Friday, December 16, 2011

USPS

Our semester project was on the United States Postal Service, and it was extremely interesting to do because the extent of the government intervention as one of the main drivers of their current crisis. Having a political science background, it was interesting to work at the nexus between politics and business and asses the results. While the USPS has problems of its own including the maintenance cost of over 36,000 offices ( more than McDonald’s, Starbucks, and Walmart combined), it has also been seriously affected by government regulation since President Nixon signed the 1970 Postal Reorganization Act that not only established that USPS should pay extremely expensive benefits for its employees ( about ten percent more than other government agencies), but also that it should leave the logistics and parcel market to private companies like UPS and FedEx. The 1970 legislation contributed to the Postal Service’s inability to profit from the rise of online shopping given that its competitors were able to establish exclusive deals with profitable online stores without having to mend legislation as the USPS would have been required to do.

Moreover, an assessment of the USPS current strategy ( one of the parts I chose to cover for the report) reveals weaknesses in the areas of 1) government relations; 2) location, and 3) the policy to drive to every location. The relationship between USPS and the federal government has been extremely tense in the past few years, and many believe that USPS’s current crisis a government-created on. The Postal Enhancement and Accountability Act of 2006 mandated that USPS should pay the health benefits for its retirees at least 75 years in advance, and therefore pay $5.6 billion per year for a period of ten years. USPS, however, had overpaid its previous obligations to the government to the extent that the government owes USPS $75 billion. They are negotiating on the terms of receiving that money back, and the government asked that they do not perform any budget cuts until May 2012. Thusfar, government intervention has only exacerbated the crisis and kicked the can further down the road for USPS to settle in 2012.

With regard to the number of locations, USPS currently runs over 36,500 offices throughout the county, a number that far exceeds that of Walmart, Starbucks, and McDonald’s combined. USPS is not currently allowed to close any of its offices for lack of revenue, and also holds some of the most expensive real estate in the country. Our analysis suggests that USPS ought to employ many of the strategies adopted by Deustche Post in the past two decades. They sold all but 24 of their 29,000 offices and currently operate out of pharmacies, convenience stores, and gas stations so as to save on rent costs as well as the cost of paying union workers since the kiosks are operated by the workers at the respective location.

Lastly, delivering mail to every home is embedded in USPS culture, yet it may be time to revise that goal. It would be more cost effective for USPS to designate town centers with P.O. Boxes instead of driving long distances between homes in rural America. The drop-off location is usually a well-known spot that members of that community frequent, and delivering the mail there instead is likely to save both time and resources. The answers to the USPS problem are not easy mainly because it is not allowed to operate like a business. Our recommendations will have to be approved by government and will be highly unpopular with some of the largest unions in the country, so there is really no telling how it will be resolved.

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