The short answer is that they can price postage to be profitable (partially why their sites are so complex) and invest in growth areas — both of which USPS can’t do. Whenever USPS tries to enter a new arena, private competitors bleat to Congress. Examples abound: plans to develop an online payment system in 2000 (Internet industry cried foul); public copy machines (office supply stores); in-store sales of phone cards and money transfers; selling postal meter cartridges (Pitney Bowes Inc. (NYSE:PBI) objected). And, of course, rivals such as UPS complained, ultimately leading Congress in 2006 to restrict USPS to mail delivery.
The effects are huge — costing USPS billions. And new services, it’s estimated, could increase sales by nearly $10 billion annually, potentially covering the earnings gap. But Congress would have to agree to those changes after already tolling the USPS bell. In its latest annual report, USPS begs Congress, in the most obsequious bureaucratese possible, to let it raise revenue. The odds look slim.
Myth 3. Privatized mail delivery would be cheaper and more effective
This myth is often advanced by those who advocate privatizing the postal service, often invoking unions that are strangling the company or an inefficient bureaucracy. But USPS has continued to compete well as a business despite being run ragged by a Congress backed by big money.
USPS has invested heavily in modern systems to speed distribution, and, in fact, has partnerships with FedEx and United Parcel Service, Inc. (NYSE:UPS) for “last mile” delivery. In particular, FedEx Corporation (NYSE:FDX) relies heavily on USPS, which delivered more than 30% of FedEx Ground shipments in 2011. To reframe this, the USPS provides service that is cheaper than what UPS and FedEx can provide for many locations. That’s an implicit subsidy.
It’s bad enough that USPS is forbidden from entering new markets. When it does well on its home turf, rivals turn to Congress, silencing USPS when it delivers better rates. As economist Dean Baker explains, “About a decade ago, the Postal Service had an extremely effective ad campaign highlighting the fact that its express mail service was just a fraction of the price charged for overnight delivery by UPS and FedEx. [They] went to court to try to stop the ad campaign. When the court told them to get lost, they went to Congress. Their friends in Congress then leaned on the Postal Service and got it to end the ads.”
And when USPS tried to take advantage of web shopping? As Elaine Kamarck at Harvard’s Kennedy School of Government explains. “But parcel shipments were generated by large organizations and the USPS was not allowed to negotiate discounts and thus lost business. It was forbidden by law from lowering prices to get more business. This resulted in the entirely incredible situation in the 1990s where the United States government negotiated an agreement for the delivery of U.S. government package services with Fed Ex because the USPS was not allowed to negotiate for lower prices!”
So, if USPS is just government bloat, as some ideologues would have it, then why would efficient free market players such as UPS and FedEx resort to the government? Shouldn’t they simply compete USPS out of that express business?
This paradox reveals in stark detail the industry’s game plan. Compete effectively where possible and then use political power to grab market share from USPS, with the ultimate goal of privatizing the postal system, or at least its profitable parts. This goal is emblematized by the Cato Institute, a Washington think tank founded by Charles Koch advocating the privatization of public services such as the post office. Frederick W. Smith, founder and CEO of FedEx, was on Cato’s board, and FedEx funds Cato.
The results of this game plan are well-documented and disastrous for citizens. Want to know what will go down if the postal service is privatized? (Not postage!) Take a look at the 2008 Chicago parking meter fiasco, where the city leased its meters for 75 years to an investor group. The city gave the concession while estimating lifetime revenue at just half what investors expected. Now 2013 marks the fifth year in a row that meter prices have gone up, and Chicago boasts the highest prices in the U.S. The final middle finger: Whenever the city closes streets (as for a parade), it has to pay investors the lost meter revenue.
