TCS Daily

The Postal Service: E-commerce victim or predator?

By Duane D. Freese - January 8, 2001 12:00 AM

Millions of mailers this week are scrambling to find those pesky penny stamps they'd bought the last time the U.S. Postal Service raised their first-class mail rate. But don't complain to officials of the first-class mail monopoly for this unwanted New Year's gift. They'll excuse themselves by blaming the New Economy for the services problems.

Indeed, at first glance, the Postal Service's snail mail does appear to have become a victim of e-mail, e-payment and e-commerce. First-class mail volume - which accounts for half the service's total deliveries and three-fifths of its revenue -- grew at a measly 1.3 percent in the last fiscal year. That was half the rate officials had anticipated, and has helped turn a $500 million surplus into as much as a $1 billion shortfall.

And the trend isn't about to change. In a study for the service last year, Pricewaterhouse Coopers estimated that electronic bill payment in five years would cut First-Class mail volume by more than 20 million at a cost of $7 billion annually. Even that isn't the whole story. The General Accounting Office has estimates that the service will lose 27 percent of its revenues - $17 billion -- between the years 2003 and 2008 - because of a decline in First-Class mail volume

So what is the poor old former post office doing? It is plunging right into e-commerce as fast as it can. In April, it implemented eBillPay for consumers paying bills to business, and it plans to offer consumer-to-consumer bill paying and financial statements as well. It also is setting up a universal e-mail address system, tying it to postal addresses, in order to enable mobile Americans to easily halt or order utility service at one stop when they move. The service also has started an Internet document delivery system, and plans to provide certified electronic delivery of documents to the government. It even hopes to make retailing stamps, t-shirts and postal novelty items online.

In entering those markets, the Postal Service will compete with many private e-commerce companies. Yahoo!, Charles Schwab, CheckFree, Bank One, Chase Manhattan, and Wells Fargo, along with numerous smaller firms, already are involved in e-payment. Those firms quite rightly point out that federal rules require most federal agencies not to tread in commercial areas that private business - federal taxpayers -- can fill.

Postal officials smugly say those rules don't apply to them. The movement into e-commerce serves a higher calling, they told GAO: "Those revenues are essential to maintaining the ability of the USPS to support the infrastructure developed to provide universal service."

That is always the agency's excuse. As economist and management expert Daniel Spulber of Northwestern University told National Public Radio's All Things Considered last spring, "At some point, the same arguments could be used to justify the Postal Service delivering pizza."

It isn't as if the Postal Service has created these new lines of service. It has never displayed any innovativeness, even in its traditional line of work - delivery of physical mail. Congress' reorganization of the old Post Office Department into the quasi-independent Postal Service in 1970 did nothing to change its innovativeness.

It took an easing of the postal express statutes giving the Postal Service control over First-Class mail to allow the guaranteed overnight delivery of important documents by Federal Express. The United Parcel Service took advantage of another loophole for package delivery to provide reliability and customer service there. And entrepreneurs took advantage of the Postal Service limited hours and lack of service to establish private mail centers with packing services as well as mailboxes.

Only when private businesses showed what could be done - in the process taking business away from the Postal Service - has its bureaucracy responded, using every edge that its considerable federal privileges provide.

In addition to the revenue from its First-Class mail monopoly, which pays two-thirds of its overhead, the service also is exempt from state and local sales taxes. Its facilities don't have to comply with local zoning laws. It pays no fee to the Customs Service inspections of international parcels, collecting rent from that federal agency instead. Unlike a private service, it's immune from lawsuit if it fails to deliver or loses your uninsured letter. Taxpayers pick up its losses. And antitrust laws against predatory practices don't apply.

It also has regulatory and police powers to give competitors fits. When its postal box revenues began to dwindle due to competition from private firms, the service began issuing regulations for private mailbox patrons and sending inspectors in to root out fraud, although it never conducted any study showing that such fraud was a major problem.

Just as bad, the service also is forming "strategic alliances" with major competitors in these fields. In the mailbox field, its joined with Mail Boxes Etc., the biggest firm, to set a standard for addressing that disadvantages other private mail box firms. Its providing ground delivery service here in exchange for overseas air service from Airborne Express, and has even broached a deal for discounts with FedEx. And its eBillPay program is built with an alliance with CheckFree.

Such actions make the Postal Service the communication world's biggest predator. And the bottom line of its predation isn't better service for all, but less innovation and higher costs for everyone. For any success it achieves is likely merely to spread its gross inefficiency.

As the GAO pointed out, even with a productivity boost of 2.2 percent last year, its record this decade is a dismal 1.5 percent, compared to about 30 percent for the rest of the economy. All its automation and other investments have produced a net productivity gain over the past three decades of a mere 12.2 percent, less than a fifth that of the private sector.

What the service needs is not new electronic markets, nor the postal reforms it seeks to enter into other commercial enterprises. As a report by analysts headed by former Clinton administration and World Bank chief economist Joseph Stiglitz, hardly an enemy to government commercial activity, found: "Cross subsidizing universal mail service by entering a commercial market does not necessarily present sound public policy."

Indeed, the best policy may be to go entirely the other way -- privatize the Postal Service as has been done in the Netherlands and is being tried in Germany. That would make it compete on a more level playing field and encourage real innovation.

At the least, though, Congress should rein in the Postal behemoth from entering e-commerce markets filled ably by private firms. Its time for the Postal Service to pinch pennies itself, rather than squeeze them from customers or steal them from the private businesses with which they would unfairly compete.

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