Sep. 16, 2011 at 1:29 PM ET
No CEO of a struggling business would propose a turnaround that hinged on degrading the service of its flagship product, but that's essentially what the U.S. Postal Service is doing with its cost-cutting proposals that include eliminating Saturday mail delivery and virtually eliminating overnight delivery of first-class mail.
"The changes the Postal Service announced don’t make the essential issues go away," says Michael Crew, director of the Center for Research in Regulated Industries, and CRRI professor of regulatory economics at Rutgers University. On Thursday, the USPS acknowledged it was facing a "new reality" as it continues to lose business to electronic forms of communication.
"It'll probably result in the further decline of the postal service," Crew predicts, as customers ranging from consumers who still pay bills via snail mail to companies that depend on overnight mail turnaround like Netflix alike seek out electronic alternatives more aggressively.
The problem, say experts, is that the USPS isn't run like a business. "The essential problem is that the law does not create a framework for the Postal Service that gives them sufficient flexibility to adjust to a changing market," says James I. Campbell, an attorney and consultant on postal policy.
Although the USPS isn't funded by taxpayer dollars, it still has to follow a host of Congressional mandates on its operations.
"What's costing them is their business model doesn't encourage them to innovate," Crew says, "So all they can think of is cut, cut, cut — and that's probably the only option that's available to them under current law."
Other industrialized nations have mail-delivery systems that aren't bleeding red ink; the difference is that those are run like corporations (some are entirely privatized). And in business, cutting costs is only half the solution to an underwater balance sheet. What's even more important is stimulating demand.
The USPS could do this in a few ways, experts say. First, it could ramp up parcel delivery. Market research firm comScore says online retail spending in the second quarter of this year alone was $37.5 billion. That adds up to a lot of goods that need to be transported around the country. Now, though, the USPS only handles around 15 percent of this market, with the rest handled by UPS and FedEx.
Postmaster General Patrick Donahoe also suggests increasing demand by growing "last-mile service," in which a private courier delivers a package to the farthest stop on their route and a mail truck takes it to its final destination.
Conversely, the USPS could offer a similar service in congested urban areas, says Crew. Private companies would bring their packages most of the way to their destination to be handled by the USPS for the final leg of the trip. This "urban logistics" service would grow in appeal as congestion pricing increases the cost of vehicle access to urban centers during peak hours.
Even with the mail volume lost to digital transactions, "(i)n the US we have two to three times as much mail per person as any other industrial country," says Campbell. "There ought to be some way to make this work."