Saving the USPS

It's a good question in this logistics-laden season: Faced with ongoing losses, can the United States Postal Service be rescued?

The USPS has a fierce tradition that the mail must always get through. Today, though, the organization, which has been around in some form since 1775, faces two tough pressures.

First, costs are preventing that fast service — it's usually two or three days instead of one. To be fair, much more mail comes from out of town today compared with the 99 percent local mail of the first postal services.

Second, there is no monopoly for mail delivery. FedEx and UPS got their start because the USPS took its eye off the ball and let delivery and service slide badly in the 90s. For a while, the only way to guarantee delivery was not to use USPS!

Now, USPS has fixed most of its problems and offers economical guaranteed delivery, as well as pickup and tracking services. It is fundamentally cost effective in comparison with its competitors in these areas. So why is it losing big money?

There are two levels at issue. One, which creates much of the deficit, is a requirement laid on it by Congress to pre-fund its pension plan way out into the future. That's unnatural and is the cause of most of the stories of red ink.

In addition, there is a fundamental and systemic trend in business. The issue lies in the oldest service — posting letters. Escalating fuel prices have hit hard, but the fundamental issue is labor cost. Staffing to sort and deliver six days a week is expensive. Another problem that really hurts is that the volume of mail is dropping, due to the explosion of electronic transactions and email over the last decade. The fundamentals of decreasing letter count and increasing costs is a vicious spiral.

The mail service decided long ago to augment payload by having a bulk-rate service for flyers and such. Unfortunately, this is a subsidized service, and the increased revenue doesn't offset the costs of handling the wide variety of paper. In fact, the only thing saving that service from oblivion is that the flyers are local so transportation and handling costs are low.

The answer lies in embracing the technological challenges and reinventing the mission a bit. Computer and phone transactions will continue to erode the billing mail business. The USPS should accept that and retool for the loss of income. How about delivery every other day, for starters? That would allow mail deliverers to each cover twice as much territory. The reduction in staff would be substantial.

Second, the USPS is uniquely positioned to act as a package pickup point for online retailers selling the electronic gadgets and gizmos that consumers love (as well as other goods). The mail offices are designed for the job, and there are more than enough of them already in place to give coverage. The service is something the post office already supports, with the twist that a counter will need to be open late into the evening. The retailers would consider this an extremely valuable service, especially as home delivery is an almost seamless option for USPS to add (for a fee, of course). They are looking at companies like 7/11 to do the job for them, and surely USPS is better! In fact, USPS just started doing Sunday deliveries for Amazon.

Online retailers would like to expand into perishable goods like groceries. There is currently no economic model for delivery. Again, who makes delivery calls every couple of days? This concept would need to be tuned to make sure that someone is home to accept delivery.

More leading-edge thoughts address the various business segment mission statements. Delivering bulk mail isn't a winning proposition. The USPS could consider taking a channel on cable TV and delivering the flyers electronically. And if it can deliver the groceries, turn that channel into an interactive catalogue and open up an online ordering service, too. Or it could get Amazon to do it and just make delivery!

The Postal Service has to get over a protectionist labor environment, higher-than-average pay scale, and restrictions by Congress. At the same time, it needs to adjust to modern times, or it will become irrelevant and will be closed down. That would be a real pity, especially as there are real signs of vitality in its business thinking.

We've got some bright lights in the EBN community. What advice would you offer to the USPS? What ideas should it be borrowing from the electronics supply chain?

21 comments on “Saving the USPS

  1. SunitaT
    December 26, 2013

    USPS going down is really a bad news. However this kind of trough comes for every company, big or small. The only thing they can do is buy off private delivery systems like DHL and FedEx, if they have the money, but they can't because they don't have that kind of money. With the volume of emails increasing and since almost everyone in the States have an internet signature, the mails have reduced. The ideas it could borrow from the supply chain is not much, since people trust private organisations for delivery rather than USPS.

  2. JimOReilly
    December 26, 2013

    If the posturing politicians got out of the picture, USPS management seems more competent than the average, and they could get well.

  3. ahdand
    December 26, 2013

    @Jim: Very true. If there are politics involved in any business the freedom of the business does get blocked. Politics should be banned from business.      

  4. Hailey Lynne McKeefry
    December 27, 2013

    @Tiriapur, these crossroads moments do come to every organization. I think it's not what happens but what the organization does with it. This is the kind of moment that can lead to great innovation. I think the key is looking at what's going on in hte market and then looking at teh business with a clear eye (nothing left off the table) and make changes accordingly. Good things can come of it.

  5. Hailey Lynne McKeefry
    December 27, 2013

    @Jim, if the politicians got out of the way, what do you think USPS would do? What would be the best case scenario in your mind?

  6. Himanshugupta
    December 27, 2013

    Jim, really enlightening thoughts and the solutions that you have envisioned apply to any public company. Until and unless companies or here USPS get their act togehther and embrace technology, they cannot survive. Heave policy guidelines and polical interference are not always useful as in USPS case but the same agencies also partially fund the expenses to provide some relief. So, it is upto the management to put their act togther and work out short and long term plans.

  7. Himanshugupta
    December 27, 2013

    I think the private companies such as UPS and FedEx do not have the legacy burden of pensions so their balance sheets will always be heathlier than the USPS. At time people's preferences are changing and that is eating into the regular mailing services but there are new opportunities of e-commerce and fast package/courier delivery services. So, there is still lot of opportunites out there for USPS to grab.

  8. JimOReilly
    December 27, 2013

    With the playing field on pensions levelled, and the politicians out of the picture, I think USPS would stage a turnround. Some things would change….Maybe no Saturday delivery, or every other day delivery for normal mail, and the really marginal post offices would have to become kiosks in malls or strip malles, but they can get to a profictable position from where they are.

  9. JimOReilly
    December 27, 2013

    All large companies reach a point where the management stops evolving the system and spends their time protecting the status quo. That's usually the point when upstart ventures begin to eat their lunch!

    December 27, 2013

    If I were the boss of USPS I would stop all home delivery and pcikup and transition to a hub based service only.  The exisiting USPS infrastructure should be a great advatage over the competition but for this to work there would be many many layoffs and efficiency savings required.

  11. JimOReilly
    December 27, 2013

    If the pension stupidity were fixed, USPS would be around break even. Going to delivery every two days would be enough to put them into the black.

  12. Himanshugupta
    December 28, 2013

    @Flyingscot, layoffs may not be that easy for USPS because it will put additional burden on the balancesheet. I think they should first focus on getting into profitable yet excruciating work and make employees deliver.

  13. Eldredge
    January 2, 2014

    The biggest difference between USPS and it's competitors is the delivery of daily mail. I wouls agree with a previous comment that changing to bulk mqail delivery every 2 days would probably make USPS break-even.

  14. JimOReilly
    January 3, 2014

    All of the major delivery companies do daily delivery. The USPS is the only one that has enough mail volume to have something to deliver daily.

  15. Eldredge
    January 3, 2014

    You are correct of course. I think I meant to say that USPS handles the  bulk of the daily 1st class mail, which creates a somewhat different business model than most of the other carriers.

  16. JimOReilly
    January 3, 2014

    @eldredge, It is different as a model. Perhaps the answer is to go to daily business delivery and every two days for homes.

  17. Eldredge
    January 3, 2014

    That suggestion makes a lot of sense. They need to compete on business delivery, so sporadic delivery doesn't fit that model well. But home delivery probably has more latitude for changes.

  18. Kevin Jackson
    January 7, 2014

    You are getting an envelope delivered anywhere in the US in two or three days, isn't that worth a buck? I think it is. If the USPS went to every other day service I would stop using them.

  19. JimOReilly
    January 7, 2014

    I think 1 or two days for local delivery and two to four days for out of town would be fine with most people, especially if the alternative is $35.

  20. rpellny
    January 7, 2014

    “All large companies reach a point where the management stops evolving the system and spends their time protecting the status quo.”

    The USPS isn't a large company – it's a governmental bureaucracy that has long been afforded a monopoly over letter delivery.  Until fairly recently it has never had any incentive to evolve the system.

  21. JimOReilly
    January 8, 2014

    I think you might be surprised. The USPS has become quite creative and appears much more like a business now than ever before.

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