What’s Killing the Post Office? (It’s Not Email)

Posted By on Oct 27, 2016 | 0 comments


Neither snow, nor rain, nor heat, nor gloom of night has stayed the United States Postal Service. But has email? We were curious whether email was the cause of USPS’s recent, well-documented woes. Does our love (and extensions) for snoozing in Gmail and scheduling email in Outlook make us complicit in the post office’s struggles?  If not email, what’s the real cause for USPS’s mounting losses? We found that while the Internet era has played a part in the decline of postal volume, email has been the least of USPS’s problems.

It’s Not Email: USPS Profits in Billions as Email is Used by Millions

aol-cds

Who do you think AOL paid to get all those CDs into your mailbox?

Email adoption numbers simply don’t correlate with USPS’s downturn in business. By 2002, the majority of Americans were already using email, yet USPS made a pretty penny in the years that followed. USPS was profitable every year between 2003 and 2006, averaging a net income over two billion dollars. This is in stark contrast to its losses in 2001-2002 that averaged over a billion dollars.

The postal service showed it could coexist (and profit) even as Hotmail and Gmail took off, just as it survived the rise of the fax machine, though the Internet would bring other challenges that affected mail volume significantly.

Online Billing Sends USPS Reeling

USPS recognized the threats of a changing marketplace early on, attempting to enter online billing itself with a service called eBillPay in 2000. At the time, commentators noted that “if all bills were paid electronically, USPS could lose $15 billion to $18 billion in revenue annually.” But eBillPay was discontinued in 2004, as consumers did not show a need for a online billing middleman.

While USPS’s billing platform did not take off, online billing and payments most certainly did.  In 2000, nearly two-thirds of recurring payments (e.g., mortgages, utilities) were delivered by USPS. But by 2009, electronic payments had overtaken those sent by mail. Such payments, along with direct deposit, made sending or receiving checks a thing of the past.  

Companies, consumers, and trees all benefited from paperless billing. USPS did not. (photo via State Farm)

Many who switch to electronic payments still prefer to get statements via mail, but companies have accelerated the adoption of paperless statements (which cuts their costs) by appealing for customers to “go green” and even offering incentives. Recessions always hit USPS hard, but the 2008 crisis was especially bad for the postal service, and not just because of its sheer magnitude. Companies that switched to cheaper, paperless transactions to save costs had no incentive to switch back to postal mail once the economy recovered.

USPS tried to convince people to return to paper statements with a commercial arguing that “an online virus has never attacked a cork board”, but unsurprisingly, it garnered a poor reception.

But Wait, There’s More (Reasons for Dropping Mail Volume)

The prevalence of devices, applications, and internet speeds capable of photo and video sharing have transformed how people keep in touch with family and friends, also at the expense of postal volume.

As more and more people post photos and videos instantly to Facebook, Instagram, and Snapchat, fewer and fewer people are sending postcards. It appears we’d rather share our own photos of our vacations, with the filter of our choice (or even with #nofilter). Postcard volume fell by a whopping 430 million from 2010 to 2014.

With snaps like these, who needs postcards?

And it’s not just postcards. Social media keeps friends and family up-to-date on all the events in each others’ lives, sending the annual Christmas card/newsletter into retirement. And Facebook certainly has increased the number of people who know its your birthday (and who wish you a happy birthday), but it has also decreased the number of such well-wishes that are sent by mail. Greeting card sales dropped 600 million from 2004 to 2014.

Did email kill USPS profits? No. Is the Internet to blame for the fall in USPS mail volume? Probably. But the Internet also created Netflix, Amazon (and eBay and all the other online retailers) that sell discs, books, and more, which don’t ship themselves.

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Amazon, Netflix, and Missed Opportunities

It’s inaccurate to portray technology as just a mail-volume-killing-burden on USPS’s business. Tech giants like Netflix and Amazon have put billions of mailers and packages into circulation. Yet USPS has been unable to make the most of these opportunities, and its biggest customers have profited at the postal service’s loss.

Netflix

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Netflix profited while USPS absorbed costs associated with sorting DVD mailers. (photo via BlueMint)

In 2010, Netflix accounted for $600m of USPS’s revenue via its DVD subscription service. This may sound good, but Netflix got the better end of the deal with a profit margin of nearly 50% on their DVD service. It was able to pay just 44 cents for each DVD return mailer it sent out, even though the 1.6m DVDs that were returned each day resulted in millions of dollars of added labor costs for USPS, since they were unable to be automatically sorted like other mail.

USPS wanted to offset these labor costs by charging more for mailers sent by companies like Netflix, but this was struck down in court in 2016. Netflix’s DVD business is fading as it focuses on streaming, and if USPS ever does succeed in raising mailer prices, it may be too little, too late.

Amazon

Amazon’s rise has come at the cost of traditional brick and mortar stores everywhere. USPS could have profited off this transition from buying goods in stores to getting them shipped, but it failed to capitalize on the opportunity, unlike its competitors UPS and FedEx.

UPS and FedEx charge Amazon $7-$8 per package they ship, while USPS does the job for just $2 a package. Not only this, but UPS and FedEx often turn around and subcontract out a lot of the packages they ship to USPS, and thus profit even off packages that USPS ends up delivering (USPS ships 2.2m packages for FedEx each day alone.) 

Consumers, along with UPS and FedEx, have benefited greatly from online retailers like Amazon. USPS, not so much.

If USPS’s pricing and other policies don’t make sense for a viable business, it’s because USPS has increasingly been disallowed from acting in its own self-interest. While 21st century technology has certainly affected USPS’s business, its biggest challenge may date back to the 18th century: the United States Congress.

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USPS Tries to Be Viable, Congress Says No

Revenue is half the income sheet, and only half the story. USPS’s expenses may be the the biggest barrier to the postal service becoming profitable. More specifically, Congress’s constant interference with USPS’s attempts to manage its expenses may be the biggest barrier to USPS becoming profitable again.

A little background: USPS is not a private entity nor a quasi governmental entity: it is an independent government agency, created by Congress, as authorized by the U.S Constitution. Federal laws, not postal service leadership, get to define the products and services that USPS provides. Yet, unlike other Federal agencies, USPS has not gotten any tax dollars to fund these services and products since 1982. Worse, Congress finds creative ways to add to its expenses.

In 2006, the Postal Accountability and Enhancement Act was passed, which mandated an extraordinary burden for USPS. Rather than pay for retiree healthcare costs when incurred (aka what practically every company and other government agency does), USPS was given ten years to prefund healthcare benefits for all its future retirees and account for costs for projected retirees, even those who had yet to be employed, 75 years into the future. No other organization faces this requirement, and it cost USPS $5.5 billion a year in the following decade.

This is but one example of USPS’s extraordinary labor costs, which represented 80% of its total expenses in 2011, nearly twice the average of UPS (53%) and FedEx (32%). USPS has shed 200,000 employees, closed locations, and trimmed hours, but other moves (e.g., renegotiating employee benefits and pensions) were prevented by what one former Postmaster General coined as congressional “myopia.”


And government shortsightedness shows no sign of abating. USPS announced that it would halt Saturday delivery in 2013 to save $3 billion each year in labor and transportation costs (it spends $1 billion a year just on fueling and maintaining vehicles.) But despite public support for the cutback, Congress stuck a clause in a Continuing Resolution to force the continuation of Saturday deliveries just months before they were scheduled to end. And just this April, USPS was forced to lower the price of a stamp by two cents, something that hadn’t happened since 1919, which will cost it another $2 billion dollars in revenue this year that it can’t afford to lose.

Email didn’t kill the post office, and while the Internet didn’t help, the government may be its biggest existential threat. Some in Congress want to see USPS privatized, and perhaps forcing the postal service to take on extraordinary costs while disallowing it to make understandable cutbacks is part of their long-term strategy.

3D Printing is one industry USPS is exploring as it finds its place in a new economy.

There is still optimism though, as both USPS and its proponents in Congress have interesting ideas for new roles it could play. USPS released a white paper that envisions harnessing its postal network to distribute 3D printed goods, while one Senator Sanders envisioned them doubling as public banks.

Whether USPS takes a page out of the startup playbook and pivots to a new industry, or Congress finally gets its act together, we’re hopeful USPS still has a long future in front of it. It’s an institution that dates back to Benjamin Franklin, so it’s hard to imagine it getting uprooted anytime soon.

Edit: Because of conflicting sources, we changed one sentence’s wording to reflect that USPS must “account” for future projected retirees not yet employed by USPS 75 years into the future, rather than “prefund” these prospective retirees.

Header photo via EraserGirl

 

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