Would the U.S. Postal Service Be Financially Stronger If It Sold Non-Postal Products?

From NCPA August 10, 2012

Electronic diversion, together with the Great Recession and its after-effects, has buffeted postal services throughout the world. Nevertheless, the majority of foreign posts in high- and medium-income countries have remained profitable in recent years, according to data from the Universal Postal Union. This has led to calls for the U.S. Postal Services (USPS) to mimic its foreign counterparts, says Michael Schuyler, a senior economist with the Institute for Research on the Economics of Taxation.

One potential source of revenue that some proponents have advocated is in non-postal commercial products. In a study for USPS, the consulting firm Accenture analyzed 25 foreign post offices and found that a much greater portion of their revenues are generated from this area of operations.

• Diversified products, such as non-postal services, contributed 63 percent of the foreign posts' total revenue in 2008, up from 49 percent in 2003.
• At only two-fifths of the foreign posts did diversified products contribute less than 40 percent of revenue in 2008.
• While these numbers may overstate the prevalence of non-postal goods in these countries, Accenture emphasizes that their sales do net a profit in most cases.

However, despite these supposed benefits, a deeper look at the benefits of moving into non-postal services suggests that this would be an unwise policy choice for the USPS.

• The USPS is able to offer some of the lowest postal rates in the world because it specializes in what it does best: postal services.
• The evidence suggests that those nations' postal services with large operations in non-postal goods required significantly higher postal rates in order to cover startup costs.
• Further, the profits on such services, while in the black, were below industry averages, suggesting that they replaced more efficient private sector activities.

Given this downside, the USPS should focus instead on correcting its more fundamental problems if it hopes to become profitable again:

• Limited ability to control costs because of congressional micromanagement.
• The financial stress of funding extremely generous retiree health benefits.
• Postal rates that are low by international standards.

If the USPS can resolve these problems, thereby streamlining operations and filling its dry coffers with fresh cash, it can help to gain ground on five consecutive years of deficits.

Source: Michael Schuyler, "Foreign Postal Services Sell Many Non-Postal Products; Would the U.S. Postal Service Be Financially Stronger If It Did the Same?" Institute for Research on the Economics of Taxation, July 30, 2012.

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