USPS: Last Post Standing

The Japanese government announced yesterday that it will begin the process of privatizing Japan Post.  (See: Business Week)  The decision by the Japanese government leaves the United States Postal Service alone as having a business model with many characteristics of a government department.

The following chart illustrates where many of these posts sit on a continuum from government department to a corporation with only private shareholders.     Postal Operators operating as a government department, in a manner similar to the pre-Postal Reorganization Act Post Office would be placed on the far left side of the chart.   A national post with only private sector shareholders would be placed on the far right side. National posts located between the center and the far right sides of the chart all operate as government owned or partially government owned corporations operating under standard or nearly standard corporate, employment, and tax law. 
 

Once Japanese government sells shares in the its national post to the public, this chart will look particularly unbalanced.  All other posts will fall somewhere between the center and the fully privatized side of the chart.   In the instances of the Swedish, Danish, and Belgium posts, the current positions will likely shift toward privatization once they begin selling shares to the public.

The shift toward privately owned national posts are happening in countries with governments that are considered both left and right of center.   The decision Swedish and Danish governments to begin privatizing their posts reflect concerns that the national operators cannot raise sufficient capital from private debt markets alone to cover capital needs to manage the transition to a business model that is less reliant on document delivery.

In the near term, privatization appears unlikely in Australia, Canada, Finland, France, and New Zealand.  In these countries, cultural norms allow government owned corporation, operating under commercial business, employment, and tax laws to fully or nearly fully compete with the private sector.  In some of these countries, privatization would be politically unpopular.  In others, there is no political drive to privatize the national post and postal management has not expressed a need for the capital that selling shares would provide.

Privatization is off the table for the Postal Service until its finances improve.   This chart illustrates that privatization is unlikely to remain off the table for ever.

Cutting Hours or Cutting Post Offices

Sometime in the next few months the Postal Service will receive an advisory opinion from the Postal Regulatory Commission (PRC) on the potential closing of less than no more than 241 post offices, stations or branches. This is a far cry from the more than 3200 sites in its initial proposal that it presented to the PRC. Once the opinion is issued, the Postal Service will likely close most of th 241 sites now on the list.

Those communities that found their Post Office on the original list but are no longer under consideration for closing are likely relieved that their Post Office will remain open. These communities will be less pleased when the hours that the Post Office is open shrink as the Postal Service looks at ways to deal with declining demand for retail services.

The Postal Service has reduced operating hours at Post Offices across the U.S. for much of the past year. The Portland Press Herald recently reported on decisions affecting 52 offices in New England. Similar actions have taken place in Maryland, including my local post office in Silver Spring.

What the Postal Service is now doing is not much different than what public libraries, recreations centers, parks and other government service centers do when struck with declining budgets. When the agency cannot close a library do to community or political pressure, it finds it politically easier to cut hours of all libraries instead. Community pressure is less intense if the hours are cut by 10% instead of cutting 10% of facilities.

The impact of politics in this process does not necessarily improve service. While a community may like a library nearby, the library provides no service at hours when the community needs the service. For example, years ago, the City of Rochester had to choose between cutting library hours across the board or closing its least used facility and expanding hours at the closest nearby facility and maintaining extended evening and weekend hours at other libraries. A study of use of library services by patrons showed that customers would be best served by expanded hours. An examination of the addresses of patrons that used each branch showed that the branch to be closed was used by patrons that often used the neighboring branch as well. In the end, the least used facility was closed, and the expanded hours resulted in increased library use in the community that lost its neighborhood branch.

The Postal Service's actions show how its decisions, as influenced by regulatory, political, financial, and labor contract constraints, reflect the pre-eminence of the governmental characteristics of the organization. While the Postal Service does offer other ways to buy stamps and postage, its "retail strategy" appears to be no more than to shrink its business by reducing access at a rate most likely equal to the rate of retirement of postal clerks. The Postal Service appears to be managing more to the budget available to provide retail services rather than in following a coherent strategy to serve retail customers.

The Postal Service's strategy will likely drive business away, particularly among small businesses that will ship their overnight and two-day items via FedEx or UPS because their retail outlets are open an hour or more longer than Postal Service outlets. These customers will be paying FedEx and UPS's higher retail prices just because they have no other choice that day.

The Postal Service could follow actions that its domestic competitors and foreign postal operators have chosen and switch their retail presence from primarily corporate offices to primarily franchise offices. It could expand the use of automation and replace part of the line of retail windows with a line of automated postal centers like food and home retailers like Giant Foods, Stop and Shop, Kroger, Safeway and Home Depot have.

The Postal Service needs a real retail strategy with real revenue, capital and expense budgets that is focused on serving retail customers profitably. These budgets should reflect what is needed to successfully serve retail customers profitably, not just what can be done with existing capital resources and current employees. These budgets have to reflect the decline in retail letter mail, work to stem the decline in retail parcel traffic.

With a real retail strategy that retains widespread access to the network, the Postal Service could transition to a new retail approach without scaring communities that they will be abandoned. This transition will not be easy. Retail postal customers in Sweden where corporate Post Offices were all closed were resistant to the closure of their local corporate offices and often expected the worse. Surveys conducted since the switch to an all franchise operation show that customers are more satisfied with Sweden Post's retail services. In particular, the expansion in hours and shorter lines made Sweden Post's retail products more competitive with others offering retail parcel and express services.