The Slate Gist

United States Postal Service

Complaining about the U.S. Postal Service is a national pastime. Consumers gripe about rotten service and the recently approved one-cent hike in the cost of first-class postage, which follows news of $4.7 billion in USPS profits over the last three years. Shipping companies such as United Parcel Service grouse that USPS uses its lucrative first-class mail monopoly to subsidize overnight delivery and international shipments. Stamp collectors moan that the Postal Service issues too many stamps, often commemorating frivolous subjects such as Bugs Bunny, hoping that customers will buy and hold these stamps rather than use them. Others warn that digital delivery will destroy USPS in the next century. Why the rate increase, when profits are high? Does the Postal Service compete unfairly?

The Postal Service was not conceived with profit, or even efficiency, in mind. The Second Continental Congress of 1775 established its own post office because it didn’t trust the British, who controlled the mail at that time. Even today, the Postal Service’s mandate is not to make money but rather “to bind the nation together.” The service has been a self-supporting, government-owned agency since the passage of 1970’s Postal Reorganization Act. Direct public subsidies of USPS were phased out by 1982, and today’s USPS covers all its costs from postage and fees.

USPS justified its latest rate request by projecting future losses based on an old debt of almost $1.5 billion and the need to invest in new equipment and further automation. By law, the rates for each class of mail must cover direct and indirect costs attributable to that class, plus a proportion of institutional costs. The presidentially appointed Postal Rate Commission, which adjudicates the Postal Service’s applications for rate changes, cast doubt on USPS’s figures, claiming that it had “seriously misestimated its need for a rate hike.” However, since the PRC isn’t empowered to collect data, it reluctantly consented, though it granted $800 million less than the Postal Service asked for.

USPS plans to increase revenues by boosting its share of the parcel market. But USPS’s competitors–UPS, Federal Express, and other firms–complain that the laws give USPS unfair advantages. It doesn’t have to pay local, state, or federal taxes; it’s exempt from Occupational Safety and Health Administration laws, zoning regulations, and antitrust accountability; and it enjoys cheap credit from the U.S. government. Also vexing to USPS’s competitors are the postal laws, dating back to 1845, which prohibit private companies from transporting and delivering letters or packets in competition with the Postal Service. There are some exemptions, such as those for delivering newspapers, magazines, and urgent letters, but where competition is allowed, as in the case of urgent delivery, private carriers must charge at least $3 more or twice as much as the first-class postage rate. Despite the higher rates, in competitive areas private firms get the lion’s share of business–for example, UPS currently delivers more than 80 percent of all the packages shipped in the United States.

U PS, which alleges that USPS uses its first-class mail monopoly profits to subsidize competitive services, has asked that the firewall between the Postal Service’s monopoly and competitive services be strengthened. Legislation requiring USPS to place its nonmonopoly products under the control of a separate, profit-making organization is pending in a House subcommittee chaired by John McHugh, R-N.Y. It also asks that the requirement to charge twice as much as USPS for urgent delivery be changed to $2 more than USPS’s rate. Both UPS and the postal unions are generous donors to political action committees, but since every congressional district contains numerous post offices and politically active postal workers, it is extremely unlikely that Congress will enact radical reforms any time soon.

The Postal Service dreams of cashing in on its enormous cache of detailed demographic data on customers by selling it to direct mailers. This rankles the newspaper industry, which wants to protect the income it receives for delivering advertising inserts. The industry has taken its complaints about USPS competition to Congress and seems particularly aggrieved by the Postal Service’s plans to spend $15 million to promote direct mail. As Newspaper Association of America President John Sturm observed, “Stamp-buying citizens are given no choice other than underwriting advertising mail most of them never asked for and don’t want.”

The Postal Service’s advertising campaigns have drawn fire in the past–in 1992, it spent $90 million advertising in the Olympics in Barcelona, Spain, and Albertville, France; and in 1994, developing a new logo cost $7 million.

The increasing popularity of fax services, e-mail, and e-commerce is sure to hurt USPS. Bills, payments, and financial statements currently account for half of first-class mail volume and one-third of USPS’s revenue. Beginning in 1999, all payments from the federal government must be made electronically, removing benefit checks, tax refunds, etc., from the mail stream. (The move will save the federal government $100 million a year–it costs just two cents to process an electronic payment, compared with 43 cents to cut, mail, and handle paper checks, according to the Social Security Administration.) To combat cyberpayments, USPS will soon sell return-mail envelopes with a reduced postage rate of 30 cents to stores, utilities, and credit-card companies. Industry analysts are skeptical that companies will use them.

USPS hopes to gain some of the e-mail market by offering electronic postmarking services–a virtual version of certified mail that will provide “official” confirmation of mailing and/or receipt. The Postal Service also recently announced that, in collaboration with the Silicon Valley company E-Stamp, it will test a program that will allow customers to purchase postage over the Internet. (Microsoft is an investor in E-Stamp.) USPS is also optimistic that some form of “hybrid mail,” combining Internet transmission and conventional mail delivery, will gain acceptance. (Britain’s Royal Mail is conducting a similar experiment in conjunction with Microsoft.)

With more than 765,000 career employees and 127,000 other workers, the Postal Service is the nation’s largest civilian employer. Labor costs constitute more than 80 percent of the agency’s expenditures–a figure that has remained steady since 1970, despite the billions of dollars spent on automation. Negotiations with the powerful postal unions begin in August, with contracts due to expire in November. The appointment last week of William Henderson–a 26-year, second-generation USPS veteran who once served as head of employee relations–as postmaster general is seen as an indication of the importance of labor relations to the long-term health of the service. As federal employees, postal workers are not allowed to strike and, if a negotiated settlement cannot be reached, contractual disputes are resolved by binding arbitration.

While libertarians have endorsed giving the Postal Service to its employees, there don’t appear to be any commercial calls for privatization (no doubt the $27 billion in government-guaranteed pension liabilities is a factor) or challenges to the USPS monopoly on first-class delivery. The size of the operation is immense–USPS handles 41 percent of the world’s mail volume, more than the next six nations combined. While service standards differ (many countries offer two mail deliveries each weekday, for example), even at 33 cents, U.S. prices compare favorably with first-class rates overseas–Japan charges 74 cents, Germany 59 cents, France 48 cents, and Great Britain 37 cents.