United States Postal Services
Although in the mid 90’s the USPS was generating a surplus, there was growing tension between the USPS’s public mission and the need to act like a business. The USPS has an impressive portfolio of properties and holdings stretching the length and breadth of the US. Some of the post offices are unprofitable and a drain on the financial resources of the USPS. The USPS in a bid to act like a business had proposed certain changes in the way it conducts its business. In the 1980’s, it floated the idea of reducing the number of days per week in which it delivers mail. However, the Congress shot down that idea and passed laws prohibiting a reduction in the number of days that mail could be delivered. The USPS had also contemplated the possibility of closing down some of the post offices, which were unprofitable to run and were proving a drain on the USPS’s bottom line. In addition, the Congress passed legislation severely restricting the USPS ability to close down non-performing post offices. Currently, the United States Postal Service (USPS) faces the daunting challenge of maintaining one of the largest property inventories in the United States in a period of declining revenues. This massive portfolio of facilities and legacy equipment is aging, complex in composition, geographically dispersed, and varies in physical and operating condition. The USPS’s capacity to maintain critical facilities and equipment is constrained by increased pressures to reduce costs, manage aging facilities, reduce workforce, and balance the interests of three strong labor unions. The USPS is also constrained by the legal framework in which it operates in, making it difficult to make quick business decisions that could help in staving the impending insolvency. For the US Postal service to survive, it will have to change how it does business by engaging in strategic partnerships, consolidation of capital assets and a paradigm shift in its style of operations. This paper considers some of the ways that the USPS can use to reduce its overheads and increase profitability. For long-term sustainability to be assured, the USPS must be able to run its operations profitably. Otherwise, there is a real possibility that the USPS can collapse under the weight of the debts that it is currently carrying, which are also projected to increase in the short and long term. To ameliorate the situation facing the USPS, a multifaceted approach is needed to ensure that Service can return to the path of profitability and sustainability.
United States Postal Services
The establishment of the US postal office was influenced by the Royal Mail tradition that was in England (Bovard, 1985). The pilgrims from England new of the mail services offered in the old continent and brought with them some of these experiences. During the early years, most of the colonists had no need to send letters to each other; rather, they mostly sent letters back to Europe. The process of sending and receiving letters was laborious, and it could take several months before the letter could reach the recipient. President Washington set up the postal service, then known as the post office, in 1792 (A big day in the history of the United States Postal Service, 2014). The president was expanding on an earlier version of a mail delivery system set up by congress in 1775.
After the passage of the 1792 Postal Act, newspaper distribution became the raison d’être of the post office. The early and mid 19th century saw technological changes in transportation means that provided a challenge to the profitability and sustainability of the Post Office (Campbell, 2008). Innovations included the introduction of postage stamps that could be affixed on the letters, making it extremely easy and cheap to send personal letters. This led to a massive expansion in the number of personal letters that ordinary people were sending. The Postal Act of 1845 introduced changes that substantially reduced the cost of mailing letters. During this time, there was also a problem with ‘franking’ where postmasters will allow mail to be sent at no cost in exchange for cash or other gifts. This gave the postmasters a lucrative revenue source while depriving the Post Office of revenue. The biggest threat to the profitability of the Post Office was coming from the emerging private expresses. This phenomenon was mostly due to the invention of faster means of transportation, which made it easier for people to travel from one city to another.
The Postal Act of 1845 served to bolster the fledgling Post Office by enacting legislation that strengthened the monopoly of the Post Office, banning the private express companies from offering mail services to areas that were already served by the Post Office (Campbell, 2008). The act in essence criminalized the offering of private express services to the populace, and the Post Office had a virtual monopoly in the delivery of first class mail, the definition of which was expanded by the Act. The beginning of the twentieth century saw a tremendous growth in the Post Office. The number of post offices grew exponentially from the original 75 post offices to thousands of post offices. Currently, the USPS runs and maintains over 40,000 post offices throughout the country (U.S. postal system established 2014). The beginning of the twentieth century saw the introduction of new services by the Post Office. The Post Office is credited with the establishment of the American air industry at the start of the 20th century as it built and put into use planes to deliver mail to all parts of the country (Airmail in America, n.d.). During this time, passenger traffic was minimal. Mail provided the impetus needed to help in the development of the air industry by providing the funds needed to develop and buy new planes.
The end of the 18th century and beginning of the 19th century saw the collapse of many banks, causing consumers to lose millions in savings. As a means of protecting the interests of the small rural consumers who were most affected by the collapse of the financial institutions, the Post office introduced postal savings bank (Morris, n.d.). The subsequent economic depression of the 1920’s and 30’s saw further growth in the postal savings banks as more Americans decided to bank with the Post office to protect their savings. By the end of the Second World War, the post savings banks were at their peak and had over 4 million accounts, with over three billion dollars in deposits.
However, there has been a gradual decline in the influence and pervasiveness of the Post Office since the heady post-war days. The early successes of the Post Office led to the creation of an unwieldy organization, which is currently unmanageable. In 1966, in response to a virtual collapse of the postal system due to the weight of mail passing through its system, President Johnson appointed a Commission to look into the future of the Post Office. The Commission proposed for the restructuring of the Post Office to make it run more like a business, and less like a public utility. These recommendations eventually led to the enactment of the Postal Reorganization Act in 1970. The Act renamed the Post Office as the United States Postal Service (USPS) and led to a major restructuring and reorganization of the Post Office. The wages of postal workers were significantly increased while the USPS became a quasi-public organization, which could borrow funds and engage in long-term investment.
Strategies for Breaking Even
Outsourcing of the operations and maintenance of their capital assets
There is a perception that the USPS has a universal service obligation, although such an obligation is not in the postal law and the concept remains fuzzy (John 2008). However, the concept has, largely, colored Congress view on Postal reform. The prevailing view is that the USPS must provide postal services to all the far-flung cost implications corners of the nation, irrespective of the cost implications on the USPS. However, such a view is unsustainable because the USPS is not subsidized by taxpayers’ dollars. Therefore, it has to run its operations in a way that enables it to generate enough revenue to run a self-sustaining business. The USPS has been making losses, which are now running to billions of dollars. These losses will get worse if nothing is done urgently to stop the hemorrhaging of revenue from the Postal Service. The Service has to be alive to the flactuating market fundamentals and change in an appropriate manner to respond to the changing market dynamics.
As a means of reducing its overheads, the USPS must consider the de-unionization of its labor force. While it is true that the unionization contributed to the increase in wages for workers and significantly contributed to the reduction of income inequality, the emerging workplace trends that are due to globalization call for a rethink in the unionization of employees. Globalization and technological changes have led to structural changes in the workplace, which USPS has to put into consideration if it is to survive (Töngür & Elveren 2013). The US Postal Service has very strong unions in the workplace. These unions have led to the increasing of the wages of postal workers to levels of the middle class. The unions, which are very strong, have also been at the forefront, opposing restructuring attempts. The era of globalization has led to the re-definition of the nature of labor, which has generally led to a drastic reduction in the cost of labor. The cost of labor is a significant component of the overheads that the USPS incurs and is disproportionately high compared to similar private sector wages.
The era of lifetime employment with assured benefits has ended, with labor involved in a need-to basis. This means that corporations can manage their wage bill by ensuring that only those employees who are necessary for the profitable running of the business are engaged at any given time. This is not possible in a unionized workforce because the employees have assured job security. Therefore, the Service is forced to retain employees who may have no value to it and are a drain on its bottom line. By de-unionizing its workforce, the Service can have a freer hand in dealing with the bloated workforce. De-unionization can also be useful in helping in the restructuring of the wage bill by linking pay to volume of work done. The USPS employees earn much more than their private sector counterparts and this puts the Service at a competitive disadvantage compared to the private carriers. To ameliorate this situation there is an urgent need to de-unionize the workforce, to give the Service wriggle room in restructuring efforts.
Going hand in hand with the need to de-unionize is a need to reduce the labor costs. The USPS has huge labor costs. The Service is the second largest civilian employer in the US, employing over 600,000 employees (Carbaugh & Tenerelli 2011). Some of these employees are engaged in post offices, which are completely unprofitable to run due to the low mail volumes. This labor force can be reduced by national attrition, not replacing retiring individuals and those who leave the service. As a means of reducing the need for expensive labor, the Service should consider increased automation of some of its services. Using automated mail sorting systems can substantially reduce the amount of resources used by the Service in servicing its workforce. The Service has thousands of vehicles, which require thousands of drivers to run. The Service should consider rationalizing its mail delivery services, merging routes to reduce substantially the number of divers required to deliver mail to customers. The USPS should consider delivering mail to a centralized point in the last mile, which can cater for a cluster of homes. This can reduce the number of drivers used to run the mail routes.
Labor costs can also be substantially reduced by outsourcing non-core services. The USPS extensive transport network while useful in getting mail to far-flung areas is also a drain on the Service due to the need to mania a fleet of vehicles and people to deliver the mail. The USPS should consider outsourcing transportation services to other private players, especially in sparsely populated areas, where there may be no business justification in maintaining its own mail delivery system. New employment opportunities in the Service should be filled with temporary workers, who can fill the vacancies as long as the mail volumes need them to be there. Should the mail volumes reduce, the Service can release these workers, therefore, avoiding the need to incur unnecessary costs of paying redundant employees. Temporary workers are usually employed on performance-based contracts; hence, the Service will only pay them what is commensurate with the work done.
The rollback of services offered by the USPS has led to the problem of unused properties around the country. Some of these properties are becoming derelict due to disuse. This causes the Service to not only lose money in maintaining these properties, but also is losing value on these properties as they become derelict. For a decommissioned property, the most important aspect that should be taken care of is the building envelope, which consists of all the internal and external elements that make up the building interior and external shell (LBG facility and asset management approach 2012). Protecting the building envelope is essential in maintaining the value of the building. This is because the value of derelict buildings goes down quickly in the market. Therefore, to protect the value of the building, it is necessary for it to be kept in good shape physically.
Protecting the envelope also helps to reduce the maintenance costs. This is because it is cheaper to control the internal environment of a well-maintained building because the airflow can be easily regulated, making it cheaper to manage the heating or cooling of the building, hence reducing the cost of maintenance. In addition, protecting the building envelope ensures that the refurbishment costs are minimized. This is because by protecting the envelope, things like running water, which can cause damage to the building fittings necessitating replacement, or rodents, which can also destroy fittings are eliminated, ensuring that the building’s condition does not deteriorate with disuse. The protection of the value of their buildings is an important aspect of the drive to improve USPS’s bottom line. These buildings are fixed assets that the Service can dispose of to raise the necessary funds for running its operations. Therefore, their value should be maintained for the Service to get a fair market return for its assets.
Consolidation of their capital assets giving them a smaller footprint
The USPS has one of the largest property inventories in the United States. The massive portfolio of facilities and legacy equipment is aging, complex in composition, geographically dispersed, and varies in physical and operating condition. The USPS has a daunting challenge in trying to operate and keep serviceable these facilities, due to declining revenue and a downturn in the volume of business handled by the Service. The prospects of the USPS core business of posting mail remains bleak in the medium and long term due to changing technology, which has made communication instantaneous, for example, use of email (Carbaugh & Tenerelli 2011). The properties owned by the USPS require the paying of utilities and periodic maintenance. Some of the properties are not essential to the core business of the USPS. This is because some of them are in places where the USPS has considerably scaled back its operations (Courson & Liberto 2011). This raises the question as to the rationale of the USPS still owning and running these properties.
The USPS is primarily a service provider and has no business owning a vast amount of properties in far-flung corners of the country. Therefore, to reduce overheads, the USPS should decommission some of these properties and dispose of those already decommissioned. This will free the Service from having to service these properties. The disposal of these properties can also generate funds, which the Service can invest in its core business. Disposal of idle property is necessary so that the Service can focus on maintaining a manageable property inventory, which in turn will lead to the appreciation in value of the few properties, which the company will own. Disposal is especially necessary for areas where the USPS is unlikely to operate again. This will save the Service the need to spread its resources thinly on the ground as it tries to keep all its properties functional.
Alternatively, if the USPS cannot dispose of its properties, then it can lease them out to private developers (Miller n.d.). This is especially so for properties which have historical significance or are in historic districts. Leasing of property enables redevelopment of the property, which may not have been possible under the management of USPS. Leasing out property is also advantageous to USPS because the Service gets to earn fees for leasing out its property. Leasing can, therefore, be an invaluable revenue stream in a time of squeezed income from the primary revenue drivers. Whether the property is leased or sold, it helps to free USPS from the need to run maintain the properties. The resources released from withdrawing from the property business can help the USPS to invest in and improve its core business. It is also worth noting that by reducing the number of properties under its direct management, the USPS has fewer properties which it can effectively manage and increase their value.
The market in which USPS operates has drastically changed over the years. The USPS has for long been protected under law by the monopoly legislation, which ban competition from private carriers in its core business of first class mail. However, the USPS has continually faced challenges from private mail companies from its inception. The USPS is hardly famed for its efficiency or speedy delivery of mail. This inefficiency has always provided private investors with an opportunity for investing in express mail delivery. At its inception, the introduction of the steam engine threatened to profitability of USPS as private persons could deliver mail from one city to another much faster than the USPS. However, with the strengthening of the monopoly laws, USPS was given a virtual monopoly in the delivery of first class mail by banning private persons from engaging in the conveyance of mail where the USPS was operating. However, a loophole enabled private mail carriers to operate in areas where USPS was not operating.
The situation has not changed much and arguably, the USPS faces a more severe existential threat from technology than it did all those years ago. Increasing internet usage has had a detrimental effect on the core business of USPS, as more people prefer to use emails than ordinary mail (Newcomb 2011). This trend is likely to increase in the near future and hence the revenue of USPS is likely to continue declining in the long term. Even advertisers who formerly used the USPS to distribute advertising information are now opting for online web-based advertising campaigns. The USPS also faces serious competition from FedEx, UPS and DHL in the parcel delivery segment. The rise of internet shopping has led to the creation of more and more parcels as companies deliver customer purchases through mail. The USPS has a poor footprint in the fast growing parcel delivery subsector, putting it a distinct competitive disadvantage compared to the other private parcel carriers.
The USPS, therefore, requires a paradigm shift in the way it conducts its business. The usual approach is not going to work in the face of a changing technological landscape and business dynamics. The USPS should consider into other businesses, away from the unprofitable mail business. One of the businesses USPS can diversify into is in the mailing of parcels, especially the transportation of alcohol and wines, which it currently cannot mail (Nixon 2012). Experience from other International Posts shows that diversification can significantly improve the financial position of the Postal Service (Is diversification the answer to mail woes? 2009). The USPS can diversify including banking, provision of phone services, insurance and many others (DeHaven 2012) into many areas. By diversifying, the USPS will spread its revenue base and reduce the current overexposure to mail revenue. The USPS should also enter into partnerships with other service providers, with whom it can share the provision of services to the consumers.
Findings and Recommendations
The USPS as it currently operates is unlikely to turn around its fortunes and return to profitability. This is because the Service is heavily dependent on mail as a primary driver of revenue. The volume of first class mail sent is likely to continue declining in the long term thanks to the emergence of instantaneous means of communication like emails and social networking sites like Facebook and Twitter. This means that the Service’s overexposure to the mail business is going to impact negatively on the revenue it can generate and hence its sustainability in the end. Therefore, the Service needs to be restructured to be in tune with the current market demands.
There should be a deliberate attempt to diversify the operations of the USPS to broaden its revenue base. The Service should consider collaborating with other service providers and leverage its extensive branch network to offer different services, other than the posting of mail. Some of the services the USPS can offer include banking services in partnership with established financial organizations, enhancing cooperation with parcel services providers to offer the last mile delivery services and mobile telephony services. The Service can also negotiate with the Federal government to use its considerable footprint to offer some of the Federal services through its branches.
The legal framework under which the USPS works should be overhauled. This is because while the law bars USPS from competing with private sector service providers, the private sector providers are free to encroach on the areas that USPS operates in, putting it at a competitive disadvantage. USPS should be left to critically evaluate its operations with a view to coming up with a model that can work best in the current technological environment. Although the USPS is not a public utility per se, Congress has a say and veto on the business decisions of the USPS. Congress has barred most of the business innovations that the USPS has tried to implement, stopping the USPS from pursuing a path that could return it to profitability. This has made it difficult for USPS to innovate and stay relevant because Congress has a final say in whatever direction the USPS takes.
Although the USPS is a quasi-private body, which receives no funding from the public purse, it is still expected to offer public services rather than operate purely as a business. This implies that the USPS cannot abdicate its role in providing mailing services to the American population although some of those services are being offered at a loss to the Service. The regulatory regime under which the USPS works, therefore, must be changed to create a level playing field. It does not make business sense for the USPS to be offered a monopoly in a sector that will continue to decline while being legally barred to enter into the more lucrative parcel services sector. Such restrictions need to be removed to allow the USPS to find a formula that can help it to return to the path of profitability quickly.
It is interesting to note that the USPS is the only organization that is legally obliged to prefund future retiree health benefits for its employees at a staggering cost of over US$ 5 billion (Sanburn 2013). This requirement imposed by Congress in 2006 has significantly contributed to the current financial malaise afflicting the USPS. Before Congress passed the requirement into law, the USPS was registering an annual profit and was a going concern. However, this mew law has crippled the Service, as it has to commit current resources for future obligations. The tying of the Service’s resources into this scheme has led to the quick escalation of its debts.
The USPS currently lacks the necessary liquidity to implement this program of pre-funding health benefits for its employees. Since the USPS operates a government run pension scheme, the need to make these huge pre-funding payments does not make much of a financial sense. The law passed by Congress requires the USPS to prefund 75 years worth of retiree and health benefits in a period of only 10 years (LaRocco, 2011). The huge number of years that are pre-funded potentially implies that the USPS could be potentially funding the benefits of employees who are not currently employed or even born yet. This has distorted the Service’s financials hence the red ink in the recent years. The law obliging USPS to pre-fund future health and retirement benefits ought to be reviewed because it is depriving the USPS of current resources, which it can use to invest in growing its business in favor of anticipated future expenses, which may never arise should it declare bankruptcy.
The declining fortunes of the USPS are due to a confluence of factors, which have worked in concert to reduce the revenue and profitability of the Service drastically. The emerging communication trends, which are heavily influenced by the availability of cheap broadband access to not only personal computers but also hand-held electronic devices, means that people are able to communicate instantaneously and on the go. Posting mail is seen as an archaic means of communication that is slow, time consuming and relatively expensive compared to the cost of emailing. This trend of communication is not likely to change in the medium or long term.
Therefore, there is a need to rethink the business model of the Postal Service. The USPS should think of a complete overhaul in its approach to business. Its core business of sending letters is under pressure from changing technological trends and user preferences. It is likely that in this digital age, where more and more people are going online, there is a likelihood that the core business and raison d’être of the USPS of mailing may soon become obsolete. To protect the thousands of jobs at stake, considering that the USPS is one of the largest civilian employers, there is need to unshackle the giant organization and let it find better and more efficient ways of making money.
The USPS has a long and checkered history. It is one of the bureaucracies that has shaped the growth and character of the US. The Service played a central role in keeping the union alive and in the development of a free press in the US. However, the changing technological landscape has tilted the scales against the Service leading to decreasing revenue and profitability. Instantaneous communication is making the core business of the Service obsolete. The growth of internet advertising is also taking clients away from the Service. The Service remains saddled with a large property inventory, which it is struggling to service. The tension between the need to provide public service to Americans and the need to act like a business concern has led to deterioration in the financial health of the once profitable USPS. Therefore, a serious restructuring of its operations is necessary if the Service is to survive in the long term.
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