The U.S. Postal Service is in a perilous financial state. Ensuring the government mail carrier remains viable in the long term will require reducing operation costs, improving stewardship of postal assets and finding new revenue if policymakers hope to keep the agency self-funded. With the decline in letter mail (USPS’s primary product) well into its second decade, there are questions about what else the postal service can do to markedly improve its financial prospects.

These “ancillary services” range from mailing supplies to financial products, and each would have its own set of potential benefits, as well as its own unique blend of risks. Today, most such services are things like certified mail, mail insurance, delivery confirmation and return receipts.  In the first quarter of 2020, there were 5.094 million ancillary services transactions, generating $316 million in revenue—a tiny but not insignificant fraction of the more than $19 billion it took in during the quarter. But getting a government agency into new markets has its own risks, both to consumers, and the USPS’s bottom line.

We can divide potential USPS ancillary services into four categories. The first category is goods, anything that requires the USPS to maintain inventory and floor space in post offices to sell. Adding ancillary goods would increase USPS retail and storage space needs, with any new value to the agency coming from wringing more profit out of the agency’s existing real estate footprint. This could be viable if USPS facilities were universally underused such that every post office had some extra space to devote to goods retail, but that’s seems unlikely given decades of efforts to right-size the postal real estate portfolio.

The size and location of a post office determines a facility’s potential as a goods retailer, but this potential is a secondary consideration in selecting USPS retail facilities. The current standard for size, parking requirements and other specifications of a post office was set in a USPS handbook in 1999, with only minor modifications in the intervening 20 years. On page 124, the handbook dictates that post offices “should be within a retail zone and convenient to customer and business traffic”. For a given facility, USPS officials decide whether it will offer “limited” or “open” retail, with the latter being generally larger. But actual post office size is determined as a function of how many mail routes and post office boxes the facility will support. So mail facilities’ size is determined by mail delivery needs—not retail needs—and floor plans are already optimized to limit how much space the agency uses. There’s not a ton of underused square feet at USPS facilities, and the space crunch is only exacerbated when one accounts for USPS employee and postal vehicle parking.

The second category is administrative services. This would include any service that can be provided at the post office by a postal clerk and does not require inventory or retail space. This can include existing USPS “special services” like P.O. boxes and any USPS financial transaction processing products, notably money orders. Should lawmakers decide to expand postal banking, the products could also fall into this category. The concept of using postal clerks as contractors to process transactions for other government agencies has long been floated as a natural expansion of USPS ancillary offerings, often in relation to the agency processing hunting and fishing licenses. Yet whether postal workers could do the job well and cheaply enough to satisfy states and municipalities is another question entirely.

For one, many of these services are shifting to the internet, limiting potential benefits from subnational governments using the USPS as a transaction-processing contractor. Similarly, post office hours often don’t align with the needs of citizens for filing non-postal state and local administrative paperwork. The USPS’s collectively bargained labor rules only exacerbate this problem, preventing the agency from adapting staffing and work tasks to fit the bespoke needs of communities that might want to use postal clerks to process their paperwork. What’s more, added tasks for postal clerks stand to make the job more complicated, creating extra-long and extra-variable lines for those at the post office to send letters and packages. Nor do administrative services particularly benefit from the USPS’s core competency—the size and universal reach of its network—at least compared to other potential contractors that lower levels of government could hire. While some towns could benefit from the USPS providing administrative contracting, expecting this line of business to earn profits and cross-subsidize other postal services could amount to an indirect subsidy from municipal taxpayers.

A third category is digital services. This can include any potential postal product that would be sold through the internet, where the cost is less postal worker time than increased cloud computing and other IT expenses. The USPS has invested heavily in its Informed Delivery platform that sends scans of one’s mail to their email inbox the morning the mail is to be delivered. The agency sees this and related products as a means to offset falling advertising mail revenues with a value-added supplement service capable of including features like links to advertiser websites and other promotions. But the digital advertising space remains a fiercely competitive market, and it’s unclear if digital mail campaigns complement rather than substitute for physical mail advertising products that have long been a major part of agency revenues. Worse, as letter volumes continue to fall, we can expect fewer, not more, people to feel the need to check their inboxes and engage with the content of Informed Delivery products.

That said, with limited inputs of facilities and labor and existing capital contracts for information technology services in place, digital services outside the advertising space could prove to be viable, if not major postal products. For instance, software and devices installed in postal vehicles could passively collect environmental, traffic, parking and other data. Similarly, the USPS’s trove of shipping data could also prove to be a useful foundation for new secondary services that require limited staff resources, with the caveat that all new products must be approved by the Postal Regulatory Commission as compliant with postal law.

A fourth and final category is home services. This would include any service provided at an individual private property. The USPS is built on the idea of serving mail to every place in the nation and can be the most regular government presence in rural areas. The agency could take advantage of this universal service obligation and offer services as a contractor of local and state governments, with postal workers checking on shut-in Americans on behalf of social service agencies or even mowing lawns of those unable to do so (as at least one foreign post office has begun doing). While these ideas seem tempting, the potential costs of labor, time and productivity could prove more a distraction than a valuable, universal government offering.

The primary constraint on expansion of USPS home services is letter carrier and rural letter carrier time. Expanding USPS home services would likely be met with demands for extra compensation from these employees, as well as any extra long-term health costs this work would create through wear and tear on their bodies. As it stands, the USPS struggles to cope with the frequency of injuries on the job, with thousands of workers unable to perform tasks that characterize postal labor like lifting mail trays and carrying mail bags.

Beyond labor, postal workers aren’t trained as social workers or home-care aids and may not be equipped for new home service tasks. They would probably need extra capital should the agency choose to offer work that requires new equipment and new money for training courses, not to mention that the USPS would be entering a new competitive product line that would take staff away from their primary job of efficiently delivering letter mail.

As the postal service continues to search for a new mission in a world where letters matter less and less in the lives of everyday citizens, the temptation to enter new product lines grows stronger by the year. Whether it’s traditional retail, administrative contracting, digital services or home services, every potential product would bring new risk to the government. The postal service cannot afford new losses from additional competitive products, and the prospects of straining postal resources and losing sight of the postal mission get more real with each universally available postal business line. The biggest takeaway of all is that compared to postal revenues of about $70 billion annually, nonmail postal services make up a tiny—yes, ancillary—percentage of postal business, and can be expected to stay that way given the few benefits and substantial risks of adding new side products.

Image credit:  Ken Wolter

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