After reading Devin Leonard’s Bloomberg article about the United States Postal Service I have a renewed respect for “my” mailman.
It is no secret that the postal service’s business model is so badly broken that its collapse is imminent. With the rise of e-mail and the decline of letters, mail volume is falling at a staggering rate, and the postal service’s survival plan isn’t reassuring. Elsewhere in the world, postal services are grappling with the same dilemma only most of them, in humbling contrast, are thriving.
The USPS is a wondrous American creation.
My Post Office in Sandy Spring early 1800.
Six days a week it delivers an average of 563 million pieces of mail — 40 percent of the entire world’s volume. For the price of a 44¢ stamp, you can mail a letter anywhere within the nation’s borders.
The service will carry it by pack mule to the Havasupai Indian reservation at the bottom of the Grand Canyon. Mailmen on snowmobiles take it to the wilds of Alaska. If your recipient can no longer be found, the USPS will return it at no extra charge. It may be the greatest bargain on earth.
It takes an enormous organization to carry out such a mission. The USPS has 571,566 full-time workers, making it the country’s second-largest civilian employer after Wal-Mart!
It has 31,871 post offices, more than the combined domestic retail outlets of Wal-Mart, Starbucks, and McDonald’s. Last year its revenues were $67 billion, and its expenses were even greater. Postal service executives proudly note that if it were a private company, it would be No. 29 on the Fortune 500.
The problems of the USPS are just as big as the USPS itself.
It relies on first-class mail to fund most of its operations, but first-class mail volume is steadily declining — in 2005 it fell below junk mail for the first time. This was a significant milestone. The USPS needs three pieces of junk mail to replace the profit of a vanished stamp-bearing letter.
During the real estate boom, a surge in junk mail papered over the unraveling of the postal service’s longtime business plan. Banks flooded mailboxes with subprime mortgage offers and credit-card come-ons. Then came the recession. Total mail volume plunged 20 percent from 2006 to 2010.
Since 2007 the USPS has been unable to cover its annual budget, 80 percent of which goes to salaries and benefits. In contrast, 43 percent of FedEx’s budget and 61 percent of United Parcel Service’s pay go to employee-related expenses. Perhaps it’s not surprising that the postal service’s two primary rivals are more nimble. According to SJ Consulting Group, the USPS has more than a 15 percent share of the American express and ground-shipping market. FedEx has 32 percent, UPS 53 percent.
This should be a moment for the country to ask some basic questions about its mail delivery system. Does it make sense for the postal service to charge the same amount to take a letter to Alaska that it does to carry it three city blocks?
Should the USPS operate the world’s largest network of post offices when 80 percent of them lose money? And is there a way for the country to have a mail system that addresses the needs of consumers who use the Internet to correspond?
Senator Thomas Carper (D-Del.) said last month, “If we do nothing, we face a future without the valuable services that the postal service provides.”
Many countries have figured out profitable ways to run a postal service. The U.S. could learn a lot from them. Last summer the USPS sent a small team of analysts to Finland, Sweden, Germany, Switzerland, Austria, and Canada. It is fascinating to learn what they discovered.
Three decades ago, most postal services around the developed world were government-run monopolies like the USPS. In the late ’80s, the European Union set out to create a single postal market. It prodded members to give up their monopolies and compete with one another. The effort roused an industry often thought to be sleepy and backward-looking.
Many countries closed as many of their brick-and-mortar post offices as possible, moving these services into gas stations and convenience stores, which then take them over…in Tokyo 7-11 was a great post office.
Today, Sweden’s Posten runs only 12 percent of its post offices. The rest are in the hands of third parties. Deutsche Post is now a private company and runs just 2 percent of the post offices in Germany. In contrast, the USPS operates all of its post offices.
Some of these newly energized mail services used the savings to pursue new business lines. Deutsche Post bought DHL, a package deliverer that competes with FedEx and UPS. “More than half of our workforce is outside of Germany,” says Markus Reckling, executive vice-president for corporate development at Deutsche Post. “It’s pretty much the same thing for our profits.”
Many used their extra cash to create digital mail products that allow customers to send and receive letters from their computers. Itella, the Finnish postal service, keeps a digital archive of its users’ mail for seven years and helps them pay bills online securely. Swiss Post lets customers choose if they want their mail delivered at home in hard copy or scanned and sent to their preferred Internet-connected device. Customers can also tell Swiss Post if they would rather not receive items such as junk mail.
Sweden’s Posten has an app that lets customers turn digital photos on their mobile phones into postcards. It is unveiling a service that will allow cell-phone users to send letters without stamps. Posten will text them a numerical code that they can jot down on envelopes in place of a stamp for a yet-to-be-determined charge.
Anders Asberg, Posten’s head of marketing and development, says the service is experimenting with these initiatives, and he expects some will prove to be lucrative. “The customers are all on these digital interfaces now,” he says. “That’s where the growth is going to be in the future.”
Posten can afford to take chances. In 2009 the Swedish mail carrier merged with Post Danmark, the Danish postal service, creating PostNord, a company with $6.2 billion in net sales and $320 million in EBITDA. In 2010 the latter rose by 43 percent, to $490 million.
It seems the European countries are on a reasonably viable course. The U.S. is not.
The USPS needs to close post offices, as many foreign postal services have done despite real opposition. The USPS also needs to create products for its wired customers if it wants to play a role in the future of communication.
But last but certainly not least, 44 cents is still the biggest bargain on the planet Raise the price…sure we will all complain but think of how inexpensive that is next time you send a note to your mom in Anchorage from Miami, door to door!