcount by 20 percent over the next five years through attrition; the agency’s union contracts prohibit layoffs.

What’s more, Donahoe wants to close post offices and move some of their operations into convenience stores and supermarkets, where nonunion workers can staff them. The USPS is targeting 2,000 of its 31,871 post offices. That’s not much for an agency that’s nearly $15 billion in debt. Donahoe says he’s doing what he can, despite a federal stricture that forbids the closing of post offices solely for economic reasons.

If that doesn’t make you want to throw your computer across the room, I don’t know what does. No business can contract by 20% and maintain its employment level.

What’s worse is that the post office isn’t end-consumer focused. They make money off junk mail, plain and simple.

[Donahoe] 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.

Countries like Switzerland on the other hand let customers tell them if they would like to receive junk mail (probably not…).

And yet when adjusted for inflation, the price of postage has been basically flat or down for the last 128 years despite adding an extra 1 million addresses per year that they deliver to.

At the same time, look at how the unions have fared:

In March it reached a four-and-a-half-year agreement with the 250,000-member American Postal Workers Union, which represents mail clerks, drivers, mechanics, and custodians. The pact extends the no-layoff provision and provides a 3.5 percent raise for APWU members over the period of the contract, along with seven upcapped cost-of-living increases.

I’m pretty sure most Americans working for private companies aren’t getting 3.5% raises and cost of living increases (plus generous retirement benefits). And yet, because they’re funded by the government they give in to these concessions.

Postal workers do an amazing job, and are out there no matter what making sure we get our mail, but it’s not like they’re being whipped on an assembly line having to work 20 hour days. I’m pretty sure that all that would happen without a union is that employee costs would become more manageable and the organization could become profitable.

Yet what’s the end goal of the postal service today?

The USPS and its employee unions are lobbying for the least painful remedy: They want the agency to be relieved of its requirement to build a health-care trust fund for its future retirees.

Sorry USPS, but if you think retiree health costs are the absolute reason why you’re hemorrhaging money, you deserve to fail.

June 23, 2011