Yesterday, the Trump administration unveiled its recommendations for reforming the ailing U.S. Postal Service (USPS). Due to plunging mail volume and rising costs, USPS lost $4 billion last year and has $130 billion in unfunded pension and health care obligations.
The 74-page report was issued by the U.S. Treasury, which headed the Task Force on the United States Postal System. Secretary Steven Mnuchin also enlisted help from the Office of Management and Budget and other agencies, along with postal unions and parcel shipping companies.
The task force was charged with finding a way forward for the Postal Service by evaluating the agency’s operations, finances and business model. (The Postal Service was designed to be self-funding, not supported by tax dollars.)
Below, we highlight the major revenue-raisers and cost-savings proposals in the task force report.
Raising USPS revenues
Monetize the mail delivery box. The report notes that while the letter-delivery business is in decline, USPS’s monopoly over mail delivery boxes remains valuable. The task force proposes allowing the Postal Service to charge private delivery companies a fee to use these boxes. Those companies would then be allowed to put mail and small parcels in them. With e-commerce booming, this innovation — which would require upgrading many delivery boxes — could prove a financial boon.
Give USPS more pricing power. Most of the types of mail and parcels delivered by the Postal Service are subject to a price cap. The agency can raise the prices only at the rate of inflation, which has been low for years. The task force recommends shifting more of the “commercial” sorts of mail and packages out from under the price cap, freeing USPS to set prices that reflect market demand.
Update USPS’s accounting to more accurately identify costs. It is very difficult for any firm to make a profit if it cannot readily discern the costs of its products and services. The task force believes the Postal Service’s methodologies for attributing costs is outdated and leads to mispricing. That USPS recently proposed raising its parcel select prices 9-12 percent is symptomatic of broader structural problems that prevent the agency from fully understanding how much any product it carries makes when factoring in things like shared facilities costs.
On the whole, the task force’s proposed revenue reforms aim to empower USPS to generate enough revenue from commercial mail (e.g., catalogs, credit card solicitations and packages ordered from companies) to subsidize “essential” postal services. The latter are the products and services that the private market likely cannot provide for the whole nation (e.g., person-to-person letters) or that are especially important (e.g., delivery of prescription drugs). Right now, USPS is not generating enough funds to cover nationwide delivery of these essential services, a burden that postal regulators calculated to be $4.4 billion in 2016.
Lowering USPS costs
Give USPS flexibility with delivery days and speed. The number of delivery days is a controversial part of any postal cost discussion. The task force recommends a course of flexibility, empowering the Postal Service to determine delivery frequency based on product. Essential services would be delivered at frequencies that match their social and economic need, while commercial products would be delivered at frequencies that maximize income. This is a departure from the status quo, where USPS delivers all products on all delivery days.
Similarly, from a mailer’s perspective, processing speed matters less than reliability. The task force recommends giving USPS more latitude when it comes to how quickly mail gets to consumers and focusing resources on “transparent, public, and measurable” processing standards so that mailers know exactly which products they are buying when they choose USPS for commercial mail services.
Abolish collective bargaining. The Postal Service has four unions, each of which can collectively bargain over compensation (salaries, benefits) and shop floor rules every four years. This is a rare privilege among federal government unions, and the result is that unions inevitably win higher compensation and even retroactive pay increases from arbitrators. Postal unions are one reason why USPS cannot cut its costs despite downsizing its workforce by hundreds of thousands. (Another reason is USPS’s universal service obligation — the number of addresses to visit grows each year.)
Addressing the postal labor model will provoke controversy, but it is hard to see how USPS can balance its books otherwise. Labor makes up 76 percent of USPS operating costs according to the agency’s most recent annual financial report. The postal labor model was built on ever-increasing mail volume, and mail volume has dropped nearly 30 percent over the past decade to its lowest point since 1980.
Most of the changes described above would require Congress to pass a law. But the Postal Regulatory Commission, which oversees USPS commercial activities, could enact some of the pricing reforms. And USPS itself could develop better costing methodology.
To the surprise of many, Trump does not propose privatizing the Postal Service. Instead, he embraces a government role in providing postal services nationwide. At the same time, the administration accepts the fact that demand for postal services is declining, and therefore that USPS needs to adjust to the realities of the 21st century.