Whither the Post Office

Yesterday the US Postal Service put out a press release Postal Service Outlines 10-Year Plan to Address Declining Revenue, Volume: Seeks Flexibility on Operations, Delivery; Possible 2011 Price Increase.

USPS Stamp For fans of the good old USPS (there must be a few out there) it is grim reading. Mail volume is projected to decrease from 177 billion items in 2009 to just 150 billion by 2020. On its present course, the USPS is projected to lose a total of $238 billion over the next decade, a number that makes the shortfalls in Detroit seem relatively manageable.

The AP story on this was headlined Postal Service’s emerging model: Never on Saturday. The media seems to believe that delivery six days a week is a hot button of some kind. Personally, I don’t care very much. Deliver my mail three days a week if you like. Last year Gallup found 66% of Americans favor dropping Saturday to save money.

Of course, the same poll found that only 17% favored laying off postal employees, which is a problem since virtually all the savings from being closed on Saturday would be from reduced payroll. This sentiment, plus ardent lobbying from the postal employees union, means that eliminating Saturday delivery has been periodically rejected for decades. (Canada, by the way, stopped six day service in 1982.)

The USPS release obliquely suggests a list of other drastic actions they can take to narrow the budget gap, most of which will require congressional action. Translating from diplomatic euphemism, they want to close branches, reduce headcount, raise prices, and put off paying for retiree health care.

All this is based on the findings of three top-tier consulting firms paid $4.9 million by the USPS to assess the state of their business and come up with a plan for the future. The results of those studies were also released yesterday. Read them and you realize that as dismal as the picture painted by the USPS press release is, its assumptions are wildly, even implausibly, optimistic.

Going from 177 billion items in 2009 to 150 billion items in 2020 sounds realistically pessimistic until you find out that in 2007 the number was 213 billion. Part of that decline was the Great Recession, but projecting that an 8% annual decline will shrink to a 1.5% one is a bit much. Trends like these do not slow down over time, they accelerate.

BCG, the firm that came up with the volume projections, based the 150 billion number on a survey of “senders” i.e. businesses. They got a somewhat lower number from asking consumers, and a much lower number, 118 billion in 2020, based on actual experience in Europe. And all the projections were based on the rather unlikely assumption of no reduction in service and no increase in prices beyond inflation.

This is where the harsh economics of the Postal Service rears its ugly head. The USPS is a classic example of a business with fixed costs and variable revenue. If you decide to pay a bill on-line rather than mail a check, revenue for the PO is down 44 cents. But they get to save essentially nothing in costs. Even if a billion fewer bills are paid through the mail, the USPS still has to maintain the same number of offices and pay the same number of letter carriers to make the same number of stops during their day.

Granted, there is considerable fat to be trimmed, assuming the government permits it. The post office has 36,500 retail locations, a number that McKinsey deftly compares to that of McDonald’s at 13,900 and Starbucks at 11,100. Each post office serves an average of 600 customers a week. Average. Do the math.

Current law bars the USPS from closing offices “solely for economic reasons.”

It is inevitable that the price of mailing things will increase as the fixed costs of running the Postal Service are spread over fewer and fewer items. And that increase in price will further accelerate the decline in volume, leading to a downward spiral with an obvious final end. No more post office, probably sooner than you think.

If it seems inconceivable that snail mail could go the way of telegrams, imagine what would happen if an extraordinary natural disaster of some kind wiped out the PO tomorrow. The first month would be hard. You would have to sign up for electronic billing from a few places. The guy who plows my driveway would have to call around and get everybody’s email and then sign up for PayPal. We would have to get used to reading magazines on-line.

After six months all would feel normal and the mailman would be just another vanished part of our civic culture, like the iceman and the lamplighter.

Extremely selective meteor showers being rather unlikely, the USPS will not disappear overnight. But it will disappear.

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