Free Markets, Free People

USPS — a case study in government incompetence

The US Post Office is in deep trouble.  Obviously some of the problems can be laid at the feet of the internet which has all but killed routine personal mail in favor of the faster and cheap email.  Competition in the area of express delivery and package delivery have taken a ton of business away as well.  Private companies like FedEx and UPS can delivery those items more cheaply and reliably than the USPS ever could.

But the biggest problem the USPS faces is its lavish entitlements driven by union demands.   And once again, we the tax payers are being warned that unless we toss another 5.5 billion dollars the USPS’s way, its going to go broke.  Here’s why:

At the same time, decades of contractual promises made to unionized workers, including no-layoff clauses, are increasing the post office’s costs. Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors. Postal workers also receive more generous health benefits than most other federal employees.

So you have a government agency with declining revenue number …

Mail volume has plummeted with the rise of e-mail, electronic bill-paying and a Web that makes everything from fashion catalogs to news instantly available. The system will handle an estimated 167 billion pieces of mail this fiscal year, down 22 percent from five years ago.

It’s difficult to imagine that trend reversing, and pessimistic projections suggest that volume could plunge to 118 billion pieces by 2020. The law also prevents the post office from raising postage fees faster than inflation.

And overgenerous and rising pension obligations.  Sound familiar?  The $5.5 billion payment due at the end of September is a payment required to help restructure that pension program.  But, as expected, there’s resistance from the union as to the means taken to do so – like cutting the work force:

Cutting the work force is more difficult. The agency’s labor contracts have long guaranteed no layoffs to the vast majority of its workers, and management agreed to a new no layoff-clause in a major union contract last May.

But now, faced with what postal officials call “the equivalent of Chapter 11 bankruptcy,” the agency is asking Congress to enact legislation that would overturn the job protections and let it lay off 120,000 workers in addition to trimming 100,000 jobs through attrition.

Got that folks … the brainacs at the USPS, fully aware of the dire financial straits in which the agency found itself, agreed to a “no lay-off clause” in their new union contract last May.  Incredible.

And now that it makes perfect sense to consider layoffs, as well as other measures (no Saturday delivery, closing little used post offices, etc.), that option is one that would literally take an act of Congress:

The post office’s powerful unions are angry and alarmed about the planned layoffs. “We’re going to fight this and we’re going to fight it hard,” said Cliff Guffey, president of the American Postal Workers Union, which represents 207,000 mail sorters and post office clerks. “It’s illegal for them to abrogate our contract.”

So reach deep fellow taxpayer.  Time to bail out yet another failing agency which apparently never saw this revolution in communication coming, was never able to compete in the market without monopoly powers granted by government and has overspent and overpromised even as it watched it’s market share continually shrink.

Maybe it is time to, horror of horrors, consider privatizing this service?  Actually, that’s something that should have been done years ago.  But watch … we’ll still have this government run anachronism around our fiscal necks when your grandchildren are adults.


Twitter: @McQandO

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27 Responses to USPS — a case study in government incompetence

  • There was a time when a postal monopoly made sense…could even be argued to be essential national infrastructure.
    Those days are LONGGGGG gone.  Timeago, postal monopoly.  Market forces are the answer.

  • The Post Office certainly runs itself like a jobs program rather than a service provider.  More than anything, it reminds me of the Mexican oil producer Pemex.  The whole history of the PO’s vending machine program is a great example, where the employees basically worked hard to make the program fail, never maintained the machines, and pulled out automated postal mail/ship stations that were too successful with users.
    But some of the blame is with Congress.  Congress treats closing a Post Office like closing a defense base.  There is actually legislation preventing the PO from closing PO’s for financial reasons only.  The best way to make costs go away is to wipe out a LOT of local post offices, and that will take Congressional cooperation to make happen.  And I will tell you now, nearly every Representative, from both parties, will raise a fuss over their local office being closed.  We made need a PO equivalent of the base closure commission, with a straight up or down vote on the whole package of closures, to get anywhere.

  • Bring private sector efficiency to the mail service? Are you mad?!
    No, the only reasonable, bipartisan solution is to bring the efficiency of the USPS to the private sector: Dodd-Frank, ObamaCare, Government Motors, etc.

  • It’s always amazing that Congress takes so much of Section Eight of the US Constitution seriously, but ignores the post office part …

    “ The Congress shall have power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States; To borrow Money on the credit of the United States; To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes; To establish a uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States; To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures; To provide for the Punishment of counterfeiting the Securities and current coin of the United States; To establish Post Offices and post Roads; To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries; To constitute Tribunals inferior to the supreme Court; To define and punish Piracies and Felonies committed on the high Seas, and Offenses against the Law of Nations; To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water; To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years; To provide and maintain a Navy; To make Rules for the Government and Regulation of the land and naval Forces; To provide for calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions; To provide for organizing, arming, and disciplining, the Militia, and for governing such Part of them as may be employed in the Service of the United States, reserving to the States respectively, the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress; To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of particular States, and the Acceptance of Congress, become the Seat of the Government of the United States, and to exercise like Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings;—And To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

    It’s right in there with the “Commerce Clause” but they created another GSE to handle it. And just like the other GSEs, Fannie Mae and Freddie Mac, the management is politically influenced and down right inept.

    • To establish Post Offices and post Roads;

      Notice that in the second, it’s a small “p”, not a capital “P”. To “post Roads” was to mark (post) and “name” them, not to build them.

  • Did you know that the Post Office claims the same sovereign immunity as the federal government when they build post offices.  They claim that they don’t have to adhere to building codes or zoning laws, but often consult with local and state governments as a favor.

  • I say let them go on strike and see what happens.  That will be ….absolutely nothing.  I have exactly one monthly bill that I still have to send through the mail, that is if I choose not to drive the 6 blocks to my city government building to drop in the night box.  The USPS is past being an anachronism.

  • They could have solved most of their problems long ago by raising the price of bulk advertising mailings. Nobody wants that crap and they have to fell huge forests for the sheer volume of that junk. And it fills up local landfills.
    Just raise the damn price on that crap, you discourage some of it, and the rest will pay for your expenses.
    It makes me so furious, if I ever became benevolent dictator I would raise the price on bulk mailings, and there would be a lot of guys on meathooks.

    • Nobody wants that crap and they have to fell huge forests for the sheer volume of that junk. And it fills up local landfills.

      Of course you know that you have described a Krugmanian “job machine”…

    • When they hold the benevolent dictator elections, you’ve got my vote.

    • So you really believe that we are losing our forests by cutting down tree farms of poplar grown especially for paper making? And you believe that wood is not biodegradable after burial in a landfill?  Or maybe we don’t have enough room for landfills?
      Capitalism is the American way – let’s keep it.  USPS is slowly losing advertising mailings to electronic services, but perhaps the postal union thugs can be employed as utility meter readers to replace the union thugs at the companies that also enjoy government-granted monopolistic privilages.

      • I fail to see the capitalism in companies getting a subsidy to attack me with their bulk advertising. And yes landfills do fill up faster than the slick inked paper can degrade.

  • It’s a bit more complicated than some are making out here. The reason the USPS is going broke is because FedEx and UPS stepped in and took up huge segments of the most lucrative markets: package delivery, business delivery, overnights and so on. FedEx and UPS have zero interest in house to house mail delivery. Why? Because that’s a money loser. They’re happy to have the USPS lose money on that, and if the USPS dies, so will house to house mail delivery. What’s the solution? There is no single solution, but one step is for the USPS to be allowed to take on more “last mile” delivery for FedEx and UPS. FedEx and UPS don’t really want to do “last mile” delivery because that’s a real money loser too. But they’d be happy to pay the USPS a bit to do the last mile for them. The downside: a little bit slower service from FedEx and UPS — not a huge deal. But as I understand it (and I might be wrong) the USPS isn’t allowed to do much of this last mile sort of service for FedEx and UPS.

    • Actually, it’s illegal to create a first-class mailing service that competes with the Post Office.  So, UPS and FedEx don’t do house-to-house delivery because they don’t want to break the law, not because there’s no money in it.

  • I think we’re getting a hard lesson about some things that we have been taught are “good”: Social Security, labor unions, and now the Postal Service.  In each case, something that was a good idea AT THE TIME has become a monster simply because times have changed and the organizations didn’t change with it.  More precisely, they clung to life past the time they were needed.  Social Security was wonderful… when people paid in all of their lives and didn’t live long enough to collect many (if any) benefits.  Now that we live longer, it’s a fiscal H-bomb that’s about to explode.  Unions were useful when robber barons used the power of government to screw the hell out of employees and our population was sufficiently immobile that people were effectively trapped in mill towns and the like.  Now, labor unions are about a privileged handful of workers who basically pay protection money to union bosses in exchange for exorbitant wages and benefits.

    And the Post Office… Once a pillar of our country and communities, a wonderful organization that allowed people to communicate and conduct business across the country in a reasonable amount of time and at a reasonable cost.  Now, yet another protection racket for keeping low-skill but highly-paid postal workers in high-paying jobs and posh retirement plans that, like Social Security, is a fiscal time bomb.

    I suspect that the schools – public and colleges – are the next big fall.  Not only does the internet make it possible to learn without traditional buildings and classrooms (and student centers, food courts, rec centers, cultural centers, sports stadiums, etc.), but I think that more and more Americans are simply not seeing the utility of education any more.  Why bother to spend years in the drudgery of public school when the end result is a piece of paper that means… nothing?  Why bother to go to college when the end result is likely a piece of paper that means nothing and another piece of paper that says that you owe your first several years of wages to a lending institution?

    • Well social security was wonderful in the same way that a chain letter is wonderful for the first few names on the list.

  • This article is so full of inaccuracies, misrepresentations and outright lies that it makes the author’s agenda perfectly clear.  HR 1351 would make the USPS instantaneously solvent.  We’ve never asked for, nor received a ‘bailout’, a.k.a. – one cent of taxpayer monies.  “Toss another $5.5 billion the USPS’s way…”  LIES!  Nobody is asking for $5.5 billion and we’ve never received it previously.
    The 80% figure is a total fabrication and I dare you to vet it.  You can’t because you can’t get a straight answer from USPS management as far as an itemized listing of expenditures vs. income is concerned. The drop in mail volume is 1st class only and does not include BBM, Priority or Express.  The current % drops in the employee rolls and future desired drops far exceed the current % decline and bogus projected declines in 1st class mail ONLY!!!
    Restructure of the pension program?..  Where are you getting this stuff?  You must be listening to Issa, Ross and Donahoe.  Check your ‘facts’ next time, slick.  The Postal Accountability and Enhancement Act of 2006 requires the USPS to prefund its healthcare to the tune of 5.5 billion a month.  No other federal organization is required to operate under this onerous burden of prefunding retiree health benefits for three quarters of a century, much less to do so in only a decade. 
    Also, the CSRS retirement fund is overpaid to the tune of $50 to $75 Billion, depending on which accounting agency you believe.  This, plus the overpayments into FERS due to the fact that the formula for FERS, CSRS and retiree health care benefits are all incorrect mean that the government has spent, as I’m sure they no longer actually have it, $60 to $85 Billion in USPS money that didn’t belong to it.
    We’ve had a no layoff clause in our contracts since the Postal Reorganization Act of 1971.  The tradeoff is that, like the air traffic controllers, it’s illegal for us to strike.  How about starting off with EAS employees for a change?  The USPS has been top heavy since I started 17 years ago.
    I’m a 45-year-old registered Republican.  I’m retired military, 4 years active and 18 years in the air guard, 16 of which was while I worked full-time with the USPS.  This under skilled, overpaid Electronics Technician started as a PTF clerk and worked his way up with the radio maintenance skills he learned in the military.  Pieces like this which make out all the USPS woes to be strictly the union’s fault amaze me.
    I’m sure the bulk mailers just love you.  I linked to this from one of their sites.  One of the things killing us, besides rampant nepotism and fiscal mismanagement, is the massive discounts we give to the bulk mailers.  By and large, these are unearned and are for work we could accomplish in-house for a quarter of the cost of the discount itself.  I’m not going to go into what I’ve seen personally in 17 years at my facility as you’ve obviously made up your mind that closing 2/3rds of our processing facilities and half of our branch offices as well as privatizing will solve everything.
    Instead, I’ll close with this, “Private companies like FedEx and UPS can delivery those items more cheaply and reliably than the USPS ever could.”  Bullshit, McQ.  We are in the top tier of customer loyalty and satisfaction every year and neither FedEx nor UPS can do ANYTHING either more cheaply or reliably than we can, EVER.

    • Of course you are … you have no competition in the field. Who else could they pick, Jeff? UPS and FedEx can’t carry house to house. But yet they’re the choice of millions everyday for things you supposedly can do.

      Secondly, your pension fund is woefully underfunded. Passing laws won’t change that except on some bogus ledger. You aren’t worth the money. Get over it.

    • The word “pre-fund” is the standard argument from USPS management and the postal unions, repeated over and over by the compliant media with regard to the $5.5 billion required payment for years 2007 through 2015.  As McQ points out, the PO retirement plans are under funded.  The official numbers published numbers in 2010 say we need to put $17 billion more into the defined-benefit retirement plans and $49 billion more into retiree healthcare freebee.  BTW, private, for profit, companies are required to fund these retiree liabilities but the not-so-private post office wants to hide behind the civil-service retirement plans that remains part of the sucking sound that comes from too many union employees making 30% more than they need to be paid on a private scale.
      A little math says the post office is unlikely to ever generate revenues to pay its retiree debt — so the taxpayer gets effed again. 450,000 retirees with 300,000 more scheduled to retire in the next 10 years!

  • Although mail volume is falling, the internet is not killing the Postal Service and neither is the weak economy. A huge Congressional mandate is killing the Postal Service.
    The Postal Service is in trouble because of a Bush‐era (2006) law that requires the USPS to massively prefund the cost of retiree health benefits over the next 75 years in just 10 years’ time. This cost covers not only current employees, but employees who have yet to be hired – and it is on top of the cost for health benefits for current retirees. No other company or agency in America is required to pre-fund
    future retiree health benefits.

    Ten annual payments of about $5.5 billion per year to fund future retiree health benefits were mandated in the postal reform law of 2006, beginning in 2007 ‐ just when the Great Recession caused mail volume and revenue to plummet. (The same law required an additional $2.9 billion transfer in 2007, raising the total cost to $8.4 billion that year. This additional cost was the escrow account set up by an earlier law,
    the CSRS funding reform law of 2003.)

    The $20 billion in deficits over the past four years have been the direct result of the $21 billion in prefunding payments dictated by the Postal Accountability and Enhancement Act of 2006. See table above. In the absence of this mandate, the USPS would have been moderately profitable over this period despite the worst recession in 80 years and it would still have borrowing authority left to weather the bad economy.
    Congress and the Obama administration must take urgent action to avert a financial train wreck this fall at the Postal Service. The USPS will not be able to pay the next $5.5 billion payment to pre‐fund future retiree health benefits. But this payment is totally unnecessary. The Postal Service Retiree Health Benefit Fund already has more than $42 billion in it – enough to cover retiree health premiums for the next 20 years.

  • Back in 1998 we had been on the web for three years and had abandoned all of our print advertising and most of our printed catalogs and mailing lists.  We got a call one day from the postmaster in town asking if we would be in the office that morning and could he drop by.  Sure, why not.  This had never happened in the nine years we had been at that address.  Bob came in with another man, said hello, introduced him as the regional something or other and asked to see our Pitney Bowes postage meter.  Mr. Regional turned it over, examined it, copied some numbers from it and they said good morning and made their way to the door.  “Hold on now” I said “we’ve been using this meter for years and you’ve never once been here.  What’s up?” “Well” said Bob “You’ve been averaging $450 a month in postage for the last seven years, and six months ago you suddenly dropped down to $40.  We wanted to know why.”  I walked them back to my office and showed them a Macintosh computer with I think a Eudora e mail application and our  dial up connection to our web site.  “This is why”  I said “and oh, our printing, clerical and supply costs are down by about the same margins.  Leads are up, sales are up, sales lead times are down.”  So who needs stamps?

  • I have to pipe up in defense of the PO. I never worked there, don’t know anyone who has ever worked there. In all my years, I have never lost any letter nor not received any letter that I expected. It is a very labor intensive operation because of individual home/office delivery.  Perhaps it could be run more efficiently by lopping off some layers of mgmt, but even that I cannot say for certain because I really don’t know. I can stick a $0.44 (or is it $.48 now?) stamp on an envelope and the USPS will pick it up from my office outbox and deliver it to HI, AK, the East Coast, or the next town over for one stamp. The bulk mail pricing problem is solvable. My delivery people and the front-office workers in my PO have always been very friendly. Part of the USPS’s problem is the overhang of retirees from an era when they needed more workers to handle a much larger volume of mail. I remember twice daily mail deliveries with letters regularly coming and going from my family’s house. With a slower revenue decline, this problem could be managed but when it shifts so quickly, the system cannot handle it. Anyway that’s my $0.02 worth (in the olden days, you could get 2 Bazooka Joes for that much opinion).

  • When you start talking costs and losing areas – reminds me of the old days with GTE as a regional trying to compete against the RBOCS.  They had all the nice compact regions where they could service many customers with their exchanges whereas GTE got the East Overshoe 2 customers on the exchange exchanges.
    I see the Post Office in reverse – they get ALL the local customers and FEDex and the others aren’t obligated to deliver anything to them, whereas the USPS has to deliver whatever goes to that address.
    I kinda like the post office, I know what they charge, I drop my letters at the PO, or even leave them in my mailbox, they get delivered within 3 days.  And except for a crazy Vietnamese jeep driver who will occasionally spend 20 minutes on a Saturday trying to back his jeep sideways so he doesn’t have to get out of it to get to the mailbox, I have no real complaints about them.  And at least they’re covered as one of the things government SHOULD do under the Constitution.   I can think of a whole lot of other things I’d like to see government out of before I start privatizing the Postal service.

  • Don’t get me wrong.  I still use the post office.  I still mail all of my payments and some of my invoices.  This won’t last though.  Every piece I handle is printed both sides, the invoice and the envelope, urging me to pay on line or pay automatically.  Offering incentives to do so.  It’s a matter of time.  But mailing printed material? Follow ups? reminders?  They just can’t compete.  I can’t remember the last time I had a magazine in my hand.  And junk mail is junk.  I don’t even look at it.  Why does anyone bother?

    • “I can’t remember the last time I had a magazine in my hand.” Hmm, try reading a magazine on your Kindle while sitting in the hot tub. Or floating in the pool. Or in the steam room. Or the sauna. I don’t think it will last very long. I have an eReader, great tool while travelling, but I certainly don’t use it in any of those environments. In those places, I use a dead tree version of information technology.