It’s Time to Allow the USPS to Compete FairlyBy Paul Johnson, President CMS – Complete Mailing Solutions
Businesses function on foundational economic rules – pricing is determined on demand, the cost of doing business and profit needed to stay healthy and grow. Pricing can be changed whenever it is warranted. However, there is one glaring exception to this economic model – the United States Postal Service.
While the USPS is not a government entity, it is governed by Congress and the Postal Rate Commission (PRC). As a federally mandated entity, they are required to function within specific parameters, among them:
- Prefunding 75 years of retiree health benefits (this mandate was passed in 2006 and required funding within a ten-year span, at a cost of about $110 billion).
- Basing price increases on the Consumer Price Index (CPI), which limits how much rates can change. If costs are higher than the CPI increase, the Postal Service must absorb the difference.
- Providing pickup and delivery service to all areas within the United States, six days a week. As housing and businesses expand to wider and wider areas, the USPS is required to provide service, even though it is not cost effective to do so. And, they are not allowed to add a fuel surcharge to cover additional expenses (as UPS and FedEx can).
No other private enterprise or federal agency is required to function under these constraints. The prefunding of retiree health benefits alone is primarily responsible for the majority of the USPS’s financial losses since 2013.
Both consumers and businesses rely heavily on the Postal Service’s ability to deliver mail and parcels. In fact, UPS and FedEx rely on the USPS to provide “last mile delivery” in areas where it is not affordable for them to do so. How does this allow the USPS to compete? This is an unfair advantage provided to the competition.
We have blogged about this situation before and provided even more details of how the USPS is at a disadvantage, but now is the time for change so the USPS can compete fairly in the marketplace.
The Postal Service – A Vital Institution
The Postal Service is a historic institution, established by our founding fathers in order that all people may have equal access to communications. This principle was mandated within our Constitution to ensure its survival and is a fundamental part of the nation’s infrastructure. The USPS mandate is to bring the nation together, and their commitment is providing secure, reliable, affordable delivery of mail and packages. No tax dollars are used to support operating expenses. Rather, the USPS relies exclusively on the sale of postage, products and services to fund its operations.
Today, the USPS employs over 633,000 career and contract workers (2019). As such, it has significant impact in local economies, both in direct activities from its workers as well as the broader economic activity that it enables. If it were a private sector company, it would rank 40th in the 2018 Fortune 500 and 123rd in the 2017 Global Fortune 500. Unfortunately, it has been losing money for more than a decade due to the many restrictions placed on it while its main competitors (FedEx and UPS) are free to raise prices, ad hoc, to ensure a profit.
This is clearly an unfair playing field and the restrictions placed on the USPS is an unsustainable financial path going forward. We believe the Postal Service should be released from the primary restrictions that have resulted in its fiscal woes specifically, elimination of:
- Prefunding employee health benefits
- Linkage with Consumer Price Index to cap rate hikes in order that the Postal Service can adjust rates to cover costs
- 6-day delivery requirement – allow the USPS to determine delivery frequency (with a minimum 5-day requirement) in order to reduce costs
We feel these steps would begin turning the around the USPS’ financial health while still maintaining high service levels.
A Great First Step
On February 5th, the House of Representatives passed bipartisan legislation that would lift the prefunding mandate on future retiree health benefits. This legislation, the USPS Fairness Act, was authored by Rep. Peter DeFazio of Oregon (you can see his floor speech here).
We heartily endorse the passing of this legislation and encourage the Senate to follow suit.
What do you think? Isn’t it time to allow the USPS to compete fairly? We encourage your comments and feedback on this vitally important service to our nation.