Friday, November 14, 2008

The Post Office…The Lemonade Stand…and The Paperboy

A little over 3 years ago, in a different blog, I wrote a essay that was titled the same as this one. I wrote it because the US Post Office (USPS) was then $ 2 Billion in the red and had announced a rate increase from 37 cents to 39 cents. My problem, then as now, is that the USPS has become a "cheap advertisement service" that forces it's letter carriers to visit and deliver to every single address in America; making it the most labor intensive operation in the world. This nonsense is why they're in trouble.

Despite raising rates by 14% since 2005's 37 cents to today's 42 cents, the USPS now finds itself in even deeper debt. Yesterday, it was announced that their deficit is now nearly 50% higher than it was in 2005 with the current debt being $2.8 billion dollars (See Full Story). Obviously, rate increases aren't working. In fact, as rates go up, the volume of first class mail keeps going down as people find other ways such as fax, internet, email, phone calls, etc. to accomplish their business at a lower rate. Never in the history of the USPS did they ever lay people off. Now, surprisingly, with mail volumes dropping for years, staff reductions are being considered (See Full Story). However, the union personnel will escape the real axe. Instead, they will be offered cushy retirement packages. This means the Post Office will still be paying salaries in the form of retirement pay for those pseudo-let-go employee; albeit at a somewhat lower rate.

With this in mind, I would like to reprise that essay. It has as much bearing, today, as it did then:

In January of next year, the United States Postal Service (the United States Post Office before 1970) will raise the cost of a first class stamp from 37 cents to 39 cents. In doing so, they have already announced that they will still be $2 Billion in the red.

In 1970, the Postal Service became an independent agency of the Executive Branch of the Government. This was done with the intention that they would become financially self-sufficient. Prior to this, the Post Office was a cabinet position that reported to the President, and its operations were totally funded by the United States Government.

When you were a kid, you might have had a lemonade stand. You might have sold each glass of lemonade for, say, 25 cents or whatever seemed fair at the time. However, daddy and mommy covered the cost of the stand (the table, the chairs, the tablecloth, the umbrella, the signs, the balloons, and the crepe paper decorations). They also covered the cost of the lemonade and the glasses. If you took into account all the “mommy and daddy” costs, you would hardly be able to sell lemonade at 25 cents a glass and still make a profit! In many ways, the government was the “mommy and daddy” for the Post Office when it was spun off independently in 1970.

Since 1970, the new Postal Service found itself continually operating in the red. It has been bloated with labor and equipment. While it has tried to automate, it has always come back to “rate increases” as the means to try and get itself profitable. In 1970, the first class stamp sold for 6 cents. From then until the next postage increase in January, postal rates have gone up nearly 700%. With average inflation over the same period, they should have only raised rates by 350%. So, postal rates are growing at a rate double that of inflation.

In December of 2003, the President formed a Commission to try and figure out what is “so” wrong with the Postal Service and why they can’t become profitable. I don’t think you need a commission. Just use “this” example of a paperboy.

A paperboy delivers papers to the houses that bought subscriptions for the newspapers that he delivers. The paperboy’s salary is based on how many papers that he (or she) can deliver in a set amount of time; say, two hours before school. Included in this time is how many times he has to go back and refill the saddlebags of his bike. And, chances are, he is only delivering to one out of every four houses. Anyway, he is making money.

Now, the owner of the newspaper comes to the paperboy and says that he would like him to deliver to every house on his paper route. For the houses that don’t have subscriptions, he wants the paperboy to deliver just the inserts (the advertisements) from our normal newspaper. For those non-subscription houses, the paperboy would get one-fifth what he would normally get for delivering just a newspaper. At the same time, the paperboy finds out that some of his customers are canceling their papers because costs have gone up.

What the paperboy will find out fast is that he can’t deliver newspapers to some houses and all those inserts to every other house on his old route without help. Because of the increased amount of paper he needs more trips back to fill his saddlebags. In order to cover his old route with his new responsibilities, he would need the help of six or more people because his efficiency has been drastically reduced. In short, after paying all those additional people and after losing some full-fare customers, he would find out that he is making a lot less money than he did before.

In many ways, this is what is happening to the Postal Service. They keep raising rates on first class letters while trying to keep “junk mail” rates low. People and companies are finding the cost of first class just too high. As a result, these customers find alternatives like using Electronic Bill Payment and Receipt, email, or even just a phone call to accomplish what they used to do by mail. Meanwhile, the Postal Service has built a very costly system of people, trucks, buildings and equipment that has become increasingly dedicated to delivering cheap advertisements to every single house and business in the United States! You don’t need a commission to find out what is wrong with the Postal Service. Just ask the paperboy!

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