As American politics veers again next year, one of the favored ideas that will re-emerge – as part of the broad push for “government efficiency” – will be the privatization of government services, replacing what the federal government does with the same or reduced services supplied by private sector companies.
The USPS
Likely to be on the list of potential privatization candidates would be the Postal Service. As a ubiquitous public sector employer of over 600,000 mostly unionized employees, it represents a juicy target for both conservative thinkers and private sector firms that could step into the agency’s space.
However, the first question is whether the USPS, as an entirety, could be privatized. Most people would say no, given the diversity and scope of the agency’s functions. For example, at the December 10 hearing of the House Committee on Oversight and Accountability, committee chair Rep James Comer (KY 1st) stated
“… when we talk about efficiency, especially members on this side of the aisle, we think of privatization. … The problem with that is nobody wants to deliver the mail to every house in America six days a week and to operate all those retail postal facilities. There’s no private company in the world that wants that.”
However, Comer noted, there were some private companies that could perform some functions. If the package business is an example, that space is already populated by well-run, profitable, private sector companies operating an integrated end-to-end network. Postmaster General Louis DeJoy is trying hard to wedge the Postal Service into the package business, some say to the detriment of hard-copy mail. Regardless of his efforts, it’s reasonable to consider that work to be largely privatized already – if being open to private sector competition is the key indicator.
That leaves traditional mail – letters and flats – on the table; moving that type of material is both operationally different than moving boxes and the de facto, if not statutory, bailiwick of the American post for 250 years. That activity and its associated functions likely are what is envisioned when talk turns to privatizing the Postal Service. Even then, however, it’s not one homogeneous entity with inseparable components; rather, there are arguably five distinct parts: retail, processing, transportation, delivery, and services.
Retail
This public-facing element of a postal service is the essential point of access for non-commercial customers. As has been well documented in the appeals filed with the Postal Regulatory Commission when the USPS has sought to close a post office, communities, especially in rural areas, see having a postal retail outlet – whether a “real” post office (i.e., operated by Postal Service), or a contractor-operated facility – as a definition of identity and a critical connector to the world.
Aside from what’s sold, there’s nothing unique about the functions and staffing requirements of a postal retail facility, either, compared to any other store. (Any co-located delivery functions will be discussed below.) What is distinctive is that the majority of post offices aren’t profitable; the infrastructure, operating, and personnel costs outweigh the revenue taken in across the counter.
Therefore, operating all 31,000-plus post offices isn’t a commercially viable or attractive proposition. Privatization, if pursued, would self-limit to only those locations that would be profitable, with the rest retained by the government as a “public good” or essential public service. Offering additional services, whether government services or commercial products and services, might increase the viability of marginally profitable operations, but most would remain in the red.
Regardless, no politician hoping to ever get re-elected would support a measure that would negatively impact voters served by thousands of unprofitable, usually rural post offices.
Delivery
At the other end of the postal continuum is delivery to addressees, and this has “how” and “when” elements. Generally, the “how” is either the mail is brought to the addressee, e.g., by city or rural carrier, or the addressee picks it up, such as from a post office box or through general delivery or caller service (there’s the link to retail).
Most people would argue that delivery requires not simply the ability to walk or drive from one point to another and match the mail to the address (though doing only that seems to be a challenge for some delivery novices). Rather, being entrusted with what the mail can contain requires a level of responsibility and accountability, as well as the commitment to ensure the mail actually is delivered to the right place.
Though, in theory, a private company could assemble a cadre of minimum wage workers to drop material in mailboxes, the delivery of mail is a core function of a postal service, at least in the view of most Americans, so privatization of delivery may not be what advocates should see as an initial venture.
Separately is the “when” and, for those seeking to improve “efficiency,” that may be where more immediate opportunity lies. The requirement for six-day delivery was always an expectation of the Postal Service; it wasn’t explicitly stated in the universal service obligation and only reflected in annual Congressional appropriation resolutions.
As the volume of mail has dwindled in recent years and the diversion of messages to electronic media has mushroomed, all while the number of delivery points has grown, the public perception that six-day mail delivery is essential has changed, and many surveys have found people would accept a lesser frequency. Unfortunately, the 2022 Postal Service Reform Act codified the six-day delivery requirement, so any change would require Congressional action – and overcoming the opposition of the carriers’ unions.
Transportation
The privatization of transportation has already happened; moving mail between post offices and processing facilities has long been dominated by private sector transportation companies. Whether operating by road, rail, or air, contractors have demonstrated they can reliably and efficiently get the mail where it needs to go. Moreover, contractors can be held to performance standards prescribed by the Postal Service and paid based on competitive bidding.
Unfortunately, Postmaster General Louis DeJoy has begun to reverse that age-old arrangement, and is insourcing short-haul trucking to postal vehicle service drivers who are part of the American Postal Workers Union.
Contract drivers can be part-time or split-shift; career USPS employees have a fixed eight-hour schedule. Although the USPS won’t reveal whether insourcing will reduce costs (many believe it won’t), it will allow the USPS to find jobs for career workers – who, by contract, can’t be laid off – if they become excess because of processing network realignments.
Processing
The mail processing network may be the area where the greatest opportunity exists for private companies.
First, private sector firms already exist that process mail: presort mailers and consolidators have the same equipment as postal facilities, work from the same distribution schemes, follow comparable dispatch schedules, and employ workers with tasks and skills similar to those of USPS employees.
Second, the cost of staffing a private mail processing operation would be lower. Wages and benefits aside, the complement of a private operation can be flexed by the hour, day, or other interval based on workload; other than a decreasing pool of temporary “pre-career” workers, postal staffing is inflexible.
Third, a private mail processing network does not require the construction of new facilities. Private companies like presort mailers and consolidators already have facilities, and contracted operation of existing postal facilities, run in compliance with USPS requirements, could be implemented incrementally based on the acquisition and training of workers.
Services
Most services provided by the USPS relate to the exceptional handling of mail under specific conditions, including accountable items and forwarded and returned mail. Being closely tied to retail and/or delivery, those would be left with the operator(s) of those functions, as would other services like mail tracking and address list maintenance.
Given concerns about privacy, access to the national address database would remain in USPS hands, though private parties would continue to be licensed to access the Postal Service’s data and offer address list services.
Security would remain with the well-qualified US Postal Inspection Service and the USPS Office of Inspector General.
Adding it up
The foregoing analysis suggests a model in which the retail and delivery functions – the “First Mile” and “Last Mile” – might best remain as government functions while the “Middle Mile” could easily be outsourced to private companies.
Of course, the overarching question is whether that possibility is good public policy – which, in turn, is dependent on who is setting that policy and from which side of the political spectrum they draw their opinions about what can, should, or shouldn’t be offered by the government vs private sector.
Though America has had a postal system operated by the federal government as a public good since 1775, there’s no guarantee that a not-so-distant future shift in political thinking can’t undo that for the benefit of private interests. Service to postal customers, already being subordinated by the PMG in the pursuit of an elusive self-sustaining Postal Service, likely would be pushed farther out of focus.
In turn, that begs another question: given the overall decline of hard-copy mail, and the decreasing use of postal retail and delivery channels, is there any long-term prospect of profit sufficient to draw the attention from private operators? As argued above, retail has only limited opportunity (a “maybe”) and delivery and services have less (a “no”).
However, the private sector has already established itself in transportation, and has the capability to easily expand into mail processing so, for those functions, the answer seems to be “yes.” But check back next year.
Overseas
People on both sides of the privatization debate often refer to the situation in other countries – many of which have already tackled the issue and arrived at a wide variety of outcomes – then try to apply what another post did (or didn’t) to the US.
(Elsewhere, what Americans would call “privatization” is called “liberalization” of the postal sector, usually because the government does not always completely privatize the country’s post.)
The US, Canada, and Australia are the only developed countries without competition in the postal sector, while many less developed countries have already liberalized their posts.
The trend started in the European Union, where the market has been fully liberalized since 2013. In some countries, the government owns a share; in others, the shares are sold on the stock exchange.
Because there can be multiple postal operators, the one who provides government-sanctioned universal service is referred to as the “designated operator,” the term used by the Universal Postal Union. (Sweden has no designated operator because none of the delivery companies would agree to the government’s terms, yet mail delivery continues uninterrupted.)
Whether there is or isn’t real competition varies greatly. Japan’s law is so restrictive that competitors don’t exist, but competition in the EU is real. Moreover, the competition is not always nationwide. Alternatives are more common in denser areas – cities and their environs. (What we call suburbs are not called that in all English-speaking countries; in some countries, sections of cities are called suburbs.)
What type and level of competition is allowed, and how it is permitted, varies greatly as well. One of the big issues is “downstream access.” Generally that means access by competitors to PO boxes, cluster boxes, and addressees’ mailboxes for delivery, and access to the address database, although it can be more complicated than that. Those that used to be the government postal operators have fought downstream access and generally lost.
Regulation also varies by country, although most of the developed countries have instituted regulatory control over all companies in the delivery sector – largely similar to how the US regulates telecommunication companies.
In any case, looking at other countries’ posts, there are many models of successful and less successful ways to open the postal sector. None of them have privatized the postal service as a monopoly, although Japan comes close. Some of the designated operators have been or have become profitable. Post Nord in the Scandinavian countries, Swiss Post, and Deutsche Post do well. Some have been the source of controversy for financial mismanagement (Japan Post again) or mismanagement of how the government divested the postal service (the UK), although there are other countries with those problems.
Collectively, what the other posts show is a broad-brush alternative way to liberalize – privatize – the Postal Service, if that idea gains traction here.
Instead of segmenting the USPS, as discussed earlier, it could be rechartered within a liberalized, regulated sector, with a simplified structure of prices, rules, and service offerings.
Private sector competition would be allowed in the sector as well, and there would need to a “designated operator” of a national post. However, the services essential to the universal service obligation (if defined as universal delivery and retail access) likely would have to be retained (and funded) by the government.
Alternatively, the national service itself could opened to the private sector, with the “designated operator” chosen by competitive bid every few years. (In any case, for privacy reasons, the national address database would be retained as a separate government resource, with access by licensed service providers, as is done now.)
No matter what would be done, there would still need to be some form of USPIS or OIG to watch over the “sanctity of the mail” and keep the entrepreneurial types mostly honest.
Nothing soon
Regardless of which form of privatization – or liberalization – might emerge as the shiny object for proponents, the easier part might be drafting a proposal.
As has been seen in virtually every significant change to government operations – changes that involve legislative action – developing a consensus around a workable outcome would be the real challenge. Looking back at the major postal legislation in the US – in 1970, 2006, and 2022, for example – the legislative process is driven by competing interests, with the outcome decided not on its merits, but who had the greatest influence and how the horse-trading of provisions worked out. And, again referring back to the same examples, whatever might be done the first time likely would require amendment after amendment.
Therefore, even if political zealots focus on the USPS next year, don’t throw away your Forever stamps. Major changes to the Postal Service may take a long time – if ever – to be agreed upon, and longer still to be implemented.
Thanks to Merry Law, Mailers Hub’s expert consultant on international mail, for contributing to this article. Merry may be reached at MLaw@mlawworldvu-com.
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