The stated mission of the United States Postal Service is to “provide the nation with reliable, affordable, universal mail service.” While it is legally granted a monopoly to deliver mail and has exclusive access to the public’s mailboxes, mail services have become a secondary issue for the government enterprise based on its financial losses and poor operational performance. Instead, delivering parcels appears to have become its primary business, an unregulated service that competes with the private sector.
As the USPS quietly refocuses its primary mission from delivering mail to delivering parcels, and while it aggressively looks to the House and Senate for a financial bailout, at what point does it no longer serve the public interest? In fact, a new report by two economic scholars — Dr. Robert Shapiro and Isaac Yoder from Sonecon — found that the USPS is subsidizing its unregulated parcel services at the expense of its monopoly mail services — a conclusion that should raise the eyebrows of policymakers and one that may explain why the post office is in such poor financial shape.
The Sonecon report notes the growing share of parcels compared to mail and that parcels now account for 39.0 percent of revenue and 60.9 percent of weight — meaning that unregulated parcels now occupy most of the delivery space postal vehicles. In fact, the postal service has announced a 10-year multi-billion dollar spending plan to buy new trucks that can accommodate its higher package volumes.
Yet, the USPS apportions only 8.8 percent share of its considerable overhead and shared costs to its unregulated package delivery services. By doing this, the postal service is able to make its unregulated services look more profitable while milking consumers to cover its mail services.
Effectively, the study suggests that USPS is artificially raising its monopoly costs while underpricing its unregulated services, which compete against couriers, FedEx, DHL, UPS and other package delivery services. Leveraging the monopoly to cover its unregulated services is wrong and not legal.
The cross-subsidization of services could be making its monopoly services look unprofitable, which gives the USPS an excuse to ask Congress for a bailout or to ask regulators for price increases on stamps and similar regulated services. It also means that the USPS has truly lost a lot of money as it has lost sight of its mission.
Specifically, according to the Government Accountability Office’s recent report, from 2007 to 2020, the USPS has amassed $87 billion in net losses and nearly $190 billion in debt and unfunded liabilities. With the USPS well on its way to attain 15th consecutive billion-plus year of losses, this fiscal year does not appear to be much better, considering last quarter’s loss of $3 billion.
While it continues to lose money, USPS’s quality performance has been appalling for mail. For example, for its two-day delivery commitments, single-piece First-Class Mail met its delivery commitment 93.5 percent of the time in 2009 but fell to 85.9 percent for the second quarter of 2021. Similarly, for its three to five day commitments, single-piece First-Class Mail met its delivery target 90.8 percent of the time, but that fell to 57.9 percent for the second-quarter of 2021. In contrast, package services hit 73.4 percent of its on time delivery target, while increasing to 79.5 percent in the latest quarter. In short, packages have fared somewhat better over time, but First-Class mail has fallen to atrocious levels.
To make matters worse, the USPS has recently announced its plans to slow down delivery of First-Class Mail and other services, and it will increase some monopoly prices just in time for the holidays. Maybe parcel services should carry a proportionate share of the overhead costs and relieve mail services of an unfair financial burden.
While the data in the Sonecon report raise many questions about the potential for cost-shifting between its unregulated and regulated services, the authors acknowledge that the true extent and financial impact of the cross-subsidies are uncertain. That is because the postal service is not required to divulge any of its financial details on its unregulated services business.
While the USPS continues to lobby Congress for a bailout, until it opens up its books for all to see the true extent of the profits and losses on its monopoly mail and competitive package services, maybe Congress should consider letting the postal service wither on the vine. Alternatively, maybe the postal service should be required to spin off its unregulated services. After all, why should taxpayers’ bailout services that compete against services already available in the private sector?
Many questions need to be answered. However, Congress and the American people deserve to know whether their mail services are truly losing money and by how much. Increased transparency is needed to put mail delivery back on the right path.
Steve Pociask is president and CEO of the American Consumer Institute, a nonprofit education and research organization.