Aug. 21 2013 04:28 PM

Postal Service is on its last legs
Postal Service on brink of bankruptcy
USPS: The Next Amtrak?
(These real headlines were ripped from the Internet)

Everyone concerned by the imminent demise of the United States Postal Service is horrified by congressional inaction to save it. It was our founding fathers who, in order "to form a more perfect Union," established an adversarial form of government. The intent was to prevent the federal government from doing much of anything, except in a crisis. Everyone condemns Congress because they cannot get anything done, and yet this is the way our political system was designed to work.

Congress was set up so that it could only advance legislation if there was broad consensus between warring political factions elected to represent diverse constituencies. One party rule was never intended and has terrible consequences, as recent history proves. Having political parties get along was never intended. What was intended was for the three equal branches of government, the two houses of Congress, and the two political parties to be in a constant state of disagreement. Anything else would be unconstitutional!

Because of these tensions not much is going to happen to help the USPS until, like everything else, there is a real crisis. The good news is that while Congress dithers, postal management is downsizing the postal infrastructure as fast as politically possible. This downsizing would not be happening had Congress reached agreement on last year's postal legislation. So while postal management reduces the number of plants and personnel in an effort to reduce costs, Congress comfortably sits on their hands with tongues flapping to constituents.

A mini crisis will hit the Postal Service this fall. If projections are correct, postal management will run out of money by October and will not be able to meet payroll. The easy short term fix is for politicians to cast a vote to loan the Postal Service more money. The Postal Service pays its bills, Congress gets to kick the can down the road another year, and management continues the necessary infrastructure realignment. Everyone in Washington wins.

Unfortunately there will be a price to pay for increasing the Postal Service's ability to borrow more money from the treasury. No, union contracts won't be thrown out with mandatory reductions in wages and postal benefits. What Congress will demand as tribute for saving the Postal Service for another year is a substantial rate increase levied on business mailers. This rate increase will cause a significant decline in mail volume and negatively impact the Postal Service and direct mail industry.

The Only Solution for Postal Stability
Many people, doomsayers, fear the ultimate solution chosen by Congress will be to not reform the USPS but close it down. Recent history disproves this possibility. In trying to reduce its costs, the USPS has reduced the number of processing plants, to great outrage by some members of Congress and their union constituents. Postal management also tried to reduce the number of retail outlets and had to change plans due to political pressure from many rural areas of the country.

When the Postmaster General boldly went where no Postmaster General has gone before (to defy Congress's wish to retain six-day delivery) he was threatened with jail, a reduction in income, and forced retirement. His impertinence to thwart Congress's wishes was finally resolved by the enactment of a law that clearly prevented him from saving money by reducing the number of days of delivery. After preventing many of the PMG's cost-cutting measures and service reductions, doomsayers would have us believe that Congress will soon vote to shutter the whole organization.

Some believe Congress will or should sell the Postal Service to UPS, FedEx, or some other entity. A few years ago, it was stated that the USPS delivered more items in a day than UPS and FedEx (combined) did in year. With the decline in mail volume, maybe it takes two days for the volumes to be equal but the point is that most people (and no one in Congress) can fathom the differences in scale between this troubled government entity and its private sector competitors. The unanswered question is who would buy such a bankrupt, dysfunctional, heavily unionized organization controlled by an adversarial Congress able to change the rules and laws of competition on a whim?

The fact is that delivering mail or packages in densely populated cities can be very profitable and might be of interest to private companies. Delivering mail in Alaska, Wyoming, the Dakotas, and much of rural America not so much. Because every state has two senators, all states are equal in the Senate. The less populated states are in the majority. Senators from these states, regardless of party affiliation, will prevent any changes to the existing postal system that would negatively affect their constituents' mail delivery. For senators from rural states, the status quo with increased congressional financial support would be preferable to voting for any solution that might result in the loss of equal service for their constituents.

Congressional financial support for the Postal Service is imminent in the form of new loans. The real crisis and budgeted support will come after mandated rate increases significantly decrease mail volume. Mail is a great communication channel with little to no competition in the mail box. This exclusivity has real value to marketers who are not shy about spending money. The problem is that marketers are no longer willing to support the Postal Service at current (much less higher) postage rates.

Since constituents still demand universal postal services, congress will have to pay for them. At that point any increase in mail volume would reduce the fixed cost of providing a national postal system. The only way mail volumes will ever increase is through a reduction in mailing costs. The only way mailing costs will be reduced is if congress subsidizes postage.

USPS: The Next Amtrak? You bet! That's the only business model that will work.