Politics of Studying Closing Post Offices

Closing a Post Office or processing plant has always caused blowback on Capital Hill.  The following two maps show where the Post Offices under study for closure and the results of the 2010 Congressional election using the traditional red for districts that elected a Republican and Blue for Congressman that elected a Democrat.   The two maps show that most of the Post Offices on the closure list that fall outside of the large metro areas are located in districts represented by Republican.  (Districts in urban areas are too compact to tell whether they are represented by a Democrat or Republican.)

Looking at voting results in the 2008 Presidential election by county developed by the Los Angeles Times further suggests that the closure of Post Offices in rural counties will generally vote Republican even in years that Democrats do particularly well.   Therefore, the voters who will be most upset about closing Post Offices in rural areas will bethose who regularly vote for Republican candidates. It should be interesting to see how this influences the shape of future reforms of the Postal Service.  In addition, the fate of rural postal services could become an issue in the Republican Presidential primaries, especially in Iowa which has so many Post Offices on the list.

The Post Office List: Maps That Explain the Impact

Yesterday, the Postal Service announced that it will be study closing 3,653 Post Offices.  The Washington Post has published a very useful map hat locates all of the Post Offices under study.  



This map shows that the Post Offices on the list are concentrated in certain regions.   Looking at a map of rurality developed by the Department of Agriculture that identifies counties by how rural they are shows what looks like a correlation between the more rural sections of the United States and Post Offices on the list. 

This can be seen by putting the two maps side by side.

Rural America is a prime target for Post Office closures because 1) populations have generally declined over the past few decades and sale of mail products will shrink as population declines; and 2) the non-farm income in rural America is less than in urban America and mail use is related to income. 

The next set of graphs show a graph that reports population growth by county in the past decade and the location of Post Offices being closed.  The graphs appear to suggest that the list may focus on communities that have lost population or have seen growth below the national average..

Doing the comparison on income is not as easy but the following graph of income by county would suggest that a correlation could be found between the income of the county and the location of a Post Office being on the study list.

The Chalenge of Rural Postal Servcies

Sometimes a picture is all that is is needed to illustrate the problem of rationalizing retail postal servcies in rural America.   Haswell, Colorado is a town of 84 people in 2000 Kiowa County which had a population of less than 2000



The picture implies that in a town this size, it may be tough finding any business that can thrive let alone a Post Office.  The Post Office is open 4 and 1/2 hours weekdsays and three on Saturday

Looking at the county web site found a second Post Office in the town of Sheridan Lake, CO, population 66.  The Post Office sign is on the first floor of what appears to be a coverted school building.




Eads, the county seat of Kiowa County sits about halfway between  Haswell and Sheridan Lake whicha re 47 miles apart. It also has a Post Office and appears to be the only town in the county with a "downtown" based on pictures on the county website.

McCain Amendment on Rural Service Explained

Trying to understand legislative language is hard as often a bill may only change a few words or a sentence, leaving it up to the reader to understand what changes.  The paragraph below shows the changes that Senator John McCain wants to make to the section of the Tile 39 U.S.C. that describe public policy regarding rural post offices.  The changes are included in amendment No 250 to S.493 which reauthorizes a number of Small Business Administration programs.

Section 101

(b)The Postal Service shall provide a maximum degree of effective and regular postal services to rural areas, communities, and small towns where post offices are not self-sustaining. No small post office shall be closed solely for operating at a deficit, it being It is the specific intent of the Congress that effective postal services be insured to residents of both urban and rural communities.

The changes to this paragraph give the Postal Service more flexibility in closing post offices.  Most importantly it allows the Postal Service to close a retail location if it is losing money.  The amendment removes any special protection that rural, Postal Service staffed, Post Offices may have in current law.

 It may also give the Postal Service more flexibility in providing delivery services as postal services may describe everything from the sale of postage to the delivery of a a mail or parcel.  It may also give the Postal Service some flexibility in defining service standards for rural communites.

What is the Economic Cost of Closing a Post Office?

The Center for the Study of the Postal Market has just posted in the Postal Journal the first study looking at this question.  The study was conducted by a team of six graduate students as part of a Cost Benefit class at the LaFollette School of Public Affairs at the University of Wisconsin-Madison.    The study examined a hypothetical situation, the impact of closing one Post Office in Marquette County Wisconsin.   This county is representative of some of the most rural counties in the United States with a population of less than 15,000 spread out over 455 sqare miles.

Last year the USPS - Office of Inspector General released a model that the students employed and determined that the Postal Service could justify on a business basis keeping only two of the seven Post Offices that now exist in the county.   The student's study looked at only closing one of the seven which was a more solvable problem within the time constraints of a course project

With the Postal Service about to close around 2,000 Post Offices and soon thereafter implementing a new retail strategy, this analysis should be of interest of anyone following changes in how the Postal Service offers retail services.   As a first attempt to look at this question, the analysis clearly has flaws, and as editor of the Postal Journal, I urge the readers of this blog to read the study and send me critiques and suggestions for further research that I can publish in the Postal Journal

For more details see the story in the Postal Journal.

Cost-Benefit Analysis Provides First Attempt to Measure Economic Impact of Closing a Rural Post Office

Postal Service Shrinking its Urban Footprint

Numerous news outlets are report the Postal Service's plans to close stations and branches.   Almost every article focus on the potential affect on rural areas. The following two quotes are typical

Washington Post

The U.S. Postal Service plans to save up to $500 million in the next two years as it works to close or consolidate about 2,000 mostly small, rural and rarely visited retail locations, according to senior postal officials.

 Wall Street Journal

The news is crushing in many remote communities where the post office is often the heart of the town and the closest link to the rest of the country.

However, a cursory review of the list released by the Postal Service, shows that the impact of the first 2,000 closures will affect the nation's urban centers and have minimal impact on service to rural America.


The closures of the these locations only make sense for Postal customers if the Postal Service simultaneously expands its use of contract stations and self service kiosks in supermarkets, drug stores and other retail locations as well as expanding the hours of those Post Offices that remain open and the use of mail and web-based provision of services now provided in retail facilities.   Those plans have been mentioned in the past but there has not been a public announcement of a roll out of expanded use of non Postal Service brick and mortar retail access. 

The closures will have the biggest impact on postal employees that are members of the American Postal Workers Union and the National Association of Postal Supervisors.   While the Postal Service has stated that affected employees would have jobs in nearby facilities, there is no guarantee that the nearby facility will be within a convenient commuting distance.  These organizations along with their allies on the Hill will try to fight these actions but given the fact that the first round of closures affect primarily urban areas represented by Democrats in Congress, it is possible that Congressional action to slow the process may not happen in time.

The more interesting question is how will the Postal Regulatory Commission react to this proposal and whether the Commission's review reduces the number of locations that are actually closed. 

Mail Model For Rural America

In previous posts, this blog has described the retail strategies in Germany, Sweden and Denmark. While northern Sweden has some rural areas which are as rural as any in the Continental United States, these countries have a urban-rural mix equivalent to a state east of the Mississippi with the most rural areas similar to rural areas in these states as well. (See: Should the Postal Service Close All Post Offices?, Marketing the Packstation, Packstation Vender, Creating a Self Service Footprint and Section 3.5 (page 26) of Examination of Potential Postal Business Models)

Australia is much more characteristic to the population density of mountain West and Great Plains. Australia has a number of large cities with population well over a million but most of the country is sparsely populated. Vast stretches of Western Australia is desert and much of the country not near the coast are home to ranches, farms, and mining villages.

Australia Post has a tighter universal service requirement for providing retail access than the United States Postal Service. Australia Post is required to have 4,000 retail outlets with 2,500 located in remote and rural areas. Given that the United States has nearly 14.47 times the population, the Postal Service would have to have nearly 58,000 outlets with 36,000 in remote and rural areas. The focus on remote and rural areas reflects the fact that Australia has a population density of 7.5 people per square mile compared to 82.9 in the United States. (For reference: Sweden is 53.7; Germany is 594.0; and Denmark is 331.7)

So how does Australia Post handle this burden and not go broke and in fact exceeds its mandate and operates 4,433 outlets? (Information from this post drawn and quoted from Post and Parcel. (quotes are in italics))

Corporate Owned Stores (827 locations, 19% of all outlets) are standard post offices offering the full range of Australia Post services in facilities owned or leased by Australia Post. Employees working in corporate owned stores are Australia Post Employees

Franchise Outlets (28 locations, 1% of all outlets) serve small communities that have between 800 and 1,000 customers. These locations sell Australia Post products and services exclusively. Australia Post has the lease for all franchise outlets, pays for their fit out and owns the inventory. Franchises are set for a fixed ten year period. Operators pay a fee for the licence and receive an exit fee when they end the lease.

Licensed Post Offices (2,941 locations, 66% of all outlets) act as agents for Australia Post products and operate in large and small markets. Approximately half operate in association with another business. There is no fixed period for a licence and outlets are bought and sold on the open market. Licensees are responsible for the premises and own the inventory in the post office. They are independently owned businesses and their retail merchandise range is traded on a wholesale basis. Licensees are only obligated to stock a core product range which is primarily mail service related.

Community Postal Agents (637 locations, 14% of all outlets) are small operations usually located in rural and remote areas. They provide mail delivery services and are also required by Australia Post’s community service obligations to sell stamps and accept mail from people living in rural and remote areas. These facilities are outsourced and operators receive payment based on their volume of activity.

Australia Post's retail outlets offer a range of services that make them like a combination of a Post Office, an office supply store, and a card and gift shop. Some are co-located with coffee shops, making them more like community centers where people come to do business but may stay and chat over a cup of coffee or tea. In addition to postal products and mailing and shipping supplies, these outlets sell general merchandise such as CD's and DVD's books, souvenirs, gift cards, technology products, pre-paid cell phone time cards, and in some locations provide banking teller services under contract with one or more Australian banks.

A better picture of Australia Post's dominant retail model, Licensed Post Offices, comes from advertisements for the sale of these businesses. A web search identifies a couple of outlets that are available for sale in small markets and illustrates that retail services can be provided profitably in even very small towns.

Currently on the market is a licensed postal outlet in Cloncurry, Queensland, Australia. The business is selling for 370,000 Australian dollars plus the value of inventory.

The advertising indicates that the business makes sense for a married couple working with one part-tine clerk.

The outlet is in a town of less than 2,500 people (less than 4,000 in the county (shire) and 75 miles from the nearest postal outlet. The town and the surrounding area are populated by people working the mining and ranching.


The business that is being sold includes not just the retail outlet but the right to operate the 5 delivery routes that serve the surrounding territory. The pictures clearly shows the type of stock that the outlet carriers that in addition to the stock that postal outlets generally carriers also sells soft drinks and Darrell Lea Chocolates.

The sale price also includes the building that includes two offices that are currently rented.
What Australian Post has done is show that even areas that are the most rural in the United States can be served profitably by contract operations. However, Australia Post's approach is very different in setting up these contract outlets. Australia Post give its outlets sufficient management support to make the contract operation a turn-key business solution including all non-postal and shipping supply inventory but also offers a full range of non-postal services at wholesale prices that its contractors can buy as well. Australia Post most likely advises its outlets how to expand their business by expanding the breadth of products that they offer with the hope that Australia Post becomes the supplier of those products. Finally, it appears that Australia Post offers rural outlets to expand its revenue and profits by offering both retail and delivery services in a territory. In that way a local business person becomes a partner because growing his business also grows Australia Post's business.
Australia Post's effort to transform its contract outlet business toward a franchise model further shows the difference between the approaches that the Postal Service and Australia Post have taken to expand retail access. The brochure on franchising is designed to allow Australia Post to compete with all other firms offering franchise opportunities and shows that creating a successful contract approach requires more than just allowing someone to sell postal products.
Transitioning to a contract model for rural service would be traumatic for employees now working in those offices. The Postal Service could ease the transition in one or two ways.
First, it could offer significant early retirement and/or severance packages to those employees that could be affected. As a rule of thumb, the cost of these packages, including transfers and training would be about equal to half a year's salary.
Second, it could offer local postmasters the right of first refusal to buy the postal outlet moving from a corporate to a contract model. This is similar to what happens during a condominium conversion. The latter model would be less expensive for the Postal Service, even if the selling price was modest. This opption would also give existing postmasters real opportunities to advance and remain in their community. As illustrated by what rural post offices do in Australia, postmasters that chose to buy the local postal outlet would have substantial opportunities to use their knowledge of their community to expand their product offerings to add revenue and profits to the outlet. It is foreseeable that these new contract postal outlets would be responsible for delivery routes originating from the outlet as well.
Changing to a contract outlet model would also require revamping the whole concept of managing retail. Instead of managing employees, the Postal Service would be managing a large number of independent businesses. Managers would then focus on and be rewarded for making the contract outlets and the local "postmasters" within their responsibility as successful as possible. Headquarters would have to create a Post Office University just like McDonald's Hamburger University.
Fleshing out this model would be a substantial effort. Those looking at potential business models need a more detailed examination of this approach including the financial and organizational impacts on the Postal Service and the possibility of profits for those chosing to buy a local post office outlet. Postmaster Associations, whose members know their communities and their community needs better than anyone in Washington, could provide valuable input into what would be required to allow a postmaster to take over the local operation and turn it into a profitable business. Now is the time to begin this effort.