How to Fix the Post Office: Keep the ‘Last Mile,’ Outsource the Rest

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Andrew Harrer / Bloomberg via Getty Images

A proposal to create a “hybrid” United States Postal Service would keep postal workers on their routes while allowing private companies to compete for mail collection, transportation, and processing. Now all it needs is a divided Congress and a reluctant postmaster general to sign off on it.

A new study released today by a non-partisan Washington think tank recommends a radical departure for the struggling United States Postal Service: a public-private partnership that would open up much of the service’s back-end logistics to outside competition.

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The idea to partly privatize the Postal Service has been floating around for at least a decade, and it’s been the subject of other recent studies too, including a white paper written in part by former postal employees and released by the National Academy of Public Administration; and an analysis of that paper funded by Pitney Bowes, a shipping and packaging company that would almost certainly benefit from the post office’s privatization.

But the study released today by The Information Technology & Innovation Foundation adds a bit more to the discussion.

This public-private hybrid proposal centers around private companies competing to accept, transport, and process much of America’s first-class mail. The USPS’s mail carriers would keep their “letterbox monopoly” on existing delivery routes, and the Postal Service would determine a national average for delivery costs that it would charge those private carriers.

The author of the paper, ITIF President Robert Atkinson, likens it to the break-up of AT&T in the 1980s, which allowed competition among long-distance carriers for the first time. “If you want to go to a post office in the future, you might go to CVS or a Safeway or your local bank branch,” says Atkinson. “And then they might contract with FedEx to move that mail, which would all end up at a local USPS processing facility.” From there, mail would essentially be delivered like it has been since the development of the postal service two centuries ago — but, in Atkinson’s view, at much lower costs.

That would mean a dramatically different, and smaller, USPS. Atkinson estimates that 40% of the more than 500,000 workforce would lose their jobs and possibly half of the more than 30,000 post offices would close. But he argues that some of those jobs would be made up by private carriers performing work previously done by USPS.

In theory, opening up the USPS’s services to competition would allow it to operate much more efficiently, and save costs. In its second quarter, which ended March 31, USPS lost $1.9 billion, an improvement over the same period in 2012, when it lost $3.2 billion, largely due to a reduction in operating hours and a consolidation of mail-processing facilities. Still, the Postal Service is losing $25 million a day.

“If it was a private company, it would’ve filed Chapter 11 by now,” says Atkinson.

Atkinson’s study cites numbers from the Government Accountability Office showing that contract postal units, which operate out of a primary business like a supermarket but offer many of the same products and services as an official post office, are much more cost-efficient. According to the GAO, the USPS incurred $0.17 in costs for each dollar of revenue at CPUs compared to $0.51 at post offices.

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Most other recommendations for fixing the USPS’s financial problems are much less radical; many include finding new sources of revenue like shipping beer and wine, closing facilities, or continuing to pare down its workforce. On the other end of the spectrum is complete privatization, which would fully get rid of the Postal Service we know today. A hybrid public-private partnership is somewhere in the middle and is probably the most interesting proposal being discussed.

But the hybrid recommendations don’t address a fundamental issue with Post Office finances: the multi-billion-dollar Congressionally mandated payments to pre-retiree health benefits that the Postal Service is required to make each year. Proponents of partially privatizing the USPS argue that while eliminating that requirement would certainly help in the short-term, the trend lines show continued future dips in mail volume and increased use of digital communication among Americans that will eventually have to be addressed by more structural changes.

The biggest problem, however, may getting any serious reforms approved by Congress, which shows no real signs that it wants to fundamentally alter the way the Post Office operates. Postmaster General Patrick Donahoe, meanwhile, seems more inclined to continue paring back services and finding new revenue streams. In the end, a hybrid proposal may just be another interesting idea that won’t get traction. But, eventually, something will have to be done to right the Post Office’s ship.

“The reality is, this is a bit of a build it and they will come proposal,” says Atkinson. “And it may be that the USPS is as efficient as you can get. But I don’t think that’s the case. If it is, then we haven’t lost anything. USPS would get all the business. But I think the urgency will increase over time to do something. Eventually people are going to say, we have to do something really serious here. And the reality will sink in that you have to take more serious structural positions.”

68 comments
dkbrowncpa
dkbrowncpa

Republicans would privatize the Army and Navy if they could.

Just another attempt by the moneyed for a power grab and dismantlement of our Federal Government.


JohnnyCola
JohnnyCola

The best solution is to add commercial fueling stations to all locations. They could sell regular gas and be set up for all alternative fuels as they come into play such as natural gas and hydrogen in addition to electric fueling solutions. This Government should start acting like a business and get out off social programs. It can still be a non-profit but if we don't have a functioning Government then we eventually will not have a Government at all.

buffalo.barnes102
buffalo.barnes102

Oh, no! Let's keep it just the way it is. A limping white elephant, top-heavy with too many "supervisors". All that equipment and only ONE mail delivery a day. Farm it out for people that know what to do. Not career foot-draggers. 

metajohndavis
metajohndavis

Sounds like the "let the Camel's nose in the tent" solution -- won't be long until the whole works is gone if they do this.

kuei12
kuei12

The way to fix the post office is to first fix congress.

zuludawnrr
zuludawnrr

Ummm, the post office already delivers the "last mile" for UPS.  Doncha know?  We get UPS deliveries delayed 1-2 days because of the transfer to USPS for "the last mile".  Please, let the Post Office innovate and offer new services like they keep trying to, let them compete without both hands tied behind there back.  Let them fund pensions like the private sector does (oh yeah, I forgot, the private sector has NO pensions anymore!)

ckm
ckm

This is great for the carriers and the National Assoc. of Letter Carriers. The American Postal Workers Union would most likely say let's privatize carriers and keep the clerks (APWU members) and their operations as USPS employees.

JohnDeCeasri
JohnDeCeasri

Daryl Issa is a co-chairman of the ITIF. His agenda has been to privatize the USPS since he stopped stealing cars with his brother and was elected to congress. By the way , when the government broke up Bell Telephone (It wasn't ATT, yet another fact you got wrong) my phone bill went from $7 a month to $20 a month. Now it is $35 a month. Thanks so much for the help. I expect better journalism from Time.

curt3rd
curt3rd

You mean the private sector can do something better than th governmnet?  Dont anyone tell the President.

MrObvious
MrObvious

The constitution outlines the need and creation of a post office. What's with the idiotic idea that 'outsourcing' and competition somehow will provide better and cheaper results? The post office, until GOP decided to destroy it - ran on budget and well. After GOPers decided to poison the well not so much. Especially since they want it to run as a business with a completely unreal pension plan requirement AND without the ability to increase revenue.

In other words we don't need a outsources for profit mail service; we need GOP to stay out of it. 'Wingers always want to prove how bad government runs things by ensuring it runs horribly.

usemate
usemate

As this article was written by yet another ignorant reporter, let me give you a hand. The study referred to was released a couple of weeks ago, not today.

In the 1800's mail was delivered by many private companies charging what ever they wanted to and only to profitable areas. This left rural America for the post office to deliver to and the country had to pick up the tab on costs. In 1840 Congress gave the Dept. of the Post Office a monopoly on delivering mail. This keep service affordable for all.

The Postal Service subsidizes UPS and FedEx today, by millioto ns of dollars for each company every year (Motleyfool.com). Pitney Bowes receives millions of dollars in discounts from the post office every year and is often paying less than what it costs to deliver that mail.

All 3 of these companies have donated money to Congressman Darrell Issa who has put forth a bill to throw out the union contracts and reduce workers pay and benefits, this means yet another subside for large mailers.

With no control over prices, the companies taking over mail processing and acceptance would be able to charge what ever they wanted. As the current postal plan is reducing service to rural America already, it looks like we may be doomed to repeat a past mistake.

destor23
destor23

What they should do is have posteal employees open ur leters and type them into an email that can be sent cheeply.

flameworker2
flameworker2

What they should do is repeal the 2006 Postal Accountability and Enhancement Act that required the Postal Service to fund future retiree health care premiums for 75 years within a 10-year period ending in 2016. This mandate requires the Postal Service to pay $5.5 billion a year for a total of $55 billion.  No other federal agency is burdened with this fund.  Because of this law, the agency is pre-funding health care premiums for workers who haven’t even been hired. Basically, the Postal Service must start out each year $5.5 billion in debt. Independent audits have shown that without this pre-fund requirement, the Postal Service would have had income exceeding expenses for this time period.  

21stcentury
21stcentury

Sounds like just another dicey financial plan cooked up by conservatives to Quick Fix a complicated problem. The biggest concern is security compromised by a private profit partnership, one Ben Franklin hoped to avoid. 


JenniferHathaway
JenniferHathaway

Yep. It was about outsourcing all along. 

The post office was never in trouble until the "privatization" profiteers set their sights on taking it over. And now that enough people have fought back, they're trying to get a partial victory (and then will still take it over via attrition).

Don't let them. Our postal system is a precious resource that helped to build this country, and would still be completely solvent if the Crooks and Liars department hadn't created this boondoggle. 

It reduces our opportunities as individual citizens- once again- to allow private profiteers to make things more expensive for the rest of us for the sake of their own greedy behinds. Again. And it will.

seizeabe
seizeabe

Leave the operations of USPS as it is.

It is a one of a kind service America can be proud of.

There is no need for purposeless advertising.

Gross mismanagement by previous top-management, and the billions siphoned off by successive governments, has caused the present financial crisis.

USPS is a straightforward service, and needs no super-management skills of the ultra-tech kind. The folks at the post-offices do a wonderful job.

The top heavy management and their lavish compensation packages and perks need to be reconsidered. The management can easily be done by regular career postal worker promotions.

Extravagant top management must be eliminated and the organizational structure flattened, leaving the structure at the post office at just 2 or 3 levels at most.

2 or 3 levels at regional and head-office level should focus on supporting the post office to carry out their tasks.... Just that!

Surgical action is required at top-management level. No corporate style.

And, government should not take any more than 50% of "NET" profits.

The remaining 50% should go t reserves.

The USPS post office workers do an exceptional job....

No outsourcing to the greedy!

DeronChristopherBraun
DeronChristopherBraun

The USPS has been profitable since its inception.  It is true that paying future benefits is a major cost to the postal service but it should not be required that this be done in a short ten year span.  The only reason the house pushed for such a short time frame was to force a sale of the USPS.  

Privatizing a government agency simply allows for someone to profit from it.  By allowing the postal system to be sold we are allowing for price increases that will surely come (see the split up of AT&T).  The USPS is used as a "last mile" carrier by both UPS and FedEx.  This is not an inefficient agency that needs to be released.  

The USPS is a public system of delivery that has survived over two-hundred years.  The USPS is reliable, inexpensive service that we have relied on since the birth of this nation.  To allow this institution to falter is a shame. 

You want to fix this?  Simple.
Raise the standard post rate to 50 cents (this is only a 4 cent raise but increases revenue over 8%)
Raise rates for mass mailings by 25% (this raises a large portion of revenue)
Extend the time frame they need to be caught up on future benefits

grape_crush
grape_crush

> In theory, opening up the USPS’s services to competition would allow it to operate much more efficiently, and save costs.

Basically, to ship a package from the major metropolitan area where I live to another major metropolitan area such as Los Angeles, it costs half the amount to ship it via USPS versus private carriers like FedEx or UPS.  I'd like to see the details on how introducing a profit motive into the public mail system will make things more efficient and reduce costs further than the current state. Not theory, solid evidence.

Because overall, I'm not seeing that happen for any of the areas - when the playing field is level - where the public commons are being turned over to the private sector for exploitation. Kind of the opposite, in fact.

> “If it was a private company, it would’ve filed Chapter 11 by now.” 

If it was a private company, it wouldn't have the ridiculous pension pre-funding requirements placed up it that it does.

If it was a private company, it wouldn't deliver mail to low-population areas...as FedEx and UPS choose not to do now because there is no profit in doing so.

If it was a private company, it would have no need to operate in the broad interest of the public and would only have to answer to its management and shareholders.

I'm more than comfortable with the idea that mission of the USPS is to deliver the mail, not to generate profits for its owners.

summerfunrunner
summerfunrunner

Just another attempt to bust the union!  Considering the amount of mail delivered, the USPS is doing an outstanding job.  Do we really want our financial documents, bank CDs, tax returns, et.al., sorted by some guy whose 2nd or 3rd language is English?  Let's hear it for the postal workers!  Anything else is unacceptable - and I DO vote!  So, ya'all can take your "white paper" to the potty...


Read more: http://business.time.com/2013/06/03/how-to-fix-the-post-office-keep-the-last-mile-outsource-the-rest/#ixzz2VB8OwedQ

gysgt213
gysgt213

One problem: If you are looking for lower costs for a necessary service you are looking in the wrong place. We don't do that in this country.  

swagger
swagger

i thought i read that fedex and other private shipping companies used the usps to ship items because they did it cheaper.

forgottenlord
forgottenlord

1) Allow the price of stamps to increase.  Stamps haven't gone up in a long time and are highly undervalued compared to the actual cost of a letter - the cost should be closer to 50 cents or more.

2) Collection and processing have no logical advantage to outsourcing (they're doing the same job and have the same limitations but would want a for-profit model) but transportation - particularly between major centers - makes more sense.  It's expensive to maintain an air fleet and if you can partner with an existing courier, there might be real cost savings with a merged air fleet.  Then restructure the transport system into a spoke and wheel format where the local post office gets it to the major center and the 3rd party could carry it to the major center that handles the destination.

notLostInSpace
notLostInSpace

One of the finest services in the world.  Goes to every address at an incredibly reasonable cost.  Private carriers do neither (go everywhere/reasonable cost).  This argument is very similar to the social security argument.  Right wing wants to destroy the product so that privateers can take over.  Right wing refuses to do any reasonable negotiations.  Right wing imposes draconian rules (paying the retiree benefits, virtually NO other business does that).  And ask yourself this:  is the post office really supposed to MAKE money?  Huh?  Wouldn't it tick you off if they reported billions in profits each year?  Government services ideally should be break even or slight losers.  This would be close to that without the pension requirement.  Like social security, tweaking this would make it solvent for a long time.  But the right wing is going to wait until it is a full disaster.   They should be held in irons for not doing their jobs to help America fix its problems.

notLostInSpace
notLostInSpace

@buffalo.barnes102 Yeah, let's f*** it up just like the airlines, utilities, phone company.  I've been battling for four months trying to get phone service issues resolved.  In the old days, it was one, call Bell, they fixed it.  Now its two or three companies pointing fingers at each other.   When you outsourcers can explain how Montana will be served reasonably (no, I don't live there) in terms of service and cost I'll listen.....but you ain't got nothing to offer.   Post office now delivers mail everywhere in the US, somewhere near 100% on time, mostly for 46 cents.  Take away the stupid pension requirements put on it by a vindictive ugly Republican congress and it would not need much to put it in shape. 

notLostInSpace
notLostInSpace

@JohnDeCeasri  AT&T Corp, formerly American Telephone and Telegraph, known as the Bell System, was the envy of the telephone industry around the world.  Not only were they efficient with good service, reasonable prices, they had Bell Labs that produced innovative new products (I got to visit them once when I was in school in the 60's, awesome).  Broken up for anti trust reasons, (into new baby Bell companies like Nynex, Bell Atlantic aka Verizon, etc.) that I'm sure had to do more with what politicians were in power than any sane reason, costs went up because now there are several companies doing what Bell did by themselves.  They needed more admin, more sales people, more clerks, more Boards of D, more big executives with huge salaries, etc., and multiple companies making profits, instead of one regulated profit.  Years later, many of these new companies re-attached themselves, as well as others via merger (way too many to be recounted here), but the results are the same.  ATT as a corporate name did in fact emerge again from the ashes, but far from what it used to be.   In all, we have higher costs, higher profit margins that are not regulated, and distinctly different corporations that don't necessarily work well together in markets in which they compete, WHICH WAS THE WHOLE PURPOSE of breaking it up WASN'T IT, COMPETITION?  Think of that the next time you try to get your phone line fixed, or your long distance gets "slammed". 

notLostInSpace
notLostInSpace

@curt3rd  No.  The private sector cannot do this better.  Just like utilities.   Take a basic economics class; some things are better served as government monopolies.

ckm
ckm

@MrObvious Libertarians also want a much smaller, much better run government.

ckm
ckm

@usemate The USPS HIRES and CONTRACTS with FedX and UPS. If the USPS goes down, those two companies would be out about 1.7 BILLION a year!

JenniferHathaway
JenniferHathaway

@usemate And the "think" [although I use the term loosely] tank that provided the "report" this article is based on has as two of its board members... guess. Oh, come on, guess! Give up? Darrell Issa and Orrin Hatch. Because, you know, "unbiased". 

usemate
usemate

@destor23 'While this would be great for junk mail, what about your personnel finances, or a private letter to a loved one. What about the holiday cards you send? This would loose the personnel touch. The system has worked just fine for years. Congress needs to stop trying to change things.  End the below cost service for large mailers and the subsidizes to UPS and FedEx.

Everyday FedEx and UPS leave parcels at the post office for areas that are not profitable. These companies charge the customer full price, then have the post office spent their money to deliver the packages. The post office has a lower price on small parcels, so FedEx and UPS pay that smaller price and pocket the difference. If you don't believe this watch tracking numbers from parcels, especially from Ebay sellers. They are often tracking numbers for UPS and FedEx, but end up in you mail box. Or you can go to the nearest processing plant and watch FedEx and UPS trucks unload their parcels everyday.

destor23
destor23

@flameworker2 Strange that people won't jump at such an obvious (and correct) solution.  Almost as if there's a whole different agenda at work.

notLostInSpace
notLostInSpace

@JenniferHathaway ...don't forget there is a huge anti union interest at work also, not only the privateers that would love to have the profitable part of Usps and let the rest die.   Good luck getting mail to your friends in Montana or Wyoming.

Coach63DH
Coach63DH

@grape_crush Ask any Chicagoan how they feel about the privatization of the parking meters.  The only ones that are happy about it are those who have found a way to cheat the system.

gysgt213
gysgt213

@grape_crushIn theory, opening up the USPS’s services to competition would allow it to operate much more efficiently, and save costs.

Anyone for the record want to point to one incident where this has happen.

Utilities?

Airlines?

Insurance?

Must be a made up theory because it never happens.




buffalo.barnes102
buffalo.barnes102

@notLostInSpace @buffalo.barnes102 

Ah, yes! Those mythical "good old days!" Waiting days for a phone company "technician" to tromp through your house (Nobody home? Too bad!) And those lovely Princess phones! ("When the sun goes down, the dial lights up!" Available in Avocado; Sunburst, and other colors not found in Nature. The "supervisors" remark is direct from my own mailman. I still marvel that I can drop a slip of paper in the mail and it will show up in, say, Montana. I agree with you about the "vindictive ugly Republican congress" though. Hope you get your phone fixed.  

notLostInSpace
notLostInSpace

@ckm @MrObvious   Curious if you can name any organization that is smaller and "much better run" at the same time?   Seems like it is codeword for elimination of certain things, which results in smaller, but does not make it better run.  When I see organizations contract, they usually are in a death spiral of more and more service (and people) cuts to a point of total ineffectiveness where no one cares if they are around or not.

destor23
destor23

Hey, I purposefully punctuated that comment so you'd know I was kidding! :)

JenniferHathaway
JenniferHathaway

@notLostInSpace @JenniferHathaway Yes, agreed.  Also take note of the fact that Orrin Hatch and Darrell Issa are both on the board at this outfit. The necrotic nepotistic self-promotional efforts of the Greedy Old Pharts continues...

notLostInSpace
notLostInSpace

@gysgt213 @grape_crush Wow, I could really tear into your response but will offer just a few quick points.  Utilities: huge problems from deregulation.  New plants not being built; rates being increased several times a year.  Enron ring any bells?  Read about what Exelon has done with closed nuclear plants in Chicago to manipulate prices?  What has caused rolling blackouts?  Airlines: huge money losers, and they are not cheap, and they do not serve all markets, but they are also quite optional to most of us.  Insurance, assume you mean health, where 40 million people are uninsured, countless more under insured, and millions more have it only until they are sick and can no longer pay for it.  Until Obamacare really comes into force, we are two kinds of insurance customers: victims and future victims.  Or we could talk about p&c insurance; people on the coast have seen their premiums go from $1k to $5k and make their houses unsellable. Have a claim, get cancelled.    Free market and competition working really well, again.  I would argue that health insurance, utilities (including power and phones like it used to be), and post office are natural choices for government run monopolies.  Republicans always pine for the 50's, this is the way it was in the 50's! 

JenniferHathaway
JenniferHathaway

@buffalo.barnes102 @notLostInSpace The USPS is not and has never been in the red, despite what the lying liars who lie would have you believe. The reason there's an issue is that the Congresscritters [who need to be flushed] created a boondoggle in the hopes that too many [formerly citizens] consumers would buy their load of b.s. and allow them to screw us yet one more way to Sunday. Again- the USPS IS NOT and HAS NEVER BEEN operating in the red. The crazy "pension" provision created by Issa and his cohorts has fabricated a "debt" out of whole cloth. Google "Post Office Pension 75 years" to find out exactly what these crooked bastiches are up to.

buffalo.barnes102
buffalo.barnes102

@notLostInSpace @buffalo.barnes102 

Unfortunately, the USPS has been "in the red" now for quite a while. Our duly elected noble-men in Congress keep throwing money at it just to keep it afloat How long the 46 cent stamp remains 46 cents remains to be seen. Could be time for a new business plan.

notLostInSpace
notLostInSpace

@buffalo.barnes102 @notLostInSpace  I'm not going to say they would not benefit from some significant changes in management; most businesses have to do it too.  I wait now for technicians to arrive but in the sixties the guy who came could fix it.  Now the guy I wait days for says I have to call someone else.  And then that guy blames it on the first guy.  And hey, I have some Princess phones still.  Those phones from that time period work forever.  And they work when the power goes out, everyone should have one for a back up when our privateered utilities do their blackout thing!  I hope the letter you mailed that went to Montana was supposed to go there!  Even so, 46 cents and seeing the country, it got a bargain!