Market InsightNews

Trump pitches fixing, then privatizing U.S. Postal Service

The constant criticism by President Donald Trump of the United States Postal Service’s package delivery deal with Amazon is manifesting itself in other ways as the administration’s new “Delivering Government Solutions in the 21st Century: Reform Plan and Reorganization Recommendations,” recommends restructuring the Postal Service to eventually privatize or sell it.

That dovetails with a task force created by the administration earlier this year to look at ways to improve the USPS fiscal performance. That task force, created by Executive Order 13829: Task Force on the United States Postal System, is looking to determine whether USPS should expand and improve the pricing of its package delivery services to make USPS self-financing. It is also exploring:

2. The decline in mail volume and its implications for USPS self-financing and the USPS monopoly over letter delivery and mailboxes;

3. The definition of the ‘‘universal service obligation’’ in light of changes in technology, e-commerce, marketing practices, and customer needs;

4. The USPS role in the U.S. economy and in rural areas, communities, and small towns; and

5. The state of the USPS business model, workforce, operations, costs, and pricing. The recommendations will include administrative and legislative reforms to the United States postal system that promote commerce and communication without shifting additional costs to taxpayers.

The task force’s report will be available by Aug. 10.

The latest proposal, titled “Restructure the Postal Service,” says that restructuring the Postal Service would “return it to a sustainable business model or prepare it for future conversion from a Government agency into a privately-held corporation.”

The plan cites less expensive digital alternatives for sending correspondence and “extremely high fixed costs as a result of relatively generous employee benefits combined with a universal service obligation that is understood to require mail carriers to visit over 150 million addresses six days per week” as challenges.

According to the report, “USPS can no longer support the obligations created by its enormous infrastructure and personnel requirements. USPS already has over $100 billion in unfunded liabilities, a substantial capital investment backlog, has posted losses for over a decade, and has no clear path to profitability without reform.”

The proposal was rejected by the Postmaster General, who placed the blame for USPS’s business model squarely on Congress.

“The consistent position of the Postal Service has been that our flawed business model is the root cause of our financial instability because it imposes significant costs on us without giving us adequate business flexibility to enable us to pay for them,” Megan J. Brennan, Postmaster General, said in a statement. “It is important that potential reforms to fix our business model be developed and then considered by the president and Congress in an open and transparent manner that fully analyzes the interests of America’s consumers and businesses.”

Brennan went on to note that it is ultimate up to Congress to dictate the future direction of the Postal Service.

“Ultimately, it will be for Congress to decide whether the best path to financial sustainability is to preserve the Postal Service status as a Government institution focused on our mission of public service, while giving us more authority to meet our responsibilities, or whether a profit-maximizing corporate model is preferable,” she said. “We will continue to work with all parties, including the Presidential Task Force established to conduct a comprehensive assessment of the Postal Service, to address these significant public policy issues.”

Trump has been a frequent critic of USPS’ package delivery deal with Amazon, which he has repeatedly said subsidizes Amazon’s delivery costs. However, in the restructuring proposal, it is the decline of mail delivery, particularly First-Class Mail which has falled 40% since 2001,that is cited as the primary cause.

“A private Postal Service with independence from congressional mandates could more flexibly manage the decline of First-Class mail while continuing to provide needed services to American communities,” the proposal stated. “USPS has continued to grow its package delivery business, particularly the last-mile delivery that is relatively cheaper for them because of the huge fixed network they must maintain to support mail delivery. However, the revenues from lower-margin package delivery and other competitive products cannot replace declining revenue from the market-dominant (monopoly) products in the long-run.”

The proposal concludes that a “private entity would also have greater ability to adjust product pricing in response to changes in demand or operating costs. Freeing USPS to more fully negotiate pay and benefits rather than prescribing participation in costly federal personnel benefit programs and allowing it to follow private sector practices in compensation and labor relations, could further reduce costs.”

In 2017, the USPS reported a $2.7 billion loss for its fiscal year (ending Sept. 30, 2017). It saw a 3.6% drop in mail volume, which makes up 70% of its revenue. Even a double-digit increase in package delivery could not offer the mail volume drop.

A recent report by the Information Technology and Innovation Foundation (ITIF) found that USPS is not subsidizing last-mile delivery shipments for Amazon or anyone else, instead it is using its infrastructure that is already in place that requires it to visit 150 million locations each day to create better pricing for those packages, thereby increasing volumes.

“The Postal Regulatory Commission and the US Court of Appeals have shown USPS is not competing unfairly with commercial package shippers,” said ITIF President Robert D. Atkinson, author of the report. “Consumers and the overall economy will be better off if USPS is allowed to continue competing effectively in package delivery, which raises overall U.S. productivity.

“Forcing USPS to raise the prices it charges to deliver packages is a solution in search of a problem,” Atkinson added. “If the Trump administration and Congress want to fix the Postal Service’s finances, they should focus on cost cutting on the market dominant side of its business, not reforming the competitive products side.”

Show More

Brian Straight

Brian Straight covers general transportation news and leads the editorial team as Managing Editor. A journalism graduate of the University of Rhode Island, he has covered everything from a presidential election, to professional sports and Little League baseball, and for more than 10 years has covered trucking and logistics. Before joining FreightWaves, he was previously responsible for the editorial quality and production of Fleet Owner magazine and Brian lives in Connecticut with his wife and two kids and spends his time coaching his son’s baseball team, golfing with his daughter, and pursuing his never-ending quest to become a professional bowler.

One Comment

  1. If the USPS is an important government service, why not use taxpayer money to pick up the shortfall?

    At least they take in enough money to pay for most of their budget unlike every other government service where no revenue comes in.

    And relatively generous benefits! Police, fireman, teachers, local government employees where I live are paid sometimes double what a USPS employee gets paid with twice the benefits. Retirements of more money than USPS earns while working!

  2. Ever since the "Postal Reform Act", and possibly before then, the postal service has been limited in what it is allowed to charge for service. Postage rates have been limited to no higher the rate of inflation. Mandated to pre-fund retirees pension and healthcare in advance 75years (5 to 6 billion per year), no one else does that. Postal service restricted in not being allowed to make a profit, while NOT using taxpayer money. It’s a zero sum game. Service is excessively managment heavy, top down. These are some of the main problems. All fixable. Privatization is not the solution, though.