Skip to main content

No letters on Saturday won't save Postal Service

By Rick Geddes, Special to CNN
February 7, 2013 -- Updated 1040 GMT (1840 HKT)
STORY HIGHLIGHTS
  • Rick Geddes: U.S. Postal Service won't deliver first-class mail on Saturdays to cut costs
  • Geddes says it's a good move, but Postal Service must be upgraded to survive
  • He says other nations have ended mail monopolies, empowered postal services
  • Geddes: Postal Service has real estate assets, could be transformed for today's world

Editor's note: Rick Geddes is an associate professor in the Department of Policy Analysis and Management at Cornell University and a visiting scholar with the American Enterprise Institute. He is author of "Saving the Mail: How to Solve the Problems of the U.S. Postal Service" (AEI Press: 2003).

(CNN) -- The U.S. Postal Service Wednesday announced it will stop delivering first-class mail on Saturdays, expecting to save about $2 billion a year. Given the rapid rate of decline in letter mail and the loss of revenues, this is a welcome cost-cutting move.

But this change will not make the Postal Service sustainable for the long term.

Cost cutting would not have made the horse and buggy business sustainable in the dawning age of the automobile. The same is true of typewriters during the advent of word processors, or slide rules when calculators arrived. There is a natural limit to how far costs can be cut, and to how much that can help the Service survive in the new communications marketplace.

The Postal Service's business model needs fundamental change for it to thrive and avoid liquidation. Those reforms must focus not only on reducing costs, but also on allowing the Service to generate new sources of revenue from its existing assets. The experience in other countries suggests that this is possible. Following that lead, the first steps should include corporatization and de-monopolization.

First-class letter mail -- by far the Postal Service's most profitable type -- has fallen by a stunning one-third since its 2001 peak, while overall mail volume is down by almost 25%. Revenues have also dropped which, when combined with high costs, have created the Postal Service's own fiscal cliff.

Rick Geddes
Rick Geddes

The service lost almost $16 billion in 2012 and is now losing about $25 million per day. It has hit the limit of its $15 billion credit line with the U.S. Treasury, and has only enough cash for a few weeks of operations.

Given the explosion in cheap, instantaneous, electronic communications, none of this is surprising. Mail delivery is now like offering transportation by horse in the dawning automobile era.

Unlike horse transportation, however, it's possible for mail delivery services to remain viable, innovative, self-sustaining businesses even in the electronic age, as posts around the world have shown.

Become a fan of CNNOpinion
Stay up to date on the latest opinion, analysis and conversations through social media. Join us at Facebook/CNNOpinion and follow us @CNNOpinion on Twitter. We welcome your ideas and comments.



For the Postal Service to survive and thrive, however, Congress needs to step up, and soon. Congress must determine what level of physical mail service, if any, is necessary for government to ensure when there are many electronic alternatives. Second, it must decide how it (as opposed to the Postal Service) plans to pay for that service level.

Dimensions of such guaranteed service include the geographic area to be covered, what rate will be charged (and whether it will be uniform across areas), and how frequent mail service will be.

Congress then needs to free up the Postal Service to become a more commercial entity. But that can't happen unless it also eliminates both of the service's monopolies (one over mail delivery and the other over mailbox use) and changes its organizational structure. Repeal of the monopolies is necessary because the service will never get the freedom to pursue new lines of business aggressively, and thus to generate new revenue, unless it is subject to the discipline of competition.

CNN Money: How to build a better postal service

Life.com pays tribute to mail carriers, other postal workers and the U.S. Postal Service in earlier times. Here, a rural Vermont mail carrier makes his rounds in subzero weather. Life.com pays tribute to mail carriers, other postal workers and the U.S. Postal Service in earlier times. Here, a rural Vermont mail carrier makes his rounds in subzero weather.
Classic look at U.S. Postal Service
HIDE CAPTION
<<
<
1
2
3
4
5
6
>
>>
Classic photos of U.S. Postal Service Classic photos of U.S. Postal Service
How much do stamps cost again?
U.S. Postal Service in peril

Changes in the service's organizational structure are necessary to attract the management talent and prompt the changes required to become self-sustaining. The first step is corporatization, which makes the service subject to the standard set of corporate laws and norms associated with a large commercial entity. Although it creates ownership shares in the new entity, those shares are not sold to the public. This is distinct from privatization in which shares are created and then sold to investors.

Postal corporatization would be a big improvement. It provides managers with more focused incentives and helps to raise the additional capital necessary to pursue new services and lines of business. Focused incentives are critical since the only bright spots in the service's business are in its most competitive, such as parcel delivery.

The United States now lags behind most other developed countries in all such reforms. All 27 members of the European Union have eliminated their postal monopolies. New Zealand repealed its delivery monopoly in 1998, Sweden in 2003. Germany and the Netherlands repealed in 2007 and 2009, respectively. The threat of competition associated with monopoly repeal has helped postal services in those countries to become more efficient, more effective enterprises.

Other countries are also far ahead on organizational reforms. Germany's post -- now Deutsche Post DHL -- was privatized in 2005 and has become a major player in the global delivery and logistics business. It reformed its compensation structure, brought in managers from other sectors and modernized its delivery network. It operates in 220 countries and is now the world's largest courier company.

The UK post -- Royal Mail -- will be privatized this year. One hundred percent of the formerly government-owned post in the Netherlands is now privately owned. New Zealand Post was corporatized in 1987, while all government subsidies were eliminated in 1988. New Zealand Post has become a successful, innovative global company focusing on parcel delivery, logistics and other businesses.

There is no reason why the U.S. Postal Service cannot also become a leader in the global delivery sector. It already has a far-flung network of sorting centers and letter carriers that allows it to deliver physical documents to every U.S. address six days every week.

Given the size and diversity of the United States, that is an amazing feat. It could use that capability to deliver mail "the last mile" in innovative ways, such as assisting new businesses in the area to advertise.

It could also tailor its delivery frequency to the demand for home delivery in a particular region. Some mailers may want to saturate an area with mail, while others may want slow, steady delivery. The current "one size fits all" approach is clearly inefficient.

The Postal Service would also be freed up to seek new revenue by forming alliances with global logistics and courier companies. Moreover, it has a massive portfolio of real estate that includes large buildings in prime downtown locations as well as massive sorting centers throughout the country. Its real estate alone is likely worth tens of billions of dollars.

Selectively selling some of those assets would free up resources for the service to pursue new market opportunities. Indeed, it probably has enough assets so that -- if properly managed -- it could recapitalize its core business without a taxpayer bailout. But Congress must act to allow that to happen.

As the experience in many other countries shows, there is no reason for the U.S. Postal Service's agonizing decline and impending collapse. If Congress borrows from international experience, and acts decisively to reform postal policy, the venerable U.S. Postal Service can also emerge as a viable company in the Internet age.

Follow us @CNNOpinion on Twitter.

Join us at Facebook/CNNOpinion.

The opinions expressed in this commentary are solely those of Rick Geddes.

ADVERTISEMENT
Part of complete coverage on
December 13, 2014 -- Updated 2108 GMT (0508 HKT)
The NFL's new Player Conduct Policy was a missed chance to get serious about domestic violence, says Mel Robbins.
December 16, 2014 -- Updated 1740 GMT (0140 HKT)
The slaughter of more than 130 children by the Pakistani Taliban may prove as pivotal to Pakistan's security policy as the 9/11 attacks were for the U.S., says Peter Bergen.
December 17, 2014 -- Updated 1600 GMT (0000 HKT)
The Internet is an online extension of our own neighborhoods. It's time for us to take their protection just as seriously, says Arun Vishwanath.
December 16, 2014 -- Updated 2154 GMT (0554 HKT)
Gayle Lemmon says we must speak out for the right of children to education -- and peace
December 17, 2014 -- Updated 1023 GMT (1823 HKT)
Russia's economic woes just seem to be getting worse. How will President Vladimir Putin respond? Frida Ghitis gives her take.
December 17, 2014 -- Updated 0639 GMT (1439 HKT)
Australia has generally seen itself as detached from the threat of terrorism. The hostage incident this week may change that, writes Max Barry.
December 12, 2014 -- Updated 2020 GMT (0420 HKT)
Thomas Maier says the trove of letters the Kennedy family has tried to guard from public view gives insight into the Kennedy legacy and the history of era.
December 15, 2014 -- Updated 1456 GMT (2256 HKT)
Will Congress reform the CIA? It's probably best not to expect much from Washington. This is not the 1970s, and the chances for substantive reform are not good.
December 15, 2014 -- Updated 2101 GMT (0501 HKT)
From superstorms to droughts, not a week goes by without a major disruption somewhere in the U.S. But with the right planning, natural disasters don't have to be devastating.
December 15, 2014 -- Updated 1453 GMT (2253 HKT)
Would you rather be sexy or smart? Carol Costello says she hates this dumb question.
December 14, 2014 -- Updated 2253 GMT (0653 HKT)
A story about Pope Francis allegedly saying animals can go to heaven went viral late last week. The problem is that it wasn't true. Heidi Schlumpf looks at the discussion.
December 14, 2014 -- Updated 1550 GMT (2350 HKT)
Democratic leaders should wake up to the reality that the party's path to electoral power runs through the streets, where part of the party's base has been marching for months, says Errol Louis
December 13, 2014 -- Updated 2123 GMT (0523 HKT)
David Gergen: John Brennan deserves a national salute for his efforts to put the report about the CIA in perspective
December 12, 2014 -- Updated 1426 GMT (2226 HKT)
Anwar Sanders says that in some ways, cops and protesters are on the same side
December 11, 2014 -- Updated 1439 GMT (2239 HKT)
A view by Samir Naji, a Yemeni who was accused of serving in Osama bin Laden's security detail and imprisoned for nearly 13 years without charge in Guantanamo Bay
December 14, 2014 -- Updated 1738 GMT (0138 HKT)
S.E. Cupp asks: How much reality do you really want in your escapist TV fare?
December 11, 2014 -- Updated 1828 GMT (0228 HKT)
Rip Rapson says the city's 'Grand Bargain' saved pensions and a world class art collection by pulling varied stakeholders together, setting civic priorities and thinking outside the box
December 13, 2014 -- Updated 2310 GMT (0710 HKT)
Glenn Schwartz says the airing of the company's embarrassing emails might wake us up to the usefulness of talking in-person instead of electronically
December 12, 2014 -- Updated 2233 GMT (0633 HKT)
The computer glitch that disrupted air traffic over the U.K. on Friday was a nuisance, but not dangerous, says Les Abend
December 12, 2014 -- Updated 1740 GMT (0140 HKT)
Newt Gingrich says the CBO didn't provide an accurate picture of Obamacare's impact, so why rehire its boss?
December 13, 2014 -- Updated 0040 GMT (0840 HKT)
Russian aggression has made it clear Ukraine must rethink its security plans, says Olexander Motsyk, Ukrainian ambassador to the U.S.
December 12, 2014 -- Updated 0046 GMT (0846 HKT)
The Senate committee report on torture has highlighted partisan divisions on CIA methods, says Will Marshall. Republicans and Democrats are to blame.
December 11, 2014 -- Updated 1833 GMT (0233 HKT)
It would be dishonest to say that 2014 has been a good year for women. But that hasn't stopped some standing out, says Frida Ghitis.
ADVERTISEMENT