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Wednesday
Nov162011

Fixing The Postal Service Debacle

The United States Postal Service announced a staggering loss for fiscal 2011: $5.1 billion. Plus $5.5 billion for retiree health benefits that it should have paid in 2011 but deferred to the next fiscal year. The payment is due November 18. But there’s no money. Default? Nope. Congress will find a way to stick it to the taxpayer.

The rest of the report wasn’t actually that grim. Revenues declined 2.6% to $64 billion. First-class mail declined 5.8% to $32.2 billion. Total mail volume dipped 1.7%. Expenses were down too, but not enough. A company should be able to manage those kinds of predictable declines without plunging into a series of huge losses.

Part of the problem is Congress, which is running the business. Among the “solutions” is legislation by a bipartisan group of senators that would force the Postal Service against its will (!) to maintain six-day-a-week delivery for two years. It also includes cost-cutting measures, like closing post offices and eliminating 100,000 jobs.

The other part of the problem is operations. As an outsider with business operations expertise, I see on a daily basis just how screwed up operations are. Here are some basic observations and fixes.

Package delivery: a growth area linked to e-commerce. The Postal Service should focus on it. But there is a long list of efficiency issues—ancient delivery vehicles, employees who stand around waiting near their trucks at distribution centers, lack of mobile and tracking technologies, etc. I don’t have to be inside a distribution center. I can see from the outside how bad it is!

Post offices: sending a package from the post office is a time-consuming affair that involves waiting in line and filling out little pieces of paper. The line regularly sends me to the UPS Store, though UPS is more expensive. And to buy stamps, you wait in the same line. OK, you can do some of it via the Internet, but that’s not an excuse to run a shoddy retail operation.

There used to be stamp vending machines by the entrance. But in an ingenious cost-cutting tactic, they were removed because it was too expensive to maintain these old things. Get some new ones and place them in every post office, and also place them in banks and grocery stores. No government employee should ever be paid to hand out stamps.

Sending a package should also be automated: a device with a scale, a keyboard, a screen, a printer, and easy-to-use software. You put your package on the scale, enter your data, and pay (cash or card). The printer prints a bar-coded label and receipt. You stick the label on the package and pocket the receipt (the tracking number will allow you to follow the package via the Internet). And the package goes down the chute. Done.

Ten years ago, they had one of these machines at the post office I used in Manhattan. But the software wasn’t user-friendly and reminded me of the infamously complicated ticket vending machines in German railroad stations. So what happened to this effort? Did the American Postal Workers Union kill the project to protect some jobs?

It’s the 21st century! Most transactions performed in a post office can be handled more efficiently by machines. There should be enough of them, with extended hours. Certainly, they won’t be any grumpier than the employees behind the counter. And while you’re at it, take down promotional posters and other clutter from six years ago.

Junk mail is an environmental issue. Yet, 95% of the mail by weight in my mailbox is junk. After I drop it into the recycle bin under my mailbox, it reenters the wasteful cycle of being turned into pristine paper, only to be reprinted with the same messages that then re-show up in my mailbox. So make advertisers pay, not the taxpayer. Raise rates so high that volumes collapse. People will love you for it.

Number of employees: if junk mail volume takes a hit, adjust the workforce accordingly. Switch to five deliveries a week, then four. Prepare for a future without first-class mail delivery.

Vehicles: replace the aging fleet of Grummans with modern, natural-gas-powered or electric vehicles. This will cut fuel and maintenance expenses and offer operational efficiencies (but don’t forget to lay off the maintenance employees that are no longer needed). And there is another benefit: It will create all sorts of jobs in the auto industry.

Bailing out the Postal Service without fixing its operations is like bailing out Greece: there won’t be an end. For 2012, it forecast a record loss of $14.1 billion, plus $5.6 billion in retiree health payments. Laying off a bunch of people and closing post offices in a wholesale manner might look good on paper, but if it ruins what little customer service there is, it can be counterproductive. Fortunately, the Postal Service is not in a bad business per se. Package delivery is in the sweet spot of a growth industry. Most of the rest will decline, but that can be managed. So get on with it.

The government forks over another $13.8 billion to Fannie and Freddie to cover their losses for the last quarter. It adds up: $184.8 billion since 2008. With no end in sight... Bailing out Zombies, Again.

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Reader Comments (7)

Now the Post Office wants you to ship everything priority mail. So to make money what they've done is slow down the old 2-3 days to send a letter anywhere in the USA, to 7-10 days and then try the sell the customer $5.00 priority mail. So the answer the PO gives to make more money is make service worse and charge people more!!!!
November 18, 2011 | Unregistered CommenterPriority Mail
Much to my dismay, the post office would not let me mail a parcel that was packaged in a used liquor box. When I asked why not? She said, "I'm sorry, it's a prohibition era regulation." Huh? Without new leadership, these folks are hopeless. Additionally,, the money order I got was in the wrong denomination. I had to pay for another one to bring it up to the right amount to avoid making everyone in line wait for her to cancel her error and redo it.. Then, someone asked where is the other clerk? There was only one working and about six people in line. "On break" I was infuriated that we are paying billions of dollars to float this bloated inefficient pig.
November 19, 2011 | Unregistered Commenterangry customer
Reduced delivery days and automating many services seems like the way to go. As for raising rates, I've been in the mailing business for 25 years and watched the USPS repeatedly shoot itself in the foot by raising rates. Every rate increase means another layer of users resorts to other media.

No problem you say, great idea! But there is a problem with this. The Nonprofit Organizations of the US, you know, those people feeding the hungry and searching for cancer remedies, the NPO's make extensive use of the Postal system to stage fund raising events, so if you want to screw everyone in the country then you should advocate excessive price increases...the unintended consequences of thoughtless ranting....
November 19, 2011 | Unregistered CommenterJPS
JPS - Thanks for your comment. "Unintended consequences" ... Actually no. Very much intended consequences. Currently the tax payer subsidizes the post office to the tune of over $10 billion a year, for years to come. In turn, the post office takes the subsidy and spreads it around. If Congress wants to subsidize non-profits, it should do so directly, and not behind our backs through the post office. Junk mail is a wasteful burden on society, and its price should reflect all its costs, from delivery to disposal to recycling. There should be no taxpayer subsidy in junk mail whatsoever.
November 23, 2011 | Unregistered CommenterWolf
Having worked for the USPS, you would be surprised that mail gets through at all.
The basic sorting device for letters at the carrier level, is called a "case", which is a large verticle desk with a slot for each stop. This was invented by Benjamin Franklin (true!), and has not changed much in 200 years.
November 25, 2011 | Unregistered CommenterMichigan postman
It is correct that the USPS has some major structural problems. The problem has more to do with congressional interference and crony capitalism (the PostMaster General is an appointed position), as well as typical Union work rules with little room for change. That being said, it SHOULD be subsidized by Tax Payers as it is actually a enumerated power in the Constitution (Article 1, Section 8, Clause 7).

I agree on e-commerce as its savings grace. I use it for a variety of things and frankly, have much better luck getting items delivered then I do with Fed Ex. (as another note look up whether Fed Ex would be profitable without the USPS as its largest customer). Many of my customers are in rural areas where Fed Ex and UPS surcharges would be ridiculous.

As for ease of use, I currently use Stamps.com, or you can print stamps using the USPS site, or PayPal and at better rates. All you need is a simple kitchen scale for parcel and first class items and a ruler. Or call the business office at USPS and they will give you a template to measure all your boxes and envelopes. Even UPS has software to mail through USPS and many of my drop shippers use Endicia. I either have my gf drop the package off at the local postal drop by her job or have the USPS pick it up at my house.

I still think UPS does the best job for many packages but you definitely pay. If you do not have the margins and volume to cover those shipping fees, USPS is your best fan. I also live in Hawaii (Hawaiian coffee anyone?) and shipping via Fed Ex or UPS would cost as much as the coffee would.

The other thing no one talks about is the USPS being mandated to fund retirement for the next 75 years regardless if they even have hired anyone yet. The other thing is, for package delivery, they could raise everything 3-4 dollars and it would still be cheaper then UPS and Fed Ex
December 26, 2011 | Unregistered CommenterToy Dog Coffee
Toy Dog Coffee - Thanks for your comment. Interesting. I wonder how much room they have to raise their prices for package delivery. In other words, how much volume would they lose if they raised their prices by 3 bucks?
February 4, 2012 | Unregistered CommenterWolf

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