The NY Times had yesterday a thought provoking article on the US Postal Services: “It’s Time to Stay the Courier” (NY Times, Aug 7th). It raises interesting questions on the role of the USPS and its viability in the short and long run. I am not sure I have simple answers to the questions it raises, but it seems that the author of the article believes he has. Just to give you a sense of the tone, the article ends with the following statement:
“The post office is not broken,” Mr. Potter insisted. But surely it is.
When thinking about the market for shipping letters and packages, three players come to mind: USPS, FedEx, UPS. Due to the postal monopoly, UPS and FedEx are not allowed to deliver non-urgent letters and may not use U.S. Mail boxes at residential and commercial destinations – but in my mind these are just properties of the service which you take into account when you make a decision which service to use: for the right price I will send every letter as urgently as I as can. These two firms and one quasi-government agency occupy different positions in this market: FedeX (and UPS) create value based on quality and speed (which are usually complemented with relatively high prices) while USPS creates value by charging a low price and delivering to every possible address in the US. You may find the next statement surprising (and of course somewhat simplistic), but USPS is on the operational frontier in this market, which I infer from the fact that there is no other firm that is willing to offer the same service for as low price as USPS charges. That of course does not mean that they are efficient, just that in the current market (and with the current regulatory restrictions) no one is interested in demonstrating that USPS is not efficient. In that respect, I am not sure I understand the following statement from the article: “Maybe the Postal Service should turn itself into a giant outsourcer, handling some tasks but handing out others, for a fee, to more efficient companies.” Efficient in what sense?
Now, it is difficult to argue that an organization that loses $7 billion dollar a year is efficient. Moreover, the NY Times article basically claims that while the USPS occupies this position, it might not be one that should be occupied. For example, maybe it is just too expensive to provide 6 days a week service to each location in the US for the low price of a stamp. I am not sure I have an answer for that.
On the other hand, the argument that Mr Potter, the nation’s postmaster general, makes is that “this country needs to have and to protect universal service. Our business is all about making sure every American can stay connected with every other American.” The author then ponders the obvious question “Don’t e-mail messages now do that?” Now, I am saying that this is an obvious question, since I use my email for most of my communication needs, I read this article on the on-line version of the NY-Times (even though I have a paper subscription I rarely read), and you are reading these lines on a blog. I guess that the author of the NY Times article suffers from the same “problem”, but I agree that someone has to think about these things. Is it necessary to have a postal service to ensure that every American is connected with every American? Many of the above questions can be answered only once this one is clarified.