President Trump recently issued an executive order demanding a review of the finances of the U.S. Postal Service. Upon looking at the order, one section is particularly eye-catching: The task force is instructed to evaluate "the USPS role in the U.S. economy and in rural areas, communities, and small towns." As a response, opinion leaders suggest that this is the beginning of the privatization of the USPS.
For background, the USPS is a unique government entity in that its operating expenses are not paid for by taxpayer dollars--it's independent of the government budget. Even though it is not receiving money from taxpayers, it is still subject to unique U.S. regulations, which as a result, tend to strain its bottom line.
- Postal carriers are required to visit every U.S. address six days a week.
- It cannot increase the price of First Class Mail, which is the mail class for postage stamps, beyond the rate of inflation, which is worsened by the decline in volume as people opt for email over letters.
- It's required to pre-fund retirement benefits for its employees, a burden which no private-sector company has to bear.
These unique regulations may be zapping the profitability of the USPS, but they're also providing an important public service that makes e-commerce possible as we know it. If the USPS was to privatize, it could curb or eliminate many of its important services in favor of profitability.
Here's how American businesses and consumers benefit from the unique role of the USPS, and why we should be cautious about the possibility of privatization:
The USPS fosters growth in e-commerce.
Keeping shipping rates competitive enables e-commerce to thrive. As direct-to-home shipping costs are as much as three times the cost of store-based sales, many e-commerce businesses operate on thin margins where high the cost of shipping can throttle their business.
Without the USPS putting competitive pressure on the shipping industry, we'll see prices increase across the major carriers. As a result, your small business would be unable to affordably send packages to customers. Many e-commerce businesses could crumble as they struggle to cover costs.
The USPS provides accessibility for rural areas.
The conveniences enjoyed by shoppers in major metropolitan areas don't necessarily extend to those living in rural or remote areas. As mentioned, the USPS is the only entity required to visit every U.S. residence daily, a network known as "last mile" delivery.
In rural areas, low-density routes can get costly very quickly, with valuable time and fuel spent dropping off just a handful of packages. According to the Postal Regulatory Commission, the average bargaining labor cost per box is nearly 25 cents for the most rural addresses vs. a gain of 18 cents for the most urban addresses in the U.S.
Shoppers in smaller towns incur steep surcharges for goods shipped using UPS and FedEx, making USPS the most viable option for accessing goods. If the removal of such services to every home was considered to offset costly operations, we would gravely limit the access of goods for these residents.
The USPS employs many people all across America.
As we hypothesize about the privatization of the USPS, it's important to look at a recent real-life case study from just across the pond. In 2013, Great Britain privatized Royal Mail to improve its competitiveness.
Most recently, the revenue of the Royal Mail increased by two percent in the three quarters to December 24, 2017 compared to 2016. However, this profit came at a cost.
Last December, 776 British post offices closed. The post office network in the U.K. has shrunk from 19,000 locations in 2000 to 11,500 today. And, according to Statista, the Communication Workers Union has lost more than 13,000 members from 2013 to 2016, even threatening to strike earlier this year over pay and pensions.
As for the USPS, every two weeks it pays $1.9 billion in salaries and benefits, and it employs more than half a million people. There are also 30,825 USPS-managed retail offices. Many of the Postal workers are integral in bringing mail and packages to residents in hard-to-reach addresses around the country.
Sure, the USPS should work to find ways to optimize and increase its profits. Still, it's safeguarded from steering away from its core function: delivering to every address in the U.S.
The task force's recommendations can help the USPS meet its bottom line, and that's a good thing. My hope is that we don't lose sight of the contributions the USPS already delivers every day.