The U.S. Postal Service is a tangled web of contradictions — a .com “business” that is also an independent government agency and a “self-sufficient” body that also receives billions in tax expenditures and low-interest loans from taxpayers.
But this controversial and reform-resistant agency has finally met its match — a blunt, unrelenting President Trump keen on restoring the service to a firmer fiscal footing. In response to the woeful state of affairs at the Postal Service, the Trump administration created a task force to study the service’s many problems, and issue recommendations, which were recently released.
Released on December 4, the report provides a comprehensive overview of the service’s history, and how structural issues over time led to the unsustainable status-quo. While the task force’s findings are a welcome step forward for postal reform, its report only touches the tip of the iceberg. By incorporating task force recommendations into a larger, anti-waste effort, Congress can work with the administration to fix what ails the service once and for all.
In no uncertain terms, the state affairs at the Postal Service is … not good. The service recently announced a $3.9 billion net loss for the last financial year, which marks 12 years of consecutive losses, and there’s little indication that anything will change anytime soon. Mail volumes continue to fall, as people of all ages ditch the art of the letter for faster and more reliable email services.
Package delivery makes up for some of these losses due to the rise of e-commerce giants such as Amazon and Walmart. But an outdated pricing formula ensures that package deliveries are heavily subsidized by the agency, padding the pockets of mega-rich corporations. The service’s strategy of wooing via below-market rates will likely fail anyway, as Amazon and competitors create their own logistics network with cheap, non-unionized labor.
Enter the task force, which proposed an array of reforms to stem the fiscal bleeding and forge a way forward for the beleaguered agency. The report, for instance, points out that the service assumes that competitive products (packages) are responsible for 5.5 percent of institutional costs (wear-and-tear), and recommends that “the USPS and the (Postal Regulatory Commission) develop a new cost allocation model with fully distributed costs.”
With a more realistic pricing formula, the Postal Service would almost certainly charge far more for package deliveries, a welcome step given rising sorting and delivery costs.
Unfortunately, the report doesn’t go far enough to address subsidization concerns. When the service creates a special arrangement with one company, that arrangement may be profitable in the narrow sense. But even if the agreement is making the service money, the Postal Service could have made far more money if it charged the company what it charged other companies.
Take, for instance, the Postal Service’s deal with Amazon, which gave the company unrivaled access to postal infrastructure on Sunday. If any other company seeks to deliver a product to a consumer on Sunday, they can — but only via a pricey emergency service called Priority Mail Express. If Amazon paid what every other company or individual paid for Sunday delivery, the service would stand to make significantly more.
While supporters of this sweetheart deal claim the Postal Service may lose money over the long-term by alienating Amazon, there is little evidence that this would occur, and in any case, this is less of a concern since Amazon is launching its own full-service logistics arm.
The task force also neglected to address the troubled “postage reselling” program, which allows certain licensed companies to sell discounted postage to smaller vendors. As Capitol Forum has pointed out, a licensed reseller known as Stamps.com has largely captured the process and used the program to give steep discounts to small companies that would normally be given only to large businesses with massive shipping volumes, going completely against the fundamental point of the program.
While this discounting may be profitable in the narrow sense that it does not run at a loss, these discounts likely cost the Postal Service hundreds of millions of dollars per year with little benefit. If the service ended its reselling program tomorrow and charged “normal” rates to smaller companies, the Postal Service could save substantial sums while still being the cheapest shipper in town.
By forcing the Postal Service to re-examine these flawed arrangements, Congress can push postal reform without caving into large rate increases and taxpayer bailouts. Reigning in carve outs, in conjunction with the pricing reforms discussed in the task force report, can lead to a better and more reliable Postal Service on firmer fiscal footing.