Bring back the Pony Express…

The U.S Postal Service (USPS) is going broke. That’s not entirely new. Throughout the last few decades, our  official government mail carrier has faced a myriad of financial woes which almost put it under.

What I find interesting this time is that a complete lack of foresight and innovation is leading to this once proud institution’s downfall. And, because Americans still depend on their daily mail, we’re also going to see the Federal Government provide yet another bail out very soon. Truthfully, it’s too bad that we can’t take a laissez faire approach, and just let the USPS die a normal institutional death like other organizations which simply aren’t able to keep up with what the market needs, or their competitive set.

The main storyline behind this is that those eggheads who lead the USPS never had the ability to foresee a couple of key factors that impact business:
    1) The economy eventually goes down – When that happened, Americans stopped spending so much on first class mail. That’s one of the key ways the postal service makes money. Sending out tons of junk mail is the other money maker for the postal service. Our recent recession turned the junk mail spigot off. Everything else that the USPS sends out from daily letters to big packages, are money losers. In fact, because it charges only 44 cents per letter, regardless of how far that letter has to go, when volume increases, this organization loses money.
    2) We are moving towards an email, paperless society – Yet, our postal service is in the stone age when it comes to digital products (meaning: they have none) Ever hear of e-letters? Many national postal services throughout Europe (like Sweden, France and Norway) have.  Each has modernized its product offerings, making lots of money and profit because they innovated years ago when everyone saw the writing on the wall.

What’s amazing is that if the USPS was a real company, it would be the 29th largest on the Fortune 500 list. It employs 571,566 workers as well. It also is $15 billion in debt, owing $12 billion to the Federal government. And what’s really ironic is that it spends over $25 million on advertising to promote how mail should be used as a marketing tool (i.e. bring back demand for junk mail). Unfortunately, none of that seems to have helped because all the marketing in the world won’t make a dent in the bottom line when the business model has failed.

I guess we shouldn’t be surprised. Many of the USPS’ senior management (including its current Post Master General) came up through the ranks of this governmental bureaucracy. Without any outside business training or real experience in running other behemoth organizations, it’s very difficult to bring in new ideas or perspectives that have worked elsewhere.

My take has always been to let the strong survive and the weak… well let them figure it out for themselves. Of course we know that FedEx, UPS and the others couldn’t readily step in and just take over the enormous daily mail needs that the post office provides (rumor has it that the USPS delivers 40 percent of the world’s mail). But, there certainly has to be a better solution than forcing the tax payer to pick up yet another bill to save an institution that hasn’t been right since the days of the Pony Express.

Comments

[Carl]

Ed, nice blog. I agree with you that the USPS should have been better prepared for the email/paperless society. Having said that, there are a host of profit making industries (newspapers, music) and businesses (Blockbuster) that didn’t adequately foresee and prepare for the impact of the internet.

In the UK the Royal Mail is experiencing many of the same criticisms as the USPS, but when it comes to the budget issue I would repeat a very interesting comment I once heard: “Royal Mail doesn’t lose millions of pounds every year; it costs millions of pounds to run a postal service.”

I disagree that the USPS should be left to die a normal institutional death. While I think that a $15bn debt is way too much, I believe that a national postal service that is affordable to all is a lynchpin of society and should not be left entirely to the mercy of market forces, in the same way of education, law enforcement, national defense and, as with every industrialized country in the world except America, healthcare.

[Ed Moed]

Thanks for your thoughts Carl. I don’t disagree with you. But, have two points of rebuttal:

1)Blockbuster just went bankrupt. So have many, many newspapers. Blockbuster was way too slow in seeing how cable and the Internet were changing the content landscape With newspapers, it almost wasn’t fair how quickly the Internet killed their models. Still, the strong survive and natural forces should kill off those who can’t change.
2)Maybe we have to bail out government owned entities like USPS because the public needs it. But, that doesn’t excuse it from losing money due to poor leadership and zero innovation. I think instead we need to put people in charge who can change the way things are done there so that this doesn’t happen every few years.

[Carl]

New leadership is exactly what the Royal Mail is putting in place. They are really shaking things up and it is leading to a lot of issues with the unions.

I will say that as a customer, the experience delivered by the USPS is superior to that of Royal Mail and the Post Office.

[Steve]

I concur with both thoughts expressed in the comments: the postal service is a public good or necessity that is worth subsidizing; but that said, it makes sense to run it as efficiently as possible to reduce the cost to the taxpayer.

I'm not sure that the problem with USPS management is necessarily that they came up through governmental ranks; after all, how many giant allegedly "for profit" companies have been horribly run by their private sector managers and only survived due to massive government bailouts? Car companies and many of our largest banks spring immediately to mind.

The problem is a more basic lack of accountability--when, unlike an entrepreneur with his or her own "skin in the game," the management of a giant organization is exempt from personally experiencing the company's losses, you'll have bad, negligent, or reckless management. The USPS and most other large organizations, public or private, need to structure in such a way that when the company loses money, the management loses money (as opposed to maybe merely getting less of a bonus)--the only way to force people to be careful with money is make them put their own money in the pot.