The heavily loss-making US Postal Service should re-define its Universal Service Obligation, charge higher rates for package delivery and cut costs to reverse its “unsustainable financial path” but should not be privatised, a long-awaited US government report has concluded.
Following criticism from President Trump that the US Postal Service is under-charging Amazon for delivering packages, the report commented: “Although the USPS does have pricing flexibility within its package delivery segment, packages have not been priced with profitability in mind.”
Any increase in package prices would raise delivery costs for Amazon and other shippers, with one consultant claiming a 10% price rise would hike Amazon costs by least $1 billion a year, US media reported.
The special Task Force report on the US postal system was released yesterday by the U.S. Department of the Treasury with a series of recommendations to overhaul the United States Postal Service’s (USPS) business model in order to return it to sustainability without shifting additional costs to taxpayers.
Over the last decade, between fiscal years 2007 and 2018, the US postal operator made total losses of $69 billion and, according to the government, is forecast to lose tens of billions of dollars more over the next decade. “The USPS’s business model—including its governance, product pricing, cost allocation, and labour practices—must be updated in light of its current operating realities,” the US Treasury stated.
Treasury Secretary Steven Mnuchin, who chaired the task force, declared: “The USPS is on an unsustainable financial path which poses significant financial risk to American taxpayers. President Trump tasked us with conducting a thorough evaluation of the USPS, and today’s report contains achievable recommendations that fulfil 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.”
The Task Force’s recommendations, according to a Treasury statement, include:
* Improving governance by strengthening the Board of Governors and developing enforcement mechanisms to ensure financial commitments and reforms are met;
* Clearly defining the Universal Service Obligation by specifying what are “essential postal services,” or types of mail and packages for which a strong social or macroeconomic rationale exists for government protection;
* Developing a new pricing model that removes price caps and charges market-based prices for both mail and package items that are not deemed “essential postal services”;
* Modernizing the USPS’s cost standards and cost allocation methodology; and pursuing cost-cutting strategies that will enable it to meet the changing realities of its business model;
* Reforming USPS employee compensation and restructuring retiree health benefit liabilities
The report also recommended that USPS should “explore new services … to extract value from its existing assets and business lines but that present no balance sheet risk”.
However, it ruled out any move into financial services. “Given the USPS’s narrow expertise and capital limitations, USPS should not pursue expanding into new sectors, such as postal banking, where the USPS does not have a demonstrated competency or comparative advantage, or where balance sheet risk would be added.”
Moreover, the report did not recommend any moves towards European-style postal privatisation. The White House proposed this summer that privatisation could be considered once the postal operator’s finances had been reformed. But influential labour unions mounted strong campaigns against such a move.
