Why Is the U.S. Postal Service So Unprofitable?

Answers to your questions about the news.
Feb. 7 2013 2:29 PM

Why Doesn’t the Postal Service Make Money?

What do UPS and FedEx know that the USPS doesn’t?

U.S. Postal Service clerk helps a customer.
U.S. Postal Service clerk Roger Lozano helps a customer with his packages at the Los Feliz Post Office on Thursday in Los Angeles.

Photo by Kevork Djansezian/Getty Images

The U.S. Postal Service announced Wednesday that it would end Saturday letter delivery beginning in August. The change reportedly will save the USPS $2 billion annually. UPS and FedEx post profits fairly regularly. Why can’t the Postal Service make money delivering mail?

Because it got complacent holding a monopoly. The U.S. Postal Service has a legal monopoly on the non-urgent delivery of letters. It used to be an extremely valuable asset. The monopoly was so valuable, in fact, that the agency built its future around the lucrative first-class letter business. With the profits from first-class mail, the Postal Service priced the delivery of newspapers and magazines at well below cost. In 2006 alone, the USPS subsidized periodicals to the tune of $273 million. The profits from first-class letter monopoly also allowed the Postal Service to stand by while private companies dominated the now crucial parcel-delivery business. The Internet eventually made letters obsolete; gas prices surged; and health care and retirement costs rose beyond projections, turning letter delivery from a cash cow into a burden. (The true cost of delivering a letter is likely more than twice what we now pay.) The collapse of first-class mail was inevitably going to damage the agency. Many observers believe, however, that the Postal Service could have survived those challenges, and even prospered like other delivery companies, if it hadn’t relied so heavily on the profits from its exclusive letter-delivery business.

The monopoly is a curse in another way: When the government grants a monopoly, it demands the right to regulate in return. The Postal Service has to petition the Postal Regulatory Commission, and sometimes Congress, whenever it wants to make a substantial change to its business model. Federal officials have opposed attempts to save money by closing remote post offices and cutting Saturday delivery in the past. The USPS also has the government looking over its shoulder in labor negotiations.

Advertisement

Most postal experts believe the USPS has to behave more like a private agency if it’s to stop losing billions of dollars every year. Competitors, however, won’t accept deregulation of the Postal Service as long as it holds its monopoly on first-class mail. (The USPS holds a second monopoly on access to mailboxes, which it would also have to give up.) As a private business with less federal oversight, the Postal Service could respond more nimbly to market demand. Consider package delivery, a business that the USPS is now aggressively pursuing. Private carriers charge substantially more to deliver parcels to rural locations. According to the UPS website, the lowest rate to deliver a four-pound package from New York City to White Owl, S.D., is $20.51. The Postal Service, which is under pressure from the federal government to provide affordable service to remote locations, charges just $12.07 to deliver the same box. A less-regulated Postal Service could also impose surge-pricing for periods like the holidays or could rearrange delivery schedules to satisfy periodic changes in demand.

Deregulation advocates point to European Union postal services, all of which are either private or about to become private. Germany privatized its mail service in 1995, and it has since combined with DHL to become the world’s largest logistics company.

Got a question about today’s news? Ask the Explainer.

Explainer thanks R. Richard Geddes of Cornell University and James S. O’Rourke of the University of Notre Dame.

Brian Palmer writes about science, medicine, and the environment for Slate and the Natural Resources Defense Council. Email him at explainerbrian@gmail.com. Follow him on Twitter.

TODAY IN SLATE

Politics

The Right to Run

If you can vote, you should be able to run for public office—any office.

Move Aside, Oxford Comma, the New Battle Is Over Single or Double Quotes

Renée Zellweger’s New Face Is Too Real

Sleater-Kinney Was Once America’s Best Rock Band

Can it be again?

Ben Bradlee’s Fascinating Relationship With JFK

Culturebox

The Simpsons World App Is Finally Here

I feel like a kid in some kind of store.

Technology

Driving in Circles

The autonomous Google car may never actually happen.

My Father Invented Social Networking at a Girls’ Reform School in the 1930s

How Punctual Are Germans?

  News & Politics
The World
Oct. 22 2014 11:57 AM Why Wasn't the WHO Ready for Ebola?
  Business
Moneybox
Oct. 21 2014 5:57 PM Soda and Fries Have Lost Their Charm for Both Consumers and Investors
  Life
Atlas Obscura
Oct. 22 2014 12:03 PM Colonia Fara: An Italian Summer Camp for Happy Little Fascists
  Double X
The XX Factor
Oct. 21 2014 1:12 PM George Tiller’s Murderer Threatens Another Abortion Provider, Claims Right of Free Speech
  Slate Plus
Working
Oct. 22 2014 6:00 AM Why It’s OK to Ask People What They Do David Plotz talks to two junior staffers about the lessons of Working.
  Arts
Behold
Oct. 22 2014 11:04 AM Do All U.S. Presidents Look the Same? What About Japan’s Prime Ministers?
  Technology
Technology
Oct. 22 2014 10:29 AM Apple TV Could Still Work Here’s how Apple can fix its living-room product.
  Health & Science
Science
Oct. 22 2014 11:30 AM Where Does Ebola Hide? My nerve-wracking research with shrieking bats.
  Sports
Sports Nut
Oct. 20 2014 5:09 PM Keepaway, on Three. Ready—Break! On his record-breaking touchdown pass, Peyton Manning couldn’t even leave the celebration to chance.