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Treasury task force seeks 'sustainable path forward' for USPS at expense of retailers


Letter carriers loading their trucks. (Travis Wise / CC BY 2.0 / MGN)

President Donald Trump has often accused Amazon and other online retailers of turning the United States Postal Service into their “delivery boy,” but a new report shows deliveries for e-commerce giants have become vital to the agency’s survival and experts fear reforms the administration is considering could damage that symbiotic relationship.

Since taking office, Trump has complained that he believes Amazon is taking advantage of the Postal Service, at times mingling those attacks with rants about The Washington Post, which Amazon founder Jeff Bezos also owns.

"Why is the United States Post Office, which is losing many billions of dollars a year, while charging Amazon and others so little to deliver their packages, making Amazon richer and the Post Office dumber and poorer?" Trump tweeted just after Christmas last year. "Should be charging MUCH MORE!"

An April executive order directed the Treasury Department to lead a task force evaluating USPS operations and finances. In an interview with The Daily Caller last month, President Trump directly linked the order to his concern that Amazon is “getting the bargain of the century” on shipping.

"I think that’s why I’ve asked for a review," he said.

The task force’s report, released Tuesday, presents a number of recommendations related to the Postal Service’s business model, labor practices, and delivery services with the goal of putting the agency on “a sustainable path forward.”

“President Trump tasked us with conducting a thorough evaluation of the USPS, and today’s report contains achievable recommendations that fulfill the President’s goal of placing the USPS on a path to sustainability, while protecting taxpayers from undue financial burdens and providing them with necessary mail services,” Treasury Secretary Steven Mnuchin said in a statement.

The Postal Service lost $69 billion between fiscal years 2007 and 2018, and tens of billions of dollars in additional losses are projected over the next decade.

“The recommendations of the Task Force, presented within this document, promote commerce and communications throughout the United States, without shifting additional costs to the taxpayers, and include proposed administrative and legislative reforms to create a sustainable business model for the USPS,” the report states.

Even if the task force appeared to be born out of President Trump’s animus toward Amazon, its final report offers a much broader assessment of the U.S. mail system’s troubles. Administration officials stressed to reporters that its findings do not target any one company, but experts say enacting its recommendations would drive up costs for Amazon and other e-commerce businesses.

“The bending over backwards to look for a way to squeeze more out of e-commerce is the worst part of the report,” said Edward Hudgins, a postal policy expert and research director at the Heartland Institute.

The mail stream has changed dramatically over the last two decades with the explosion of online shopping, the advent of online bill-paying and the slow death of letter-writing. Some business has shifted to private delivery services, but the USPS is still often the only option for so-called last-mile delivery to customers’ doors, especially in rural areas.

“E-commerce has been an incredible American success story, so the one thing you don’t want the Postal Service to do is to penalize and cripple that success,” Hudgins said.

Despite Trump’s claims that taxpayers are being ripped off, the task force confirmed commercial shipping for companies like Amazon has become one of the few areas where post offices are not losing money.

Bulk customers like Amazon negotiate discounted shipping rates with the Postal Service, but by law they must at least cover the actual cost of shipping. The terms of USPS contracts with specific companies are confidential, but the independent Postal Regulatory Commission reviews them regularly to ensure they are not losing money.

“Even though the package delivery is covering its costs, the Postal Service wants to change that,” Hudgins said of the report’s recommendations. “They’re saying instead of just doing that, we want to make it profitable.”

The Postal Service is a unique creature in several ways. It holds the monopoly on delivery of most letter mail, but it also has a mandate to provide that delivery to every home in the country. That “universal service obligation” (USO) is not explicitly defined by statute, but Congress has generally interpreted it in recent years as requiring service six days a week at or above the level provided in 1983.

“Currently the USO is roughly defined as delivery to every address six days per week,” said R. Richard Geddes, a visiting scholar at the American Enterprise Institute and a professor at Cornell University. “That’s a very expensive mandate for the USPS to meet. Given the changing composition of the mail toward much more commercial material, it’s not clear a six day a week obligation is still socially desirable.”

The task force recommends redefining the Postal Service’s USO to provide greater flexibility in frequency, type, and pricing of delivery services. It also suggests capping prices for mail and packages deemed essential services while developing a market-based pricing model for commercial packages. Drawing that distinction could be problematic, but the report posits things like tax documents or medication might be considered essential, but most e-commerce shipments would face higher prices.

Another distinctive feature of the Postal Service that the task force attempted to grapple with is the collective bargaining power postal workers have that most other federal workers do not. The USPS is also required to pre-fund retiree health benefits, and it has already fallen billions of dollars behind on those payments.

“Probably the hardest thing to deal with is the labor cost,” Hudgins said.

The task force recommends eliminating collective bargaining power and aligning workers' compensation with the rest of the federal workforce. It does not call for changing the structure of retiree benefits, but it does seek a new actuarial model for determining pre-payment amounts.

Initial reactions to the task force’s findings have been mixed, with some interest groups applauding the effort to lift a financial burden off taxpayers and others warning that the recommended changes would be harmful to commercial shippers and consumers.

“After 12 consecutive years of losses, only market-oriented reforms can save the USPS from a grim fiscal fate,” said Leslie Page, vice president of Citizens Against Government Waste, in a statement. “We concur with the task force’s conclusion that USPS must immediately right-size its operations by cutting costs and expanding its logistical partnerships with the private sector.”

David Williams, president of the Taxpayers Protection Alliance, said the report should give the USPS “a welcome push” toward reform, and he specifically mentioned Amazon as a beneficiary of the agency’s current flawed practices.

“No blueprint for postal reform would be complete without a comprehensive plan to clamp down on subsidies, including crony arrangements benefiting Amazon and Stamps.com,” Williams said. “The task force report rightly points out that the Postal Service’s pricing for packages is outdated.”

However, Marvin Bakalar, founder and president of American Postal Owners, predicted “disastrous consequences for rural area post offices” if the recommendations are adopted and suggested House members from rural districts will never let that happen.

“Therefore, I have total confidence in the report becoming a lot of waste paper,” Bakalar said. “I might add, the Postal Service, founded by Benjamin Franklin, was never meant to operate as a profit-making corporation, but it has always been meant to provide a system of nationwide communications.”

The report is already getting pushback from labor over the proposed changes to collective bargaining powers and potential service cuts that would inevitably lead to job losses.

“NALC totally rejects this attack on hard-working American workers and we are confident that bipartisan majorities in both houses of Congress will too,” said National Association of Letter Carriers President Fredric Rolando in a statement.

There has long been a broad bipartisan consensus in Washington that the Postal Service’s business model is broken. What to do about it is a more complicated question.

Several Postal Service reform bills have died in Congress in recent sessions, including bipartisan legislation introduced in the Senate in March. Over the summer, Sen. Bernie Sanders, I-Vt., sent a letter to Mnuchin urging changes like ending the pre-funding mandate for retiree benefits and allowing post offices to offer new services like banking.

The Obama administration also considered the idea of postal banking, and Sen. Kirsten Gillibrand, D-N.Y., introduced legislation that would have allowed it. However, the Trump task force said the USPS should not pursue services in sectors like banking where it does not have a comparative advantage and where it would risk financial losses.

Although the Trump administration has previously flirted with the idea of privatizing the Postal Service, the task force stops short of that. The report evaluates the experiences of other countries that turned their mail systems over to the private sector, but it notes the size and complexity of the U.S. system make direct comparisons difficult.

According to Geddes, privatization might be an option sometime down the road, but the USPS has billions of dollars’ worth of unfunded liabilities that would scare away investors today. For now, he favors commercialization efforts like offering new services and forming more partnerships with private businesses. One possibility also mentioned by the task force was charging delivery services for access to mailboxes.

“It’s illegal for another company to put material in your mailbox,” Geddes said, and the Postal Service can monetize that monopoly.

Hudgins observed USPS is already moving in the direction of work-sharing and contracting out services. Sorting and transportation of mail can efficiently be farmed out—companies like Amazon do a lot of that work themselves now—but postal workers can still handle last-mile delivery.

“I’ve been one of the big advocates in the past of some form of real privatization,” he said.

Others are more skeptical of privatization in principle. In his July letter to Mnuchin, Sen. Sanders said it would be “a disaster.”

“If the goal of the Postal Service is to make as much money as possible,” Sanders told The Nation at the time, “tens of millions of people, particularly low-income people and people in rural areas, will see a decline in or doing away with basic mail services.”

The task force’s recommendations are broken down into administrative and legislative fixes. The postmaster general and the Postal Service Board of Governors can implement some of the administrative reforms, but other changes will require the cooperation of a divided Congress.

Trump left the Board of Governors empty for his first 18 months in office, but he has now nominated three people for the nine-seat board, two of whom have been confirmed by the Senate.

Raising commercial shipping rates may offer a short-term fix since USPS is still the only viable service available to provide delivery in many areas. However, Amazon and other companies are developing their own direct delivery mechanisms, including aerial drones and self-driving vehicles.

Those methods are years away from becoming operational, but Amazon has already begun delivering to designated pick-up points and leaving packages in customers’ cars. Hiking postal shipping costs threatens to accelerate that trend and hasten the decline of mail service in its current form.

“What the future will bring, frankly, I don’t know. If we were having this conversation 20 years ago, we didn’t know what was going to happen in terms of the communication and technological revolution,” Hudgins said. “I imagine in 20 or 30 years the Postal Service as we know it is probably going to be unrecognizable.”

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