Deliver Us from the Mail: Aggressive Cost Cutting Can Pave the Way Toward Privatization

USA Today

Last Tuesday, Postmaster General John Potter outlined a rescue plan for the U.S. Postal Service, which is predicted to lose $238 billion over the next decade. “The crisis we’re facing gives us an historic opportunity to make changes that will lay the foundation for a leaner, more market responsive Postal Service,” he said.
What changes did he propose? One is to increase prices. Another is to switch to 5-day-a-week mail delivery.

Clearly, the agency must be reformed to remain viable. But there are more customer-friendly ways to do so. Postal executives should seek efficiencies from within before forcing consumers to accept higher prices and reduced service.

The Postal Service estimates that scrapping Saturday delivery will save $3 billion annually; the Postal Regulatory Commission pegs the savings at $2 billion a year. Both figures amount to less than 5 percent of USPS’s yearly expenses. It’s hardly fair to force consumers captive to the postal monopoly to accept one-sixth less service if the change would only trim one-twentieth of USPS costs.

More importantly, the savings aren’t enough. The agency projects that it’ll lose $115 billion over the next decade even if it enacts all the reforms possible under current law. More must be done.

USPS can start by curbing labor costs, which account for 80 percent of expenses. Postal leaders recognize this. USPS CFO Joseph Corbett puts it frankly: “If we’re able to get increased flexibility from our union workforce . . . that starts to save substantial amounts.”

Once the Postal Service has reined in excess costs, policymakers should consider rolling back the postal monopoly and moving toward privatization — perhaps with employee ownership — in order to better position the organization to compete in the rapidly evolving market for postal services.

Foreign posts have reinvented themselves by going private, but privatizing USPS now poses unique challenges. Analysis from McKinsey observes that it’d be difficult to attract a buyer, given the Postal Service’s significant debt levels and its financial commitments to employees and retirees. The Service has warned that it will soon reach its $15-billion debt ceiling, which would only increase the stakes for a potential taxpayer bailout.

Postal leaders are right to call for a “leaner, more market responsive Postal Service.” But that will require cutting costs aggressively — not simply passing them off to consumers.