In a discussion today on his Facebook page, Representative Dennis Ross fell into a common trap in comparing the labor's portion of costs by the USPS, UPS and FedEx. He states that:
The differences in the proportion of labor costs can come from one of six factors:
- Compensation levels - what each company pays per hour worked
- Work rules - affects how efficiently each company uses employees
- Contracting - companies use different models regarding the use of contractors to handle the collection to delivery process, and in particular the labor-intensive delivery function
- Network differences - Differences in the network affects the amount of labor involved in delivery, sortation, transportation and retail portions of an end-to-end movement.
- Capital intensity - The companies have very different capital requirements that affect the amount of non-labor costs needed to provide the services that they offer.
- Congressional requirements - Congressional requirements focus on the aspects of the Postal Service that add significantly more labor costs while making minimal impact on capital spending.
I have already presented a comparison of compensation levels between the Postal Service, UPS, and FedEx. The comparison showed that total compensation of Postal Service employees in a delivery function clearly fall in between the compensation of UPS and FedEx.
Employees who work inside processing facilities at the Postal Service on average are paid more than FedEx and UPS employees. However, the new APWU contract will result in Postal Service compensation falling in line with what compensation of UPS and FedEx. (It should be noted that UPS also offers significant college scholarships as a benefit to parcel sorting employees that are not included in these comparisons.) The compensation levels of the new class of APWU members that could include 20% of APWU employees are very competitive with compensation of individuals with similar experience at UPS and FedEx.
Employees that provide retail services at the Postal Service have no real comparison with employees at FedEx and UPS. Comparisons are usually made here with other retail occupations and bank tellers. I have not looked at this comparison but the data is available to make this comparison is available from both private and public sources.
Finally, compensation of UPS and FedEx executives are significantly higher than Postal Service executives. The compensation levels of managers and technical staff at UPS and FedEx are likely also higher.
On balance, it is unclear how much a compensation premium affects labor compensation's proportion of total costs.
Another factor that increases USPS compensation expenses are work rules used for mail processing, local transportation and retail services. The new APWU contract, and in particular the new method of defining a full time schedule should go far to eliminate work rules that requires the Postal Service to overstaff its processing and retail facilities. The new method of defining full time will likely result in employee schedules that are close to the part time schedules that FedEx and UPS use for its sortation centers.
The following table illustrates how the Postal Service, UPS and FedEx use contractors.
Comparison of Contracting at the USPS, UPS, and FedEx
- Restrictions on how retail services are provided - Both regulatory and legal restrictions on the Postal Service's retail network increase the proportion of total costs that are labor costs. These costs come from both operating a retail network and managing the process to implement changes in the network. In addition, Congressional efforts to slow changes to the retail networks add additional labor costs to managing the network to handle questions and concerns of members of Congress.
- Restrictions on delivery frequency - Requiring the Postal Service to provide delivery services 6 days a week has a larger marginal impact on labor costs than it does on all other expenses. The proportion of labor costs would be lower if the Postal Service only delivered mail 5 days per week.