Last year, the United States Postal Service (USPS) began plans to expand its delivery capabilities, moving into the grocery delivery business in a test markets. It started with a partnership with Amazon Fresh in San Francisco, delivering groceries in the early morning hours to customers. Now, the Postal Regulatory Commission has signed off on further test markets, allowing the USPS to expand its grocery delivery offerings. This comes on the heels of other failed USPS delivery experiments, like same day delivery in New York and San Francisco, which was only able to deliver 95 packages over 5 months and, in the process, lose $100 for each delivered package.
Some are questioning why the USPS is moving into new businesses and what that means with its monopoly power and ability to tap into government subsidies when competing with private companies already flourishing in the market.
Peapod is one grocery delivery service that’s been in business since 1989, operating cost effectively and profitably. Other players have gotten into the grocery delivery game, including Instacart, which has raised over $274 million in venture capital funding to basically be the “Uber” for groceries.
With the thriving private market for grocery delivery, why is the USPS expanding into areas already service by the private sector? The fear of many is that the USPS can use profits from its monopoly protected first-class mail service to drop its prices in competitive markets – including standard mail parcels, mail flats and now grocery delivery – and force competitors out of the marketplace.
The USPS has been bleeding money for years. While not technically directly funded by the government since 1971, the USPS does receive about $100 million per year from the government to fund services provided to the government. Additionally, the USPS borrows money from the US Treasury, which in September 2012 hit $15 billion.
In total, USPS has lost $50 billion in the last eight years. With constant discussion of a USPS bailout to cover these losses, why continue to add services certain to add to the losses, only to be eventually covered by taxpayers? What is even worse is that all of these new ventures are currently being better served by private companies. It’s quite puzzling.
The USPS will explain that it believes it can provide these services efficiently, because it already has the trucks and personnel. However, if the Postal Service is losing money, why do they have more trucks and personnel that they ultimately need?
The USPS was established to deliver first class mail across the country, for which it was granted a monopoly. By using that monopoly power and its direct access to government credit, it can throw its weight around and offer low cost services subsidized by the taxpayer to drive competition out of the market. This is bad news for consumers who will see rising costs and for taxpayers who will ultimately be on the hook for the bailout.
The postal service should end its attempts compete with the private sector or be required to give up its monopoly. Better still, they should concentrate solely on making money at what it was originally chartered to do—deliver the mail.
Zack Christenson writes for the American Consumer Institute Center for Citizen Research, a nonprofit educational and research organization. For more information, visit www.theamericanconsumer.org.