While we are well into the new year, but not much has changed at the U.S. Postal Service. The agency continues to hemorrhage cash, miss quality of service targets, and accrue massive unfunded liabilities. In fiscal year 2018, the USPS reported $3.9 billion in losses — the latest in a decade-long trend of deepening operating deficits.
And it’s not just financial. The Postal Regulatory Commission (PRC) found that in 2017 that USPS met just one of its seven targets for high-quality service performance — an uptick compared to 2016, but still dismal.
The USPS also failed to meet two-thirds of its targets related to customer satisfaction. Point-of-sale surveys of post office customers in 2017 revealed that 10 percent of respondents were dissatisfied with their experience, while 17 percent of those receiving mail or packages were dissatisfied. These findings follow years of disappointing delivery and customer service quality indicators.
On top of that, there are concerns that the USPS is leveraging its government-enforced monopoly on letter mail to support its other services, especially package delivery, where it competes with private sector rivals like UPS and FedEx. To support its monopoly operations, the USPS enjoys exclusive access to residential mailboxes and office building mailrooms, as well as exemptions from vehicle registration fees, road tolls, fuel taxes, and parking tickets.
These special benefits apply to the USPS’s competitive operations as well, giving it a crucial edge over its private competitors. Since the same facilities, workers, and vehicles support both its monopoly and its competitive services, it’s easy for the USPS to indirectly cross-subsidize its competitive operations using its monopoly privileges, in violation of federal law. Conservative estimates suggest these cross-subsidies could exceed $5 billion per year.
In practice, these cross-subsidies translate to higher prices for the USPS’s captive monopoly customers — as is being proposed once again — in order to undercharge competitive customers and undercut private shipping firms.
The USPS is using its monopoly power to distort the private delivery market, reducing demand for otherwise lower-cost services from private firms and deterring investment that would create jobs and innovation. Consumers are doubly harmed — once by being made to overpay for monopoly services, and again by being deprived of greater private sector competition and efficiency in package delivery.
Congress and the PRC, which oversees the USPS, have failed to intervene to stop this cross-subsidization. The USPS’s competitive operations are required to cover costs that can be attributed exclusively to those operations, as well as a certain percentage the USPS’s total institutional costs which cannot be attributed to any specific operation, but this requirement lacks teeth.
The USPS claims that nearly half of its costs are not attributable to either its monopoly or competitive services. And while competitive services are obligated to cover a certain percentage of the agency’s institutional costs, the minimum contribution — long set at 5.5 percent but expected to gradually increase due to new PRC rules — is far too low, considering the USPS has sharply expanded its competitive services, which now make up 30% percent of the agency’s total revenues.
The USPS should stop price-gouging its customers who rely on the monopoly services that constitute the core of its mission. If the USPS wants to retain its competitive line of business at all, it should keep separate books to ensure that competitive products are paying their share of USPS’s operational costs and not unfairly stifling the private market.