August 31, 2012

August 31, 2012
Post Office Financial Problems Part 2

Welcome to another day in my life. Today is Friday and we have almost made it through another work week. I hope you are having a safe and great week so far. It is another busy week for Dab the AIDS Bear and me.

Yesterday, I started a series of blogs about the ten things the postal services does not want you to know about which I will continue today. If you have not read yesterday's blog, you should read it first.

4. We're hiring our competitors to do our jobs for us.

The Postal Service increasingly relies on outside corporations for everything from sorting mail and transporting it by air and ground to advertising and I.T. consulting: Last year, the agency spent more than $12 billion on such contracts, according to Husch Blackwell, a law firm that represents Postal Service contractors. The USPS even hires some of its competitors to help it do its job, including the United Parcel Service and FedEx, which was the Postal Service's highest-paid supplier in 2011. "The postal service essentially has privatized everything but the last mile of delivery," Goldway says. The number of mail delivery routes served by outsourced carriers increased 84 percent to nearly 10,000 between 1998 and 2012, according to a recent report by the Congressional Research Service. There is now a thriving industry of third-party companies contracting with the USPS, including large publicly traded corporations such as presorting mail firm Pitney Bowes.

Postal worker unions generally oppose the practice of contracting, which dates back to the 18th century, saying that outsourcing Postal Service functions is less reliable and takes jobs away from postal employees who are already being laid off in droves. The National Association of Letter Carriers has referred to the practice as a "cancer" that must be stopped before it spreads. Still, contractors deliver mail on just 4.4% of routes, up from 2.3% in 1998, according to an analysis by the Congressional Research Service. The Postal Service, for its part, says it will continue to use contractors, as long as doing so is cost-effective and consistent with their contractual obligations.

5. We're addicted to junk mail.

Like Big Oil and Big Pharma, the Big Mailers -- including banks and catalog publishers as well as presort mail companies -- are a powerful force on Capitol Hill, and the Postal Service courts their business because the vast breadth of envelopes buoys mail volume. Through its workshare discounting program, the Postal Service offers reduced postage rates to companies with large stakes in the mail -- from mass mailers like AT&T and Bank of America to mail-handling specialists like Pitney Bowes -- that presort mail or deliver it part of the way.

In theory, the benefits should be mutual: Working with outside service providers increases efficiency and saves money, as contractors are often cheaper to hire than unionized postal employees. But the postage discounts the Postal Service offers contractors occasionally exceed the amount it saves in the deal; last year, 35 of these workshare arrangements were under water, according to the Postal Regulatory Commission's annual compliance report. (A spokesman for the USPS says the wokshare arrangements comply with the law.)

Some experts believe the pricing mismatch is partially a result of politics. Bulk junkmailers like ValPak lobby forcefully against moves that would increase their postage rates. The National Association of Pre-Sort Mailers acknowledges that its members do a lot of the same tasks as the Postal Service -- just better, providing a higher profit margin and faster service. "When the Postal Service is doing it themselves, it doesn't perform as well as the mail that's already prepared," says the association's executive director Bob Galaher.

6. Next thing you know, we'll be asking you to trust us with your money.

When the USPS issued a special line of Simpsons stamps in 2009 and 2010, the commemorative postage bearing Bart's and other characters' yellow faces might have looked cute, but they didn't sell: More than 68 percent of the inventory went to waste, an expense of $1.2 million. Last year, 10 Postal Service products and services failed to pull in enough revenue to cover their costs, amounting to a loss of $1.6 billion, according to the PRC's compliance report.

The failure of postal products as well as declining mail volume has led some industry insiders to recommend that the Postal Service diversify its offerings beyond the mail. A July report from the Postal Service's Office of the Inspector General recommended that the USPS assess the viability of nonpostal offerings ranging from public Internet access to greeting cards to financial products. (The law currently limits the Postal Service's ability to sell nonpostal products.)

Experts note that postal services in countries like Japan and Germany double as banks, offering products ranging from checking accounts to mutual funds, and that the U.S. Postal Service is uniquely structured to reach low-income and other populations underserved by banks. "Postal savings could actually kill two birds with one stone in this country -- save the post office and provide an alternative way for small saving," says Sheldon Garon, a Princeton professor who has studied savings systems across the world. The Postal Service could start by offering very basic savings accounts and partner with local banks to actually deposit the funds, says Ben Jackson, a senior analyst at Mercator Advisory Group who has looked at the USPS's experiments with selling gift and prepaid cards. "You don't want the post office making home mortgages," Jackson adds. A spokesman for the USPS says the agency doesn't believe banking will work well in the U.S., but that it should be "given more freedom" to diversify beyond postal products.

I will finish up this series of blogs with the last four things to know tomorrow. Hope you have a beary safe and great Friday.

Until we meet again; here's wishing you health, hope, happiness and just enough.

big bear hug,

Daddy Dab