Earlier this spring, President Trump signed executive order 13829 creating a task force to study the U.S. Postal Service. This body was given 90 days to deliver a report to President Trump that assesses the operations and finances of USPS. The task force, which is being led by the U.S. Department of Treasury, must examine five specific issues: the USPS’ role in competitive products such as package delivery, the implications of decreasing mail volumes on monopoly products, the definition of the USPS’ universal service obligation, the Postal Service’s role in rural communities, and the agency’s business model.
These issues highlighted in the executive order were not chosen at random. In fact, each of these issues represents a principle critical to agency reform.
USPS’ role in the competitive package delivery market should be limited
USPS’ role in package delivery is a particularly challenging issue for regulators. There has been much heated debate over whether USPS profits on some parcel deliveries but not others. Additionally, the agency is a de facto monopolist in some parts of America and only one of many options for shippers and consumers in other areas. In areas where USPS is the predominant parcel delivery company, it is not clear if it has achieved its position by out-competing private couriers. The agency’s letter monopoly opens it to the possibility of using cross subsidies from its protected business to compete unfairly in other products it offers. A recent report to the Postal Regulatory Commission found evidence of this phenomenon.
In addition, USPS is bound by rules that limit which services it may offer. It can move some forms of express and international mail, offer P.O. Boxes, process money orders and deliver packages, as well as sell a limited range of retail packaging products. Each of its products aims to be profitable, but as a general principle this is not good for consumers. A government agency that crowds out private companies makes markets less competitive.
Sorting out this confused state of affairs could be achieved by better separating the monopoly and non-monopoly aspects of the parcel business. One way this could be done is by phasing the Postal Service’s parcel delivery down from six days a week to two or three.
A Postal Service that delivers packages two to three days per week would be less competitive with private shippers while providing universal service for parcel delivery. This would open the parcel market to new entrants slowly, such that shippers and consumers would not be left with a reduction in service. Regulations could be written such that delivery days could be phased out only after such new entrants have established themselves in the market over the course of a few years. In doing so, the USPS role in the parcel business could be wound down to one of a parcel carrier of last resort. In minimizing its role in competitive products, the Postal Service would avoid crowding out private companies and lessens the potential cross-subsidy from its monopoly products.
Give the Postal Service pricing power over postal products and allow private companies free access to USPS mailboxes
First class letter mail delivered to mailboxes is the quintessential postal monopoly product. This monopoly has existed for more than two hundred years, since its 1795 incorporation in the Private Express Statutes. Today, it is unclear whether the postal monopoly acts very monopoly-like. USPS alone carries first class mail to mailboxes, but other shippers deliver express mail and parcels as well. The only difference being that private deliverers are not allowed to access consumers’ mailboxes; instead they leave parcels on doorsteps and in mailrooms.
Mail volumes have been on the decline for years amid substitution to digital communication. As more bills get paid online and the need for mail drops further, the USPS’s letter monopoly gets less valuable, and potential monopoly power declines.
With the waning threat of abuse by a monopolist USPS comes less of a need to regulate the agencies rates. Thus, a policy swap might be made. The current rate caps on postal products could be phased out, allowing the Postal Service to have the pricing power it has long wanted. It could then set postage based what the market will bear. In exchange, the USPS’s monopoly access to home mailboxes, would be ended, freeing private delivery companies to use them.
USPS must maintain the universal service obligation but should reconsider the definition of the mandate
The definition of USPS’ universal service obligation (USO) has never been particularly clear. Universal service can come in many forms. The quantity of services is mandated but the quality, frequency and price are not.
Other nations have interpreted the mandate in a variety of ways. For example, Denmark redefined its universal service obligation in 2016. This service covers what were previously “class B” letters which are delivered 5 days per week and can take 5 days to arrive. Expedited postal options are provided by the private sector.
USPS could follow a similar model for maintaining the mandate of universal service to every address nationwide while lowering costs. Eliminating one day of delivery could be an option, as USO interpretation does not specify daily delivery by the postal service.
New, creative partnerships could help revive the Postal Service in rural communities
Rural communities have long depended on the post office. USPS has served as a means of communication with the outside world, as a source of important goods and as a civic institution that helps bind small communities together. In cities and suburbs, this role is diminished, displaced by other places and groups, but in small towns this role persists.
As mail volume falls and these communities shrink, pressure mounts to close postal facilities. Lawmakers resist, understanding the outsized role post offices play in these places. But losses are losses, and the USPS has a mandate to keep its budget balanced.
One way to prop up rural post offices could be to double down on the civic aspects of the government’s largest retail operation. With less mail to sort, there is potential to partner with municipal governments to co-locate government offices in post offices, cutting overhead for both groups.
Public-private partnerships (P3s) could also help USPS to undertake land swaps that allow the Postal Service to escape aging buildings and move to cheaper buildings to run, allowing redevelopment of what is often prime downtown real estate once they leave. These gains are not limited to real estate. The USPS OIG noted the potential gains from P3 agreements in a 2013 study. P3s could help shift financial burdens off of the Postal Service in the short term and help the struggling service to leverage its real estate holdings. In addition, USPS could learn from and leverage private sector skills in order to better their own service. Getting the most out of labor and assets is especially important in places that do not have the population to warrant new investments.
The Postal Service should focus on its core mail products and limit retail operations and package delivery
The USPS business model is based around balancing the universal service obligation with a mandate to do so at a profit, while bound by congressional rules about the agency’s operation. Redefining the USO and reassessing USPS’ current structure could change how the process looks, but does not fix the core issue of a conflicted agency mission. USPS has already undergone many rounds of cost cutting – staffing levels have been cut, mail volume continues to decline and parcels fill more space in the back of mail trucks.
Some well-intentioned individuals have advocated that the agency should enter new lines of competitive products, such as the banking business as Sen. Gillibrand proposes or selling office supplies, greeting cards and whatnot. But this notion is problematic for a number of reasons. Historically, USPS has not been successful at working in non-postal lines of business. Banking opens the post office to risk of losses on loans. Moreover, new retail products mean costs associated with inventory sitting on shelves and more work for a limited number of postal clerks, potentially lengthening customer wait times. More fundamentally, we should not make up new jobs that are outside of USPS’ core mission, especially in competition with the private sector.
The more sensible option involves focusing USPS’s operations on its core mail products, and curtailing costs by limiting retail operations and package delivery. This would capitalize on existing mail infrastructure and leave the business of moving bulkier items to specialized carriers with bigger vehicles. With less involvement in competitive products, concerns about cross-subsidies from first class mail and price regulation hold less water. Providing a baseline of universal service in combination with an expanded role for the private sector could make for a better delivery market for letters and parcels alike. Corporatized post offices in Europe have behaved in this manner, offering limited parcel offerings while providing universal letter service.